Source: 2006
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. Marijuana production for the domestic market is large, because marijuana is widely abused among Indonesia's large population. In addition, recent large seizures point to ecstasy production in Indonesia, as well. The Indonesian National Police (INP) has participated in several international donor-initiated training programs and continues 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 for training and equipment, 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, MDMA (ecstasy), 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. In recent years, there has been a significant increase in the domestic large scale (multi hundred kilogram quantities) production of methamphetamine and MDMA in Indonesia. Indonesian authorities report that the domestic production of methamphetamine and MDMA in Indonesia is controlled by Indonesian and Chinese syndicates, utilizing precursor chemical sources of supply in the PRC. However, the majority of MDMA is reported to be imported from the Netherlands. INP reports that marijuana is cultivated throughout Indonesia, especially the Aceh Province of Northern Sumatra, where large scale cultivation occurs. During 2005, INP identified 66 marijuana fields, destroying 160,211 marijuana plants, comprising a total of approximately 86.5 hectares, and seizing 20.9 tons of marijuana. The peace treaty signed in 2005 between GOI forces and Free Aceh Movement (GAM) rebels, has led to increased access and presence of INP throughout Northern Sumatra. Although cocaine seizures continue to occur in major Indonesian airports, the market for cocaine in Indonesia is very small. Cocaine seizures made by INP are believed to be associated with the transshipment of the drug to more lucrative markets, specifically Australia.
III. Country Actions Against Drugs in 2005
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.
Law Enforcement Efforts. The National Narcotics Board (BNN) continues to strive to improve interagency cooperation in drug enforcement, interdiction, and precursor control. In 2005, under the auspices of BNN, the USG sponsored Joint Interagency Counterdrug Operations Center (JIACDOC), supported by the Joint Interagency Task Force West, was opened in Jakarta, Indonesia. The JIACDOC is supported by an extensive IT infrastructure connecting the center to key provinces throughout Indonesia. The mission of the JIACDOC is 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, for example, in November INP conducted a raid , dismantling the largest amphetamine type substance (ATS) manufacturing plaint in Indonesian history, producing both crystal methamphetamine and MDMA at the time of the raid. 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. Work in the Indonesian Government to define the roles of these agencies, including the Navy and the INP Air and Sea police, continue so as to avoid duplication. For the moment however, no effective campaign can be mounted against possible trafficking by sea. Any attempt to check trafficking by sea will be very challenging, given the many islands that make up the Indonesian Archipelago. 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 the UN Convention Against Corruption.
Cultivation/Production. Indonesia produces enough marijuana for domestic consumption. This is no small amount, given that Indonesia's population is in excess of 220 million, and cannabis is the most widely abused drug. In recent years, Indonesia has experienced a significant increase in domestic production of MDMA and methamphetamine, but most of these two drugs available in Indonesia's larger cities are still imported.
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 laws against it, 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, but as long as official salaries remain very low, some officials will be tempted to accept bribes.
IV. U.S. Policy Initiatives and Programs
Bilateral Cooperation. Indonesia and the United States maintain excellent law enforcement cooperation on narcotics cases. In 2005, DEA provided training in the areas of airport interdiction, mail/parcel interdiction and maritime/cross border counternarcotics operations. Indonesia continues to work closely with the DEA regional office in Singapore on narcotics investigations.
The Road Ahead. In 2006, the U.S. will assist the BNN and other counternarcotics agencies in further developing the Joint Interagency 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, piracy and counterfeiting, illegal logging and 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.
As a result of Indonesia's ongoing efforts to implement the reforms to its Anti-Money Laundering (AML) regime, the Financial Action Task Force (FATF) removed Indonesia from its list of Non-Cooperative Countries and Territories (NCCT) on February 11, 2005. In order to ensure continued effective implementation of the reforms enacted, the FATF is monitoring Indonesia's progress for one year. The removal of Indonesia from the NCCT list recognized a concerted, interagency effort -- personally directed by President Susilo Bambang Yudhoyono -- to further develop Indonesia's nascent AML regime.
Indonesia's Financial Intelligent Unit (PPATK), established in December 2002 and fully functional since October 2003, continues to make steady progress in developing its human and institutional capacity. 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 16, the PPATK has received approximately 3,059 suspicious transactions reports (STRs) from 102 banks and 23 non-bank financial institutions. The volume of STRs has increased from an average of 70 per month in 2004, to 160 per month in 2005. The agency also reported that it had received over 1.4 million cash transaction reports (CTRs). Based on their analysis of 646 STRs, PPATK investigators have referred 344 cases to the police. Based on referrals of STRs and other related information from the PPATK, as of September 2005, there has been 1 successful prosecution involving terrorism, 19 successful prosecutions involving bank fraud and/or corruption, and 1 successful prosecution for money laundering. Sentences in these cases ranged from 4 months in prison to the death penalty. Fifteen of the twenty one cases had sentences imposed of 8 years in prison or more; the money laundering verdict handed down a sentence of 8 years in prison.
Indonesia's Anti-Money Laundering and Counter Terrorism Finance (CTF) Donors' Coordination Group, co-chaired by the PPATK and the Australian Agency for International Development (AUSAID), has become a model for AML/CTF donors' coordination groups in other countries. Since Indonesia's removal form the NCCT list, donors and the Government of Indonesia (GOI) have placed greater emphasis on more practical training; technical and capacity building assistance for the non-bank financial sector, police, prosecutors and judges; cash smuggling; and regulation of charities and money changers.
The PPATK is actively pursuing broader cooperation with relevant GOI agencies. The PPATK has signed nine domestic memoranda of understanding (MOUs) to assist in financial intelligence information exchange with the following entities: Attorney General's Office (AGO) Bank Indonesia (BI), the Capital Market Supervisory Agency (Bapepam), the Directorate General of Financial Institutions, the Directorate General of Taxation, Director General for Customs and Excise the Center for International Forestry Research, the Indonesian National Police, the Ministry of Forestry and the Corruption Eradication Committee.
Sustained public awareness campaigns, new bank and financial institution disclosure requirements, and the PPATK's support for Indonesia's first credible anticorruption drive have led to increased public awareness about money-laundering and, to a lesser degree, terrorism finance. Weak human and technical capacity, poor interagency cooperation, and corruption, however, still remain significant impediments to the continuing development of an effective and credible AML regime.
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 1998 Asian financial crisis when the GOI became interested in controlling capital flight and recovering foreign assets of large-scale corporate debtors or alleged corrupt officials.
In April 2002, Indonesia passed Law No. 15/2002 Concerning the Crime 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. Law No. 15/2002 established the PPATK to develop policy and regulations to combat money laundering and terrorist finance.
In September 2003, Parliament passed Law No. 25/2003 amending Law No. 15/2002 Concerning the Crime of Money Laundering that addressed many FATF concerns. Amending Law No. 25/2003 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 amendment 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 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 $100,000). Articles 44 and 44A provide for mutual legal assistance with respect to money laundering cases, 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. The Ministry of Justice and Human Rights finalized a draft Mutual Legal Assistance Law in early 2005 and the draft was sent from the President to the Parliament on June 9, 2005, for approval. Until this legislation is formally passed, the GOI uses informal, non-binding procedures to facilitate MLA from other states.
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 BI within seven days any "suspicious transactions" in excess of Rp 100 million (approximately $10,000). 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. 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."
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. 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 BI. With respect to the physical movement of currency, Article 16 of Law No. 15/2002 contains a reporting requirement for any person taking cash into or out of Indonesia in the amount of 100 million Rupiah (approximately $10,000) or more, or the equivalent in another currency, which must be reported to the Director General of Customs. These reports must be given to the PPATK in no later than five business days and contain details of the identity of the person. Indonesian Central Bank regulation 3/18/PBI/2001 and the Directorate General of Customs and Excise Decree No.01/BC/2005 contain the requirements and procedures of inspection, prohibition, deposit of Indonesia Rupiah into or out of Indonesia. The Decree provides implementing guidance for Ministry of Finance Regulation No.624/PMK.04/2004 of December 31, 2004, which requires individuals who import or export more than rupiah 50 to 100 million in cash (approximately $5,000-$10,000) to report such transactions to Customs. This information is to be declared on the Indonesian Customs Declaration (BC2.2) and Customs officials at Jakarta, Batam and Pekanbaru airports submitted 325 such forms between January 19 and August 31, 2005, with 200 submitted after May 2.
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 Law No. 15/2002 now expressly exempts the PPATK 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 Law No. 15/2002 exempts providers of financial services from bank secrecy provisions when carrying out their reporting obligations, and Article 15 of their anti-money laundering legislation gives providers of financial services, their officials 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 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 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, Police, and BI, takes several weeks from UN designation to bank notification. The implementation of this process has not led to the discovery of accounts or assets of individuals or entities on UN 1267 consolidated list. However, during the course of terrorism investigations, the Indonesia police have located and frozen accounts of individuals on the UN 1267 consolidated list.
The GOI is currently drafting additional amendments to Law No. 15/2002 that would provide the PPATK with preliminary investigative authority and the ability to temporarily freeze assets. The amendments are intended to provide technical investigative support to police and prosecutors and to deter capital flight. Indonesia's AML Law and Government Implementing Regulation No. 57/2003 provide protections to whistleblowers and witnesses. The GOI has also finalized a whistleblower and witness protection law, which is now under parliamentary consideration.
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. The GOI recently initiated a dialogue with charities and nonprofit entities on improving regulation and oversight of those sectors.
Indonesia is an active member of the Asia/Pacific Group on Money Laundering (APG) and the Bank for International Settlements. 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 PPATK is actively pursuing broader cooperation with other Financial Intelligence Units (FIUS) and has MOUs with Thailand, Malaysia, Republic of Korea, Philippines, Romania, Australia, Belgium, Italy, Spain, Poland and Peru. The PPATK has also entered into an Exchange of Letters enabling international exchange with Hong Kong. Indonesia has signed Mutual Legal Assistance Treaties with Australia, China and South Korea, and Indonesia joined other ASEAN nations in signing the ASEAN Treaty on Mutual Legal Assistant in Criminal Matter on November 29, 2004. The Indonesian Regional Law Enforcement Cooperation Centre was formally opened in 2005 and was created to develop the operational law enforcement capacity needed to fight transnational crimes.
The GOI should continue its steady progress in strengthening its anti-money laundering regime to make it more effective. 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 and should ratify the UN Convention against Transnational Organized Crime.