Implementation of Anti-Money Laundering and Terrorism Funding Prevention for Rural Banks and Syariah Rural Banks

Considering the recent development of the rural bank and syariah rural bank (‘Bank’) business in Indonesia, Bank Indonesia (‘BI’) has issued BI Regulation No. 12/20/PBI/2010 on the Implementation of Anti-Money Laundering and Terrorism Funding Prevention for Rural Banks and Syariah Rural Banks (‘Regulation’). The Regulation also makes changes to the Know-Your-Customer (‘KYC’) principle, as set out in previous BI regulation, to make it compliant with international standards (as recommended by the Financial Action Task Force) on the prevention of money laundering and terrorism funding.

Generally, a Bank is obliged to implement a anti-money laundering and prevention of terrorism funding program consisting of the procedures stipulated in the Regulation. This program is part of the risk management of the Bank as a whole, and has to consist of, at least: (i) active supervision from the board of directors and the commissioners, (ii) policies and procedures, (iii) internal controls, and (iv) human resources and training. Pursuant to Article 6, the Bank is also obliged to establish a special working unit or appoint staff to be responsible for the implementation of the program.

The Regulation also introduces a new term for the KYC principle: Customer Due Diligence (CDD). Article 1 (15) defines CDD as the process of identifying, verifying and monitoring customers in order to make sure transactions are conducted in accordance with the profile of the customer. Besides CDD, there is also Enhanced Due Diligence (EDD) which is a form of advanced CDD that is conducted in order to review high-risk potential customers, existing customers, beneficial owners, and Politically Exposed Persons more thoroughly.

Article 1 (14) defines Politically Exposed Persons as those who hold public authority, among others, within the State Apparatus and/or those who are listed as members of a political party that has influence on government policies. The Bank must conduct EDD on persons who fall within the definition of a Politically Exposed Person.

Article 21 provides that a Bank must maintain a list of terrorists received from BI semi-annually based on data published by the United Nations. The Bank then has to periodically check whether the names of any of its customers are similar to those appearing on the list. In the event that there is a name and other information that is similar to that appearing on the list of terrorist, the Bank has to report that customer via a suspected financial transaction report to the Indonesian Financial Transaction Reports and Analysis Center (PPATK).

Section VIII stipulates sanctions, which consists of administrative sanctions and penalties that range from IDR 50,000 to IDR 3,000,000.

The Regulation repeals its predecessor, BI Regulation No. 5/23/PBI/2003 on the Implementation of the KYC Principle for Rural Banks. All BI regulations that refer to the KYC Principle hereinafter are referred to the Regulation.

The Regulation was issued on 4 October 2010, and will come into force on 1 December 2010.