Assessing the Digital Financial Threat Landscape in Indonesia

Screenshot of six of the webinar panelists/moderators
Screenshot of six of the webinar panelists/moderators

Online (Indonesia), 19-20 April 2022 - The digital era continues to pose complex corruption challenges to traditional enforcement systems, amid a spike in credit card fraud, online scams, phishing, and technology-enabled money laundering. Research by UNODC links this partly to the boom in e-commerce that has accelerated since the start of the pandemic. In the case of Southeast Asia, a UNODC study suggests that law enforcement agencies have yet to fully adapt to a digitalized threat landscape, with many yet to embrace the strategic use of data analytics to detect and prevent corruption and fraud.

The Indonesian Financial Transaction Reports and Analysis Centre (PPATK) has noted the risks of electronic money laundering and terrorism financing arising from new payment methods. Indonesia is currently in the process of implementing its Digital Transformation Policy, requiring law enforcement readiness to mitigate the risks posed by crime associated with this rise in digital innovation.

Based on interest from stakeholders across Indonesia, UNODC organized a Webinar on the Digital Financial Threat Landscape and Law Enforcement from 19 – 20 April 2022, looking at the enforcement challenges and opportunities posed by digital technologies. The event was attended virtually by over one hundred participants, representing national regulators, law enforcement, financial services, and other government agencies.

Presentation slide from Ms. Hansol Park (UNODC), illustrating key elements of data constituting electronic evidence
Presentation slide from Ms. Hansol Park (UNODC), illustrating key elements of data constituting electronic evidence

Issues discussed during the webinar include:

The rise of financial technologies brings new corruption and fraud risks

Mr. Fithriadi Muslim, Acting Deputy of Prevention at PPATK (Indonesia’s FIU), explained that technologies in financial services, including fintech and crypto traders, by nature have certain characteristics that render them vulnerable to organised crime, such as the ability to open accounts without face-to-face appointments, high speed transactions, and real-time privacy features. PPATK analysis shows that fraud in Indonesia is steadily increasing, from 9,801 fraud-related suspicious action reports in 2019 to 13,338 in 2020, to approximately 23,000 in 2021. As of February 2022, fraud – including cyber-based fraud and violations of the electronic transaction law – has become the most common type of crime triggering suspicious action reports.

In many instances, the complexity of new technologies can be a barrier for law enforcement agencies. Dr. Fadil Zumhana, Deputy Attorney General for General Crimes at the Attorney General’s Office, reflected on the challenges associated with money laundering. He explained that investigators need to be equipped with the skills needed to obtain electronic evidence to examine cases, and to undertake forensic analysis, so that criminal justice responses can keep the pace with emerging threats.

While technology is advancing in virtually every aspect of our lives, certain sectors have proven to be at particular risk of criminal exploitation. Mr. Fithriadi outlined three areas deemed worthy of prioritization by PPATK, when it comes to mitigating the risks of electronic money laundering practices:

Slide presented by Ms. Hansol Park (UNODC), showing the link between online technologies and terrorism
Slide presented by Ms. Hansol Park (UNODC), showing the link between online technologies and terrorism
  1. The first group is the financial services sector, in which digital transformation needs to be accompanied by increased information security, both by the providers and the customers themselves. This is important because inadequately securitized products can be abused by criminals, through phishing scams and identity theft.
  2. On retail transaction, business email compromises are increasingly common, whereby criminals try to intercept correspondence to undertake the transfer of funds from the victim to the criminal. They often pretend to be selling items, whether nationally or from abroad.
  3. Money laundering in the export-import sector commonly makes use of digital transformation, using Trade-Based Money-Laundering (TBML), where criminals move funds cross-border using inflated import/export transactions. This is difficult for authorities to trace, as the transactions on the surface are detected as unsuspicious. TBML contributes to the shadow economy in Indonesia, where transactions take place without the knowledge or monitoring of government.
Slide presented by Ms. Hansol Park, summarizing ways to approach MLA requests to obtain electronic evidence
Slide presented by Ms. Hansol Park, summarizing ways to approach MLA requests to obtain electronic evidence

Where utilised correctly, new technologies hold great promise for law enforcement agencies

Mark Caroll, Director of Criminal Justice at Optima, reflected on five broad technological advancements that have innovated criminal justice processes: the data mapping of crime, smartphone tracking, wi-fi capabilities, and biometrics. Drawing on cases of organized crime involving multiple jurisdictions, he argued that agencies able to embrace new technology can reap the benefits of enhanced data collection, analysis and sharing. He cited global examples such as courts adopting online and video technology throughout the pandemic, Automated Facial Recognition (AFR) software, analytics algorithms, Automated Virtual Agent for Truth Assessments in Real Time (AVATAR), retrospective analysis, and drones, which have helped to build a data-rich picture of criminal activity with which to secure prosecutions.

As a fast-moving sector, it is important that governments are able to harness the emerging power of financial technologies. Mr. Fithriadi emphasized that addressing fraud risks does not mean that governments must restrain innovative technology development. Instead, it needs to be one step ahead of the criminals, by building capabilities and knowledge on fintech, collaborating with the private sector, mitigating risks using smart regulations, and encouraging the private sector to develop and use regulatory technology. He argued that governments should consider establishing the role of fintech players as reporting entities, involving two obligations to support the prevention of money laundering: applying Know Your Customer (KYC) principles, and reporting to PPATK as required. Where reporting entities are compliant, these duties can protect the sector at large from money laundering and terrorism financing.

The interaction of governments with technology providers have an impact on how crime prevention takes place. Ms Hansol Park, Crime Prevention and Criminal Justice Officer at the Terrorism Prevention Branch of UN Office on Drugs and Crime (UNODC), explained that the administratively cumbersome nature of many mutual legal assistance mechanisms have led law enforcement agencies to increasingly make direct requests of foreign service providers. To help governments integrate best practices when requesting electronic evidence across borders, she recommended the Practical Guide developed under the UNODC Sherlock platform. Meanwhile, for smaller tech companies and micro-platforms seeking to understand data processing concepts for criminal justice purposes, such as data preservation and disclosure, she recommended the publicly-available Data Disclosure Framework.

This webinar was part of activities funded by the Ministry of Justice of Government of the Republic of Korea. Footage (where available) and written summaries of UNODC events are publicly available via our website.

Other Useful Links:

  • A written summary and full recording of a UNODC Webinar on Lessons Learnt from the Response to Covid-19, organised in Indonesia, is available here
  • The recent UNODC Webinar on Law Enforcement Integrity is publicly available for viewing in Bahasa, English, Thai and Vietnamese here
  • The footage of UNODC Anti-Corruption Webinars in Southeast Asia, where available, can be viewed on our social media page here
  • A summary of activities by the UNODC Anti-Corruption Team in Southeast Asia is available on our website here