Source: 2007
Released by the Bureau for International Narcotics and Law Enforcement Affairs
Although Indonesia is not a major drug producing, consuming, or transit country, Indonesia continues to have a rapidly growing problem in all three areas. 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 both specialized investigative training and equipment, 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.
According to Government of Indonesia (GOI) statistics, Indonesia is facing an increase in drug abuse among its citizenry. Specifically, according to the Indonesian National Narcotics Board (BNN) approximately 3.2 million people (1.5 percent of Indonesia's total population) are drug abusers. Furthermore, according to GOI statistics, on average 15,000 people, die from drug abuse every year. Of the drug users in Indonesia, 56 percent are drug addicts using hypodermic needles. A statistical comparison of the number of drug trafficking and abuse cases indicates that between 2001 and 2005, there was a 76 percent increase. Similarly, the BNN reports that during the same period the number of suspects in drug trafficking and abuse cases has increased 75 percent. In an effort to curb the rising drug abuse problem the Indonesian government has imposed tougher punishments. Nevertheless, all major groups of illegal drugs are readily available in Indonesia, including, methamphetamine, in its crystalline or tablet forms, Ecstasy (MDMA), heroin, cocaine, and marijuana.
Historically, MDMA Ecstasy has been smuggled into Indonesia from sources of supply in the Netherlands. However, in recent years Indonesia has been experiencing an increase in large scale, domestic MDMA and methamphetamine production, which is one of the most significant drug trafficking threats to Indonesia. Since 2002, Indonesian/Chinese MDMA and methamphetamine production syndicates have established numerous large-scale clandestine MDMA and methamphetamine laboratories capable of producing multi-hundred pound quantities utilizing precursor chemicals from the Peoples Republic of China (PRC). In addition, MDMA and methamphetamine produced in the PRC is smuggled to Indonesia in multi-hundred kg quantities, via maritime cargo and fishing vessels, by Chinese organized crime syndicates based in Hong Kong, Taiwan and in mainland China. Specifically, Indonesian authorities cite two of the largest methamphetamine seizures of 2006, 200 kg (February 2006) and 956 kg (August 2006), as originating from the PRC and say they were smuggled via maritime cargo and fishing vessels to Indonesia.
Marijuana is cultivated and trafficked throughout Indonesia; INP also reports that Indonesian trafficking syndicates based out of Jakarta control marijuana trafficking in Indonesia.
Although cocaine seizures continue to occur in major Indonesian airports, the market for cocaine in Indonesia is believed to be very small.
Policy Initiatives. The 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 Counter Drug Operations Center (JIACDOC) 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.
Law Enforcement Efforts. 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 the antidrug efforts. According to the BNN, prosecutions for drug possession, trafficking and manufacturing have increased more than 400 percent during recent years. Specifically, based on GOI figures, the number of prosecutions for drug possession had quadrupled to 14,515 in 2005 from 3,617 in2001. Furthermore, the number of recorded drug crimes, including trafficking has also increased from 4,924 suspects in 2001, to 20,023 in 2005.
The INP Narcotics and Organized Crime Directorate continues to improve in its ability to investigate and dismantle international drug trafficking syndicates, as well as cooperate with other international law enforcement agencies. In addition, the Narcotics Directorate has become increasingly active in the regional targeting conferences designed to coordinate efforts against transnational drug and crime organizations. In 2006, the INP attended the International Drug Enforcement Conference (IDEC) held in Montreal, Canada. INP's Director for Narcotics and Organized Crime was subsequently appointed as the Chairman of the East Asia Regional IDEC Working Group.
The maritime counterdrug 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 duplicative enforcement initiatives.
Corruption. Indonesia has laws against official corruption. Despite these laws, corruption in Indonesia is endemic, and seriously limits the effectiveness of all law enforcement, including narcotics law enforcement. As a mater 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. The recently elected administration has made anticorruption efforts one of its top three major policy initiatives along with counterterrorism and counterdrug efforts.
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 ratified the UN Corruption Convention in September 2006.
Cultivation/Production. Opium is not cultivated or processed in Indonesia. INP reports that the domestic production of MDMA and methamphetamine is the most significant drug production threat in Indonesia. MDMA and methamphetamine are produced in Indonesia, as well as neighboring Malaysia. Specifically, Indonesian/Chinese trafficking syndicates based in both Jakarta and Malaysia (Penang) utilize chemists trained in the Netherlands. Local syndicates rely upon precursor chemical sources of supply in the Peoples Republic of China (PRC). The lax law enforcement, and corruption that is endemic to Indonesia enables regional narcotics production and trafficking syndicates to operate relatively unimpeded by law enforcement
Marijuana is cultivated throughout Indonesia. However due to the equatorial climate of Sumatra, and year round growing conditions, marijuana is most intensively cultivated throughout northern Sumatra. Specifically, large scale (greater than 20 hectares) marijuana cultivation occurs in the remote and sparsely populated regions of the province, often in mountainous topography. Regional marijuana cultivation syndicates are believed to be exploiting INP's equipment limitations by locating cultivation sites in remote and high elevation areas.
Drug Flow/Transit. Indonesia's numerous islands present a ready opportunity to traffickers of synthetic drugs and precursor chemicals to manufacture them. The GOI is not adequately equipped to police and inspect the numerous entirely licit flows of waterborne commerce, and finds it very difficult indeed to distinguish systematically which vessels might be carrying contraband. Most synthetics and precursors for them seem to arrive in Indonesia by boat from their starting point in China.
The INP reports that the majority of heroin seized in Indonesia originates in Southwest Asia. Indonesian authorities report that much of the heroin trade in Indonesia is controlled and directed by West Africans-- Nigerians in particular. Heroin is smuggled by West African and Nepalese trafficking organizations utilizing sources of supply in Karachi, Pakistan and Kabul, Afghanistan via commercial air carriers transiting Bangkok, Thailand, and India en route to Jakarta. In addition to heroin being trafficked to Indonesia, heroin is also transshipped from Indonesia, by couriers traveling via commercial air carrier to Europe, Japan and Australia.
Domestic Programs/Demand Reduction. Indonesia has only a basic drug education program, which is significantly constrained by inadequate resources. Sophisticated treatment availability is also a problem. Sophisticated treatment is really only available, to a limited extent, in the largest Indonesian cities. If the family of a drug abuser has adequate resources, they might seek treatment elsewhere, perhaps in Malaysia or Singapore. General treatment availability in smaller cities and in areas other than Java would probably be at government-operated treatment clinics, and providers would have little experience in delivering either appropriate pharmaceuticals or counseling. With U.S. assistance and collaboration, the GOI National Narcotics Board and the Ulama Council of Indonesia has established demand reduction outreach centers within their madrassahs (religious schools called Pesantraens) throughout Indonesia, permitting a culturally appropriate response to drug abuse.
Bilateral Cooperation. Indonesia and the United States maintain excellent law enforcement cooperation on narcotics issues. During 2006, the United States Coast Guard (USCG) conducted basic and advanced boarding officer courses in Indonesia. ICE (Immigration and Customs Enforcement) has also provided Indonesian authorities with advanced money laundering training in 2005 and training in combating cash couriers and trade based money laundering in 2006.
The Road Ahead. In 2007 the U.S. will continue to assist the BNN and its member agencies in realizing the full potential of the Counter Drug Operations Center and Network 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. This will permit Indonesian law enforcement to contribute to and access the database for investigations. The U.S. and Indonesia will continue to cooperate closely on narcotics control.
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 nondrug criminal activity such as gambling, prostitution, bank fraud, piracy and counterfeiting, illegal logging, and corruption. Indonesia also has a long history of smuggling, a practice 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 and subsequent special FATF monitoring on February 11, 2006. The removal of Indonesia from the NCCT list and special monitoring recognized a concerted, interagency effort-supported 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, analyzes, and evaluates currency and suspicious financial transactions, provides advice and assistance to relevant authorities, and issues publications. As of November 30, 2006 the PPATK has received approximately 6,884 suspicious transactions reports (STRs) from 115 banks and 47 nonbank financial institutions. The volume of STRs has increased from an average of 70 per month in 2004 to 324 per month in 2006. The agency also reported that it had received over 1.9 million cash transaction reports (CTRs). Based on their analysis of 608 STRs, PPATK investigators have referred 417 cases to the police. Based on referrals of STRs and other related information from the PPATK, there have been over 30 convictions for money laundering or its predicate crimes, including six for money laundering only. Of the six money laundering convictions, three were handed down in January and included sentences between five to seven years.
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 nonbank financial sector, police, prosecutors and judges; cash smuggling; and regulation of charities and money changers. In July 2006, the Asia Pacific Group (APG) named PPATK Chairman Yunus Husein a co-chair of the regional FATF style organization for a two-year term. In November 2006, Indonesia hosted the annual APG Typologies Workshop.
The PPATK is actively pursuing broader cooperation with relevant GOI agencies. The PPATK has signed ten 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 Ministry of Finance Directorate General of Financial Institutions, the Directorate General of Taxation, Director General for Customs and Excise, the Ministry of Forestry Center for International Forestry Research, the Indonesian National Police, the Supreme Audit Board (BPK), 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. However, weak human and technical capacity, poor interagency cooperation, and corruption, still remain significant impediments to the continuing development of an effective and credible AML regime.
Banks and other financial institutions now routinely question the sources of funds or require identification of depositors or beneficial owners. Financial reporting requirements were put in place 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, making 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 financing.
In September 2003, Parliament passed Law No. 25/2003 amending Law No. 15/2002 Concerning the Crime of Money Laundering in order to address 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. 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. The amendment expands the scope of regulations requiring STRs to include attempted or unfinished transactions. The amendment also shortens the time to file an STR to three days or less after the discovery of an indication of a suspicious transaction. The amendment 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 $110,000). 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. In March 2006, the GOI enacted Indonesia's first Mutual Legal Assistance (MLA) Law (No. 1/2006), establishing formal, binding procedures to facilitate MLA with 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 $11,000). 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 Sanctions on the Implementation of KYC and other Obligations Related to Law on Money Laundering Crimes. BI is also preparing Guidelines for Money Changers on Record Keeping and Reporting Procedures, and Money Changer Examinations to be 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 $11,000) or more, or the equivalent in another currency, which must be reported to the Director General of Customs and Excise. 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, and requires individuals who import or export more than rupiah 50 to 100 million in cash (approximately $5,500-$11,000) to report such transactions to Customs. This information is to be declared on the Indonesian Customs Declaration (BC2.2). As of October 2006, the PPATK has received more than 1,200 reports from Customs on cross border cash carrying issues. The reports came from five entry points as follows: Batam Port, Jakarta's Soekarno Hatta Airport, Tanjung Balai Karimun Port, Ngurah Rai Bali Airport, and Husein Sastranegara Bandung Airport.
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. Article 15 of the 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 regulation 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 is sought. In cases when money laundering is the alleged crime, however, bank secrecy laws would not apply, according to the anti-money laundering law.
The GOI has 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 or more 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 the 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.
In August, 2006, the GOI enacted Indonesia's first Witness and Victim Protection Law (No. 13/2006).
Indonesia's AML Law and Government Implementing Regulation No. 57/2003 also provides protection to whistleblowers and witnesses.
In October 2006, the GOI submitted to Parliament 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.
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, such as charitable and nonprofit entities in its strategy to combat terrorist finance and money laundering. The PPATK has issued guidelines for nonbank 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 has initiated a dialogue with charities and nonprofit entities to enhance 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. In June, 2006, Indonesia became a party to the UN International Convention for the Suppression of the Financing of Terrorism.
In June 2004, the PPATK became a member of the Egmont Group and, as such, is committed to the Group's established Principles governing the exchange of financial intelligence with other members.
The PPATK is actively pursuing broader cooperation through the MOU process with approximately twenty other FIUs. 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 Assistance in Criminal Matters 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 highest levels of GOI leadership should continue to demonstrate strong support for strengthening Indonesia's anti-money laundering regime. In particular, the GOI must continue to improve capacity and interagency cooperation in analyzing suspicious and cash transactions, investigating and prosecuting cases, and achieving deterrent levels of convictions and custodial and administrative sentences and penalties. As part of this effort, 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 reassess and streamline its processes for reviewing UN designations and for identifying, freezing and seizing terrorist assets. The GOI should expand its list of predicate crimes for money laundering. Indonesia should also become a party to the UN Convention against Transnational Organized Crime.