Indonesia seen long way from beating money laundering

Urip Hudiono, The Jakarta Post, Jakarta

An economist says Indonesia will continue to be at risk of high inflation, volatile markets and lack of business competitiveness unless it steps up the battle against money laundering.

Despite having been removed from the Financial Action Task Force (FATF)'s money laundering blacklist, Indonesia has much work to do to strengthen domestic laws and institutions meant to tackle the crime, economist Faisal Basri of the University of Indonesia told a forum here over the weekend.

He urged the authorities to use this week's visit by the global money laundering watchdog's Asia Pacific Group (APG) to push for further amendments aimed at strengthening the Money Laundering Law.

"Indonesia must be constantly warned of the dangers of money laundering. Being off the list should not be our only goal in eradicating (money laundering), but how it can help improve the health of our economy," Faisal said.

"The fact now is that Indonesia shows all the symptoms of an economy plagued by money laundering, and there are still many who for their own interests don't want to see a stronger anti-money laundering regime."

Likening laundered money to toxins in the blood stream, Faisal said when illegal funds entered the financial system it made it difficult for monetary authorities to determine effective policies.

He said this was one reason Indonesia had relatively higher inflation than other countries in the region.

Laundered money invested in the capital markets can make these markets more volatile and susceptible to capital flight, he said, while business competitiveness will be distorted by businesses set up merely to launder money.

Laundered money can also contribute to the creation of an "underground economy", which Faisal estimates already accounts for 40 percent of Indonesia's economy -- which, again, can undermine the implementation of economic policies.

"Although this (underground economy) includes the informal sector, it also includes those (sectors) related to corruption, smuggling and the illegal funds being laundered, making the whole economy unhealthy," he said.

Financial Transaction Reporting and Analysis Center (PPATK) chief Yunus Husein expects another amendment of the Money Laundering Law will help in establishing a better equipped institution to deal with the problem.

A proposed amendment to the law was submitted to the House of Representatives in October last year.

If passed, it would require non-financial service businesses and professionals who potentially could be involved in money laundering -- such as car dealers, property companies, jewelry traders, notaries and public accountants -- to report suspicious transactions.

The current law requires only banks and financial service companies to report suspicious transactions.

The amendment also would give more investigative powers to the PPATK, as well as the authority to block financial transactions suspected of being related to money laundering.

This would be the third amendment to the law, which was passed in 2002 after Indonesia was included on the FATF's list of non-cooperative countries.

Indonesia was removed from the list in 2005.

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