Presented by Dr. Yunus Husein Head of PPATK Indonesia ... · 8 NPOs – variety of forms and...
Transcript of Presented by Dr. Yunus Husein Head of PPATK Indonesia ... · 8 NPOs – variety of forms and...
Kuala Lumpur, 20 September 2011
Presented by
Dr. Yunus Husein
Head of PPATK Indonesia
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PRESENTATION OVERVIEWPRESENTATION OVERVIEW
I. FATF approach and recommendation of an NPO
II. Abuse of NPOs and red flags
III.Identification red flags for NPOs’ involvement (Indonesia overview)
IV.Challenges to managing NPO sector (Indonesia experience)
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FATF Approach and
Recommendation of an NPO
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FATF DEFINITIONFATF DEFINITION
FATF definition of non-profit organisation (NPO):
A legal entity or organisation that primarily engages in
raising or disbursing funds for purposes such as
charitable, religious, cultural, educational, social or
fraternal purposes, or for the carrying out of other types
of “good works”.
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FATF Special Recommendation VIII
Countries should review the adequacy of laws and regulations that
relate to entities that can be abused for the financing of terrorism.
Non-profit organizations are particularly vulnerable, and countries
should ensure that they cannot be misused:
i. by terrorist organizations posing as legitimate entities;
ii. to exploit legitimate entities as conduits for terrorist financing,
including for the purpose of escaping asset freezing measures;
and
iii. to conceal or obscure the clandestine diversion of funds
intended for legitimate purposes to terrorist organizations.
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GENERAL PRINCIPLES UNDERLYING THE FATF GENERAL PRINCIPLES UNDERLYING THE FATF
APPROACHAPPROACH
It is vitally important to
preserve the integrity of the NPO sector, given the sector’s important social and economic
role.
Past and ongoing abuse of the NPO sector by terrorists and other
criminals demonstrates the need for protective
measures.
Legitimate charitable activities should not be
disrupted or discouraged.
The approach taken should be targeted and
flexible.
Co-operative relationships should be developed amongst the public, private and NPO
sector.
Effective action should be taken against NPOs that are exploited by or
actively support terrorists.
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Abuse of NPOs
and Red Flags
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NPOs – variety of forms and characteristics
Forms : depending on the jurisdiction and legal system
• Association
• Foundation
• Informal financing networks
• Nongovernmental organizations (NGOs)
• Charitable organizations
• others
Characteristics:
• A tax-exempt organization that serves the public interest
• In general, the purpose of this type of organization must
be charitable, educational, scientific, religious or literary
• Legally, a nonprofit organization is one that does not
declare a profit and instead utilizes all revenue available
after normal operating expenses in service to the public
interest
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Abuse of NPOs – methods (on ML)
Several methods and schemes involving the abuse of charities to
facilitate tax evasion, crime and money laundering:
• An organization poses as a registered charitable organization to
perpetrate a tax fraud;
• A registered charity wilfully participates in a tax evasion scheme
for the personal benefit of its organisers or directors;
• A registered charity is involved wilfully in a tax evasion scheme to
benefit the organization and the donors, without the assistance of
an intermediary;
• A registered charity is involved wilfully in a tax evasion scheme to
benefit the organization and donors with the assistance of an
intermediary;
• A charity is abused unknowingly by a taxpayer or a third party,
such as unscrupulous tax return preparer who prepared and
presented false charitable receipts;
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Abuse of NPOs – methods (on ML)
Several methods and schemes involving the abuse of charities to
facilitate tax evasion, crime and money laundering:
• Tax sheltered donations as part of a tax evasion scheme;
• Salaried employees concealed as volunteer workers;
• An organization registered as exempted from the VAT that is
performing taxed activities;
• The issuance of receipts for payments that are not true
donations;
• The issuance of receipts to individuals working for the
beneficiary organization;
• Criminals use names of legitimate organizations to collect money;
• Misuse of charity funds by charities; and
• Manipulation of the values of donated assets.
Source: OECD Report on Abuse of Charities for Money Laundering and Tax Evasion
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Abuse of NPOs – methods (on TF)
Possible fund flows through NPOs:
• The process begins with people from all over the world donating
funds to charity organizations.
• These organizations are able to collect large amounts of funding
because they are well recognized through advertising and
maintaining a high profile in the public domain.
• Some times these organizations may directly supply funding to
particular projects, but often they will pass on the funding to
lesser-known charity organizations. This is an efficient approach
enabling the prominent charity organizations to focus on the
collection of funds, leaving the lesser-known charity to focus on
the expenditure of the funds.
Source: APG Typologies WG Report on Abuse of NPOs
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Abuse of NPOs – methods (on TF)
Possible fund flows through NPOs:
• The lesser-known charities often focus on the distribution of the
funds. They will establish projects, such as the provision of
hospitals, schools, food and health supplies, housing and transport
and roads. It is expected that a large proportion of the funds by
most charities be spent on these projects in order to maintain a
good public profile. The remaining funds may then be sent on to
more obscure charities to support other projects.
• The more obscure charities will spend some of the funding that
they receive on organized projects that are in the public arena.
The remaining funds go to unidentified purposes. Due to the lack
of reporting requirements a charity or non-profit organization can
spend the funding in ways that are virtually untraceable by
authorities.
Source: APG Typologies WG Report on Abuse of NPOs
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Identification Red Flags
for NPOs’ involvement
(Indonesia overview)
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Type of Reports Filed to INTRAC/PPATK (Indonesian FIU)
Suspicious Transaction Reports
(STRs)
Cash Transaction Reports
(CTRs)
Cross Border Cash Carrying
Reports (CBCC)
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Reporting PartiesReporting Parties
•• FINANCIALFINANCIAL SERVICESERVICE PROVIDERSPROVIDERS::
Bank,Bank, FinancingFinancing Company,Company, InsuranceInsurance CompanyCompany andand InsuranceInsurance Broker,Broker, PensionPension Fund,Fund, SecuritiesSecurities Company,Company, InvestmentInvestment Manager,Manager, Custodian,Custodian, trustee,trustee, PostalPostal OfficeOffice providingproviding TransferTransfer Service,Service, MoneyMoney Changer,Changer, cardcard administrator,administrator, ee--money/emoney/e--walletwallet administrator,administrator, CreditCredit Cooperative,Cooperative, Mortgage/PawnMortgage/Pawn Shop,Shop, FuturesFutures CommodityCommodity Company,Company, MoneyMoney RemittanceRemittance CompanyCompany
•• PROVIDERSPROVIDERS OFOF GOODSGOODS ANDAND SERVICESSERVICES ::
PropertyProperty companies/propertycompanies/property agents,agents, car/motorcyclecar/motorcycle dealers,dealers, jewelryjewelry andand preciousprecious metalmetal dealers,dealers, andand auctionauction officeoffice..
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FINANCIAL ANALYSIS AND DISSEMINATION
Purpose: to establish whether the data contained
in the reports, substantiated as necessary by the
FIU, provide a sufficient basis to secured
transmitting the file for further investigation or
for prosecution (as the case may be)
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FINANCIAL ANALYSIS
PPATK’s sources:
• Reports filed to PPATK (database)
• Additional financial/other information from financial
institutions
• Relevant information requested to domestic agencies
• Relevant information requested to other FIUs
• Public information (newspaper, internet, etc)
INTRAC uses analytical tool that would describe
the network and inter-related among certain
individuals and entities involved in particular
case.
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FINANCIAL ANALYSIS
Two types of analysis conducted by PPATK:
One, Proactive analysis (Bottom up approach)
• On a basis of STRs filed to PPATK
• On a basis of public information, which can be
in-depth examined
• Product: Report of Analysis Result
Two, Reactive or On-request analysis
(Top down approach)
• On a basis of request from domestic law
enforcement agencies and other FIUs
• Product: Information of Analysis Result
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Analysis Results
send to Investigators
CBCC reports
send to FIU
Pre-Investigation &
Investigation of
Money Laundering
Crime
STRs & CTRs
send to FIU
Making Analysis Result
(Intelligence)
Documents
searching,
Evidence,
Clarification to
Banks party
$
Financial Service
ProvidersSTRs & CTRs
Analysis Results The Investigators
1
Making
STRs & CTRs
Customs &
Excise
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Re-active,
Analysis
Result
Clarification
Pro-active
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3
STRs & CTRs
Clarification
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Analysis
Results
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Detecting Red FlagsDetecting Red Flags
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Decision of the Head of PPATK No.: KEP-2/4/KEP.PPATK/2003 of 15 October 2003 concerning the Guidelines on the Identification of Suspicious Financial Transactions for Financial Dealers;
Decision of the Head of PPATK No.: KEP-13/1.02.2/PPATK/02/08 of 4 February 2008 concerning the Guidelines on the Identification of Suspicious Financial Transactions related to Financing of Terrorism for Providers of Financial Services;
Decision of the Head of PPATK No.: KEP-47/1.02./PPATK/06/2008 of 2 June 2008 concerning the Guideline on the Identification of High Risk Products, Customers, Business, and Countries for Providers of Financial Services.
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Detecting Red Flags (by FSPs)Detecting Red Flags (by FSPs)
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ImplementingImplementing CustomerCustomer duedue diligencediligence properlyproperly
ObservingObserving typologiestypologies issuedissued byby PPATKPPATK (FIU)(FIU)
ExaminingExamining AMLAML NewsNews dailydaily issuedissued byby PPATKPPATK toto
financialfinancial servicesservices providersproviders.. AMLAML newsnews consistsconsists ofof
variousvarious articles/newsarticles/news fromfrom variousvarious sourcessources collectedcollected byby
PPATK,PPATK, whichwhich maymay includeinclude particularparticular NPOsNPOs
RespondingResponding requestrequest fromfrom PPATKPPATK
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FIGURES
STRs filed to PPATK as of 31 August 2011
Reporting parties Reporting parties Number of companiesNumber of companies Number of STRNumber of STR
Banks *) 160 42,045
Non-banks:
Securities 60 1,330
Money Changer 65 26,526
Pension Funds, Investments
Manager, and Insurance
42 2,903
Financing Companies 26 3,960
Money Remittance 6 59
Sub total non-banks 199 34,778
Total 359 76,823
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Period Number of STRs filed Average per month
2001 14 2
2002 124 10
2003 280 23
2004 838 70
2005 2,055 171
2006 3,482 290
2007 5,831 486
2008 10,432 869
2009 23,520 1,960
2010 17,348 1,446
Aug 2011 12,900 1,613
Data Series STRs Received
FIGURES
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Related to No of STRs filed No. of NPO involved
Money laundering 38 33
Financing of terrorism 7 7
TOTAL 45 40
FIGURES
STRs related to NPOs
Filing those STRs related to NPOs:
Self-detection by reporting parties, either when they applying CDD
measures or based on PPATK’s AML Newsletter and other sources
Based on PPATK request
Can be related to money laundering and financing of terrorism
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Challenges to
managing NPO sector
(Indonesia experience)
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APG Mutual Evaluation 2008
Indonesia was rated NC (Non Compliant)
Factors underlying the rating:
• Indonesia has not yet undertaken a review of its domestic NPO
sector;
• No ongoing strategy to identify and mitigate significant ML&TF
risks within Indonesia’s NPO sector;
• Limited outreach to the NPO sector by NPO sector authorities to
date;
• Weak transparency and good governance available on the NPO
sector as a whole;
• Very weak implementation of the existing legal regime to require
reporting of constitutional, programmatic or financial information;
• Indonesia lacks capacity to examine those NPOs that are suspected
of either being exploited by or actively supporting terrorist
activity or terrorist organisations;
• Inadequate mechanisms for information exchange with foreign
counterparts.
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APG Mutual Evaluation 2008 (cont’d)
Recommendation to remedy the deficiencies:
• Indonesia should institute a process to improve regulation and
oversight of charities as a priority
Indonesia should:
• Conduct a coordinated review of the domestic NPO sector;
• Support the implementation of a strategy to identify and mitigate
significant TF risks within Indonesia’s NPO sector;
• Include religious NPOs in effective controls to improve good
governance and ensure AML/CFT measures are effective in the sector;
• Conduct further outreach to the NPO sector or focus on TF risks by
NPO sector authorities to date;
• Conduct outreach and implement measures to improve transparency
and good governance within the NPO sector
• Implement measures, including existing laws relating to Foundations,
to ensure that all relevant NPOs operate within the terms of their
registration and make publicly available information on their activities,
their office holders and financial activities.
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APG Mutual Evaluation 2008 (cont’d)
Indonesia should (cont.d):
• Support sector-driven regulation, including the formation and
operation of self regulatory organizations in the NPO sector.
• Remove barriers to information sharing between the DG Tax and other
NPO regulators, POLRI, PPATK and other relevant CFT agencies
• Support improved mechanisms for information exchange with foreign
counterparts;
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National StrategyNational Strategy
•• OnOn 2525 MarchMarch 20092009,, thethe NationalNational CoordinatingCoordinating CommitteeCommittee forfor thethe PreventionPrevention andand EradicationEradication ofof MoneyMoney Laundering,Laundering, chairedchaired byby thethe CoordinatingCoordinating MinisterMinister forfor Political,Political, Legal,Legal, andand SecuritySecurity AffairsAffairs hadhad agreedagreed toto includeinclude thethe HandlingHandling ofof NonNon--ProfitProfit OrganizationOrganization SectorSector ComprehensivelyComprehensively intointo NationalNational StrategyStrategy FrameworkFramework toto bebe thethe 99thth StrategyStrategy..
•• StrategyStrategy NoNo.. 99 waswas authorizedauthorized byby MinisterialMinisterial DecreeDecree ofof CoordinatingCoordinating MinisterMinister forfor Political,Political, Legal,Legal, andand SecuritySecurity AffairsAffairs NoNo :: KEPKEP -- 343343/Menko/Polhukkam//Menko/Polhukkam/0909//20092009 concerningconcerning thethe NationalNational StrategyStrategy forfor thethe PreventionPrevention andand EradicationEradication ofof MoneyMoney LaunderingLaundering andand TerroristTerrorist FinancingFinancing
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Objective of Strategy No. 9:
To ensure that the roles and contributions of NPOs as
government partners in the development process of
Indonesia can be further enhanced by promoting
good governance (transparency and accountability)
and mitigating the abuse of NPOs as target and means
of money laundering and terrorist financing.
National StrategyNational Strategy
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Indonesia NPO Domestic ReviewIndonesia NPO Domestic Review
• In terms of following-up the implementation of Strategy No. 9, PPATK along with the Ministry of Foreign Affairs have established cooperation with the United Kingdom Charity Commission (UKCC) to perform mapping activity towards the NPO Sector in Indonesia
• The collaboration has successfully established Local Assessment Team (LAT), consisted of members from 9 government-agency representatives and 7 NPO Sector representatives, formalized by the Decree Letter issued by the Head of PPATK.
• The implementing mechanism was conducted through scrutiny by using assessment tools from the UKCC to measure the effectiveness of applied regulations for NPOs and the implementation on the field.
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Content of Domestic ReviewContent of Domestic Review
The content of Domestic Review provides general picture on the size of NPO Sector in Indonesia, encountered constraints and potential problems, regulations related to NPO Sector along with their implementation effectiveness, and some recommendations for improvement.
The review of NPO Domestic Sector was divided into four stages, as follow:
Sector Survey;
Assessment to Regulatory Framework;
Key Risk Analysis and Recommendations; and
Final Report.
The execution of Domestic Review on NPO Sector and all of the stages above have been completed by the Local Assessment Team (LAT) assisted by the LAT Secretariat.
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Indonesia FigureIndonesia Figure
More than 21,700 NPOs having legal status are officially
listed
It is predicted thousands of NPO, generally located in
the districts or remote areas, have not been registered
and do not have any legal status
Regulated by the Government of Indonesia (GoI)
pursuant to 26 laws and regulations consist of 15 laws,
4 Government Regulations, and 7 Ministerial Decrees
The implementation of such laws and regulations is
conducted by 10 government institutions consist of 8
ministries and 2 ministerial-level institutions.
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Key Risk Analysis and RecommendationsKey Risk Analysis and Recommendations
• Based on the analysis of LAT, at least 8 (eight) risks were discovered that can be used as strategic issues for NPO Sector, which needs serious attention from government agencies, as follow:
1.1. There is a complexity and disharmony on NPO legislations in There is a complexity and disharmony on NPO legislations in
Indonesia that could not afford to establish an effective legal system.Indonesia that could not afford to establish an effective legal system.
Recommendation: Recommendation: The mapping of NPO legislations of Indonesia The mapping of NPO legislations of Indonesia should be done should be done comprehensively comprehensively to address the complexity of the to address the complexity of the rules.rules.
2.2. Registration and validation of NPO as legal entity has not been Registration and validation of NPO as legal entity has not been
arranged well in crossarranged well in cross--ministerial level.ministerial level.
Recommendation: Recommendation: Simplifying the registration and approval of legal Simplifying the registration and approval of legal entity.entity.
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3. Monitoring & Evaluation of the NPO as a system of supervision and sanctions have not been implemented effectively.
Recommendation: Government needs to develop a compact and effective NPO registration procedure, so as to create a synergized segregation of duties and roles involving data collection and monitoring among ministries.
4. Oversight over foreign NPOs in Indonesia has not been done
effectively, thus it creates a number of infringements that potentially can interrupt national interest.
Recommendation: Increasing the effectiveness of supervision of
overseas NPO in Indonesia. 5. NPO database has not been managed in an integrated manner Recommendation: Development of management information systems
data management for NPO.
Key Risk Analysis and RecommendationsKey Risk Analysis and Recommendations
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6. Government and NPO have not applied the principles of disclosure of information effectively.
Recommendation: Increase the effectiveness of the disclosure of information by the government and the NPO.
7. Protection and support for NPO toward independence and public accountability is still actively carried out by the government
Recommendation: Increased protection for the NPO as a strategy to minimize the abuse of NPO and increase accountability.
8. Partnership government and the NPO has not optimally.
Recommendation: The development of partnerships between government and NPO.
Key Risk Analysis and RecommendationsKey Risk Analysis and Recommendations
Thank you Terima Kasih
Jl. Ir. H. Juanda No. 35 Jakarta 10120
Indonesia
Tel: +6221-3850455; +6221-3853922
Fax: +6221-3856809; +6221-3856826
E-mail: [email protected]
www.ppatk.go.id