Understanding of ML/TF risks and obligations varies across FIs and DNFBPs. This is generally high for banks, larger FIs and VASPs, but lower for DNFBPs, particularly for real estate agents. Understanding of TF in the DNFBP sector is underdeveloped and limited to screening of client information against the DTTOT list.
Implementation of mitigation measures varies across sectors. They are generally stronger in larger banks and FIs that have automated systems, governance processes and policies and procedure. which are implemented effectively. BO is implemented in the FIs, with some remaining technical deficiencies, as whether the FIs are required to follow the ownership chain to identify the natural person who effectively controls the legal person.
All DNFBPs demonstrate a rules/compliance focus towards AML/CFT obligations and could not demonstrate effective application of a risk-based approach. This is of particular concern in both the identification and mitigation of ML/TF measures for beneficial ownership and PEPs, at on-boarding and on an on-going basis.
Identification and understanding of ML/TF risks relating to foreign PEPs is lacking.
Reporting by all DNFBP sectors, most notably in the real estate, notary and lawyer professions is not commensurate with Indonesia’s risk profile.
Indonesia is rated as having a moderate level of effectiveness for IO.4.
Chapter 6. SUPERVISION
Key Findings and Recommended Actions
Key Findings
a. The three main financial supervisory authorities (OJK, BI and CoFTRA) have proactively developed their AML/CFT frameworks. The measures to prevent criminals from controlling FIs through ownership are sound, with OJK’s measures being the most comprehensive. Measures are in place in relation to boards of directors and commissioners and some senior management. The measures do not cover all senior management and are most robust in relation to commercial banks.
There have been particular problems with unlicensed money changers and money transfer service providers and this has been one of the focus areas of BI, which has achieved good outcomes. In the DNFBP sector, the licensing/registration provisions of professionals (notaries, lawyers and accountants) are regulated through the professional standards and are generally sound. The general registration and trade licensing requirements allow for some general understanding of the regulated sector; however, it does not provide a barrier to entry by criminal elements within the remaining DNFBP constituents.
b. Overall, the key financial supervisory authorities have a very good understanding of ML risk. While input to supervisors has been provided by the FIU and LEAs more directly engaged with TF, the understanding of TF is not at the same level as for ML. Financial supervisors have IT tools and capacity to assess ML/TF risk and risk rate licensees. There are good elements of risk-based supervision, with the OJK having the most advanced framework. CoFTRA has taken commendable steps to identify and assess the risk of, and supervise, VASPs.
c. For the DNFBP sector, PPATK is the lead and other supervisory bodies have contributed to NRAs/SRAs and as such have a conceptual understanding of the broader risks. PPATK uses a sound methodology for risk determination based on self-assessments and supplemented by reporting and inspection data where available. The MoF, since 2018 and MLHR, since 2020 have been fulfilling a supervisory function for accountants and notaries respectively, although this function falls within the greater general regulation of these sectors, respectively.
Progress is noted in the commencement of audit/inspections of notaries and accountants, with refinement in audit selection criteria needed by the MoF. All audits performed include full scope inspections and could benefit from thematic considerations going forward. The MoF methodology for risk determination is also based on self-assessment (where obtained) and follows the risk factors set in the SRAs. The understanding of individual institutional risks by the MLHR and the MoF is less developed.
d. While some sanctions are imposed in the financial sector, there is scope to take a more robust approach. This also applies for the DNFBP sector, where even though remedial measures ranging from warnings to license revocation exist, it is only in the accountant sector that wide-ranging sanctions have been applied, with the remaining DNFBP constituents having been subject to warnings only.
Recommended Actions
FIs and DNFBPs
a) Indonesia should continue to strengthen measures to tackle unlicensed activity concerning real estate agents, unlicensed money changers and money transfer service providers, including by increased monitoring, enforcement action and liaison between criminal justice and supervisory authorities.
b) Supervisory authorities should make full use of their sanctioning powers and respond to regulatory violations with proportionate and dissuasive sanctions.
c) Indonesia should further develop existing supervisory approaches so as to fully conduct risk-based AML/CFT supervision. Specifically, the supervision programme of off-site and on-site activities should be implemented according to the ML/TF-specific risk level of individual supervised entities.
FIs
a) Financial supervisors should continue to deepen their understanding of the TF risks within the sectors and the institutions that they supervise.
b) Supervisory measures to prevent criminals and their associates from owning or controlling legal entities in the regulated sectors should extend to all senior management and not just directors and commissioners.
c) CoFTRA should establish a comprehensive on-site inspection programme for VASPs.
DNFBPs
a) Licensing requirements, as a means of barriers to entry, for non- professional DNFBPs (real estate, financial planners, DPMS) regardless of entity type should be enhanced to include scrutiny for all required persons such as beneficial owners with a significant or controlling interest or holding a management function.
b) Indonesia should enhance understanding of the application of the SRA and NRA at an institutional level by the MoF and MLHR. DNFBP self-assessment information, where available should be enhanced with additional, reliable information. Due consideration of thematic inspections/on-site inspections by these supervisory authorities needs to be given.
c) All DNFBP supervisory bodies should continue to focus their supervisory efforts on high-risk entities and ensure that this is aligned with their supervisory frameworks. Outreach initiatives should be enhanced to focus on developing a greater understanding of RBA and improvement in quality and volumes of STRs especially in the real estate and notaries’ sector.
353. The relevant Immediate Outcome considered and assessed in this chapter is IO.3.
The Recommendations relevant for the assessment of effectiveness under this section are R.14, 15, 26-28, 34, 35 and elements of R.1 and 40.