Source: 2005
Released by the Bureau for International Narcotics and Law Enforcement Affairs
I. Summary
Although Indonesia is not a major drug producing, consuming, or drug transit country, Indonesia continues to have a growing problem in all three areas. The Indonesian National Police (INP) have participated in several international donor-initiated training programs and continue to commit increased resources to counternarcotics efforts. The INP has received U.S. assistance, including vehicles, software, safety and tactical equipment to support its efforts against crime and drugs. INP efforts are firmly based on counternarcotics legislation and international agreements. The INP relies heavily on assistance from major international donors, including the U.S. Indonesia is a party to the 1988 UN Drug Convention.
II. Status of Country
All major groups of illegal drugs are readily available in Indonesia: methamphetamine, in its crystalline and tablet forms, Ecstasy (MDMA), heroin, cocaine, and marijuana. The INP reports that the majority of heroin seized in Indonesia originates in Afghanistan. Indonesian authorities report that much of the heroin trade in Indonesia is controlled and directed by West African and Nepalese traffickers, often utilizing Thailand and Singapore as transit points for their couriers. Methamphetamine used in Indonesia is both imported and produced by domestic clandestine laboratories. According to reports, MDMA is primarily imported from the Netherlands; however, clandestine MDMA labs have been seized in Indonesia. Marijuana is produced domestically, harvested in North Sumatra, especially in Aceh province. In the past, INP has alleged that the Free Aceh Movement (GAM), a separatist movement, is involved in marijuana production to support its operations. Recent eradication operations by the INP, which have led to major seizures, and arrests seem to confirm this. INP reported the seizure of over 40 tons of marijuana and the arrest of a number of GAM members who were guarding marijuana production fields as a result of these operations. According to the INP, GAM levies a tax on marijuana production, which is controlled primarily by trafficking organizations based in Jakarta. Although cocaine seizures continue to occur in major Indonesian airports, the market for cocaine in Indonesia is believed to be very small.
III. Country Actions Against Drugs in 2004
Policy Initiatives. The Indonesian counternarcotics code is sufficiently inclusive to enable police, prosecutors, and the judiciary to arrest, prosecute, and adjudicate narcotics cases; however, the continued lack of modern detection, enforcement and investigative methodologies and technology, as well as the presence of pervasive corruption, are the greatest obstacles to advancing counternarcotics efforts.
Accomplishments/Law Enforcement Efforts. The National Narcotics Board (BNN) continues to strive to improve interagency cooperation in drug enforcement, interdiction, and precursor control. In 2004, BNN revised its mission statement to place more emphasis on improvement of enforcement efforts by Indonesian law enforcement agencies. Within the coordinating authority of BNN, plans have been developed for a Joint Interagency Counterdrug Operations Center and Network. The purpose of this program would be to improve coordination and information exchange between various Indonesian law enforcement agencies related to drug enforcement.
The INP Narcotics and Organized Crime Directorate continues to improve its ability to investigate and dismantle international drug trafficking syndicates. The Narcotics Directorate has become increasingly active in regional targeting conferences designed to coordinate efforts against transnational drug and crime organizations. The maritime counternarcotics effort depends on a myriad of Indonesian law enforcement agencies. Efforts to define the roles of these agencies, including the Navy and the INP Air and Sea police continue in an effort to avoid duplication. The Indonesian courts have sentenced approximately 21 drug traffickers to death since January 2000. In 2004, the Indonesian government began to carry out these sentences, executing three individuals.
Agreements and Treaties. Indonesia is a party to the 1988 UN Drug Convention, the 1971 UN Convention on Psychotropic Substances, and the 1961 UN Single Convention, as amended by the 1972 Protocol. Indonesia has signed, but has not yet ratified, the UN Convention on Transnational Organized Crime, and is a signatory to the UN Convention Against Corruption.
Cultivation/Production. Indonesia produces significant amounts of marijuana; however, most is believed to be for domestic consumption.
Corruption. As a matter of government policy and practice, the GOI does not encourage or facilitate the illicit production or distribution of drugs or the laundering of proceeds from illegal transactions. Corruption in Indonesia, however, is endemic, despite its domestic laws, and seriously limits the effectiveness of all law enforcement, including narcotics law enforcement. The recently elected administration has made anticorruption efforts a major policy initiative.
IV. U.S. Policy Initiatives and Programs
Bilateral Cooperation. Indonesia and the United States maintain excellent law enforcement cooperation on narcotics cases. During 2004, the United States sponsored hundreds of INP officers to attend training at the International Law Enforcement Academy (ILEA) in Bangkok, and to State department-funded training in Indonesia. In 2004, DEA provided training in the areas of drug intelligence analysis and precursor control. Indonesia continues to work closely with the DEA regional office in Singapore in narcotics investigations.
The Road Ahead. In 2005, the U.S. will assist the BNN and its member agencies in developing the Counterdrug Operations Center and Network. The goals of the project are to standardize and computerize the reporting methods related to narcotics investigations and seizures, to develop a drug intelligence database, and to build an information network designed to connect all of the provinces of Indonesia.
Although neither a regional financial center nor an offshore financial haven, Indonesia is vulnerable to money laundering and terrorist financing due to a poorly regulated financial system, the lack of effective law enforcement and widespread corruption. Most money laundering in the country is connected to non-drug criminal activity such as gambling, prostitution, bank fraud or corruption. Indonesia also has a long history of smuggling, facilitated by thousands of miles of un-patrolled coastline and a law enforcement system riddled with corruption. The proceeds of these illicit activities are easily parked offshore and only repatriated as required for commercial and personal needs.
The Financial Action Task Force (FATF) included Indonesia on the list of non-cooperating countries and territories (NCCT) at its June 2001 plenary. The designation was based on the following: Indonesia had no basic set of anti-money laundering provisions, money laundering was not a criminal offense, there was no reporting of suspicious transactions to a Financial Intelligence Unit (FIU), and recently introduced customer identification requirements only applied to banks. The U.S. Treasury Department issued an advisory to all U.S. financial institutions instructing them to "give enhanced scrutiny" to all transactions involving Indonesia; the advisory is still in effect. Based on the Government of Indonesia,s (GOI) progress in addressing its concerns, the FATF plans to conduct an on-site visit to Indonesia in early 2005.
In April 2002, Indonesia passed Law No. 15 on Criminal Acts of Money Laundering, Indonesia,s anti-money laundering (AML) law, which made money laundering a criminal offense. The law identifies 15 predicate offenses related to money laundering, including narcotics trafficking and most major crimes. The law provides for the establishment of a Financial Intelligence Unit (FIU), the Center for Reporting and Analysis of Financial Transactions (PPATK), to develop policy and regulations to combat money laundering. The PPATK was established in December 2002 and has been operational since October 2003.
The PPATK is an independent agency that receives, maintains, analyzes, and evaluates currency and suspicious financial transactions, provides advice and assistance to relevant authorities, and issues publications. As of December 2004, the PPATK has received over 1,200 suspicious transaction reports (STRs) from banks and non-bank financial institutions and referred 237 STRs to the police. The police have investigated a number of cases and referred 36 to the Attorney General. Indonesia has successfully prosecuted one money laundering case and two criminal cases predicated on money laundering offences. In September 2003, Parliament passed an Amending Law to the 2002 Anti-Money Laundering Law that addressed many FATF concerns. Based on this substantial progress, the FATF invited Indonesia to submit an Anti-Money Laundering Regime Implementation Plan in February 2004. The Amending Law provides a new definition of the crime of money laundering making it an offense for anyone to deal intentionally with assets known or reasonably suspected to constitute proceeds of crime with the purpose of disguising or concealing the origins of the assets, as seen in Articles 1(1) and 3. The Amending Law removes the threshold requirement for proceeds of crime and expands the definition of proceeds of crime to cover assets employed in terrorist activities. Article 1(7)(c) expands the scope of regulations requiring STRs to include attempted or unfinished transactions. Article 12A introduces a scheme of administrative sanctions (in addition to criminal sanctions) for failure to file STRs. Article 13(2) shortens the time to file an STR to three days or less after the discovery of an indication of a suspicious transaction. Article 17A makes it an offense to disclose information about the reported transactions to third parties, which carries a maximum of five years, imprisonment and a maximum of one billion rupiah (approximately $111,000). Articles 44 and 44A provide for mutual legal assistance, with the ability to provide assistance using the compulsory powers of the court. Article 44B imposes a mandatory obligation on the PPATK to implement provisions of international conventions or international recommendations on the prevention and eradication of money laundering.
Bank Indonesia (BI), the Indonesian Central Bank, issued Regulation No. 3/10/PBI/2001, "The Application of Know Your Customer Principles," on June 18, 2001. This regulation requires banks to obtain information on prospective customers, including third party beneficial owners, and to verify the identity of all owners, with personal interviews if necessary. The regulation also requires banks to establish special monitoring units and appoint compliance officers responsible for implementation of the new rules and to maintain adequate information systems to comply with the law. Finally, the regulation requires banks to analyze and monitor customer transactions and report to the BI within seven days any "suspicious transactions" in excess of Rp 100 million (approximately $11,100). The regulation defines suspicious transactions according to a 39-point matrix that includes key indicators such as unusual cash transactions, unusual ownership patterns, or unexplained changes in transactional behavior. The BI specifically requires banks to treat as suspicious any transactions to or from countries "connected with the production, processing and/or market for drugs or terrorism."
Until recently, banks and other financial institutions did not routinely question the sources of funds or require identification of depositors or beneficial owners. Financial reporting requirements were put in place only in the wake of the financial crisis when the GOI became interested in controlling capital flight and recovering foreign assets of large-scale corporate debtors or alleged corrupt officials. The BI has issued an Internal Circular Letter No. 6/50/INTERN, dated September 10, 2004 concerning Guidelines for the Supervision and Examination of the Implementation of KYC and AML by Commercial Banks. In addition, BI also issued a Circular Letter to Commercial Banks No. 6/37/DPNP dated September 10, 2004 concerning the Assessment and Imposition of Sanction on the Implementation of KYC and other Obligation Related to Law on Money Laundering Crime. The BI is also preparing Guidelines for Money Changers on Record Keeping and Reporting Procedures and Money Changer Examinations given by BI examiners.
Currently, banks must report all foreign exchange transactions and foreign obligations to the BI. Individuals who import or export more than Rp 50 million in cash (approximately $5,550) must report such transactions to Customs. The PPATK is currently drafting presidential decrees that would protect individuals and witnesses who cooperate with law enforcement entities on money laundering cases. Indonesia,s bank secrecy law covers information on bank depositors and their accounts. Such information is generally kept confidential and can only be accessed by the authorities in limited circumstances. However, Article 27(4) of the AML Law now expressly exempts the PPTAK from "the provisions of other laws related to bank secrecy and the secrecy of other financial transactions" in relation to its functions in receiving and requesting reports and conducting audits of providers of financial services. In addition, Article 14 of the AML law exempts providers of financial services from bank secrecy provisions when carrying out their reporting obligations, and Article 15 of the AML law gives providers of financial services, their official and employees protection from civil or criminal action in making such disclosures.
Indonesia,s laws provide only limited authority to block or seize assets. Under BI regulations 2/19/PBI/2000, police, prosecutors, or judges may order the seizure of assets of individuals or entities that have been either declared suspects, or indicted for a crime. This does not require the permission of BI, but, in practice, for law enforcement agencies to identify such assets held in Indonesian banks, BI,s permission would be required. In the case of money laundering as the suspected crime, however, bank secrecy laws would not apply, according to the anti-money laundering law. The PPATK has also signed seven memoranda of understanding (MOUs) to assist in financial intelligence information exchange with the following entities: Bank Indonesia, the Capital Market Supervisory Agency (Bapepam), the Directorate General of Financial Institutions, Directorate General of Tax, the Center for International Forestry Research, and the Anti-Corruption Agency.
The GOI does have the authority to trace and freeze assets of individuals or entities on the UNSCR 1267 Sanctions Committee,s consolidated list, and through the BI, has circulated the consolidated list to all banks operating in Indonesia, with instructions to freeze any such accounts. The interagency process to issue freeze orders, which includes the Foreign Ministry, Attorney General, and BI, takes several weeks from UN designation to bank notification. The GOI, to date, reports that it has not found any assets of entities or individuals on the consolidated list.
The October 18, 2002, emergency counterterrorism regulation, the Government Regulation in Lieu of Law of the Republic of Indonesia (Perpu), No. 1 of 2002 on Eradication of Terrorism criminalizes terrorism and provides the legal basis for the GOI to act against terrorists, including the tracking and freezing of assets. The Perpu provides a minimum of three years and a maximum of 15 years imprisonment for anyone who is convicted of intentionally providing or collecting funds that are knowingly used in part or in whole for acts of terrorism. This regulation is necessary because Indonesia,s anti-money laundering law criminalizes the laundering of "proceeds" of crimes, but it is often unclear to what extent terrorism generates proceeds. In October 2004, an Indonesian court convicted and sentenced one Indonesian to four years in prison on terrorism charges connected to his role in the financing of the August 2003 bombing of the Jakarta Marriott Hotel.
The GOI has just begun to take into account alternative remittance systems or charitable or nonprofit entities in its strategy to combat terrorist finance and money laundering. The PPATK has issued guidelines for non-bank financial service providers and money remittance agents on the prevention and eradication of money laundering and the identification and reporting of suspicious and other cash transactions.
Indonesia is a member of the Asia/Pacific Group on Money Laundering (APG) and the Bank for International Settlements. The BI claims that it voluntarily follows the Basel Committee,s "Core Principles for Effective Banking Supervision." The GOI is a party to the 1988 UN Drug Convention, and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. Indonesia has signed, but not yet become a party to, the UN International Convention for the Suppression of the Financing of Terrorism.
In June 2004, Indonesia became a member of the Egmont Group and, as such, is bound to share financial intelligence with other members in accordance with the organization,s charter. The AML law contains specific provisions (Article 44 and 44 A) that provide for mutual legal assistance with respect to money laundering cases. The Ministry of Justice and Human Rights has produced a draft Mutual Legal Assistance (MLA) Law that now awaits the President and Parliament,s approval. Until this legislation is formally passed, the GOI uses informal procedures to facilitate MLA from other states. The PPATK has memorandums of understanding with Thailand, Malaysia, Republic of Korea, Philippines, Romania, and Australia. The PPATK has also entered into an Exchange of Letters enabling international exchange with Hong Kong. As the Chair of the ninth ASEAN Summit, Indonesia has launched a plan of action, which includes establishing a Mutual Legal Assistance Treaty among ASEAN countries. The Indonesian Regional Law Enforcement Cooperation Centre was created to develop the operational law enforcement capacity needed to fight transnational crimes.
The Government of Indonesia should continue its steady progress in developing a credible and effective anti-money laundering regime. In particular, it must improve interagency cooperation in investigating and prosecuting cases. In this regard, Indonesia should review the adequacy of its Code for Criminal Procedure and Rules of Evidence and enact legislation to allow the use of modern techniques to enter evidence in court proceedings. Indonesia should also enact mutual legal assistance legislation as soon as possible and cooperate closely with other countries in providing and receiving this assistance. Indonesia should review and streamline its process for reviewing UN designations and identifying, freezing and seizing terrorist assets. Indonesia should become a party to the UN International Convention for the Suppression of the Financing of Terrorism. It should ratify the UN Convention against Transnational Organized Crime.