Jakarta Globe | Insight
Players in Indonesia's financial technology industry dismissed concerns that people linked to terrorism may have been adopting new ways of banking, such as digital payments or cryptocurrency, to fund their activities. (Reuters Photo/David Gray)

Fintech Players Dismiss Concerns Over Terrorism Financing

Jakarta. Players in Indonesia’s financial technology industry have dismissed concerns that people linked to terrorism may be adopting new ways of banking, such as utilizing digital payments or cryptocurrency, to fund their activities.

“Cryptocurrency leaves a digital trail each time it is used for a transaction,” Bitcoin.co.id chief executive Oscar Dharmawan told the Jakarta Globe.

Bitcoin.co.id is the country’s first professional cryptocurrency brokerage and spot exchange. Established in 2013, it currently sells 11 digital currencies and has more than 50,000 members.

Bitcoin is a digital currency that uses cryptography for security. Cryptocurrencies are not issued by government authorities, which makes them immune to state interference.

Despite this independence, however, Oscar said the use of Bitcoin is “far more traceable” compared to traditional cash-based transactions.

“I don’t see how cryptocurrency transactions are suitable for any [acts of] radicalism or terrorism unless [the perpetrator] doesn’t mind that his transactions can be easily traced by law enforcers,” he said.

Still, financial technology – also known as fintech – is indeed susceptible to terrorism financing or money laundering as much as other financial institutions, said Aidil Zulkifli, chief executive of Indonesia’s first fintech lending company, UangTeman.

“Fintech players should focus on creating a framework that mitigates such risks as much as possible,” he said.

Zulkifli said UangTeman has a program to prevent both money laundering and terrorism financing and he urged other fintech companies to implement similar programs.

Oscar and Zulkifli’s comments come seven months after the Financial Transaction Reports and Analysis Center (PPATK) discovered that Bahrun Naim, an Indonesian militant based in Syria with the Islamic State movement, used digital payment service PayPal and Bitcoin to fund terrorist activities back home.

PayPal, in a response to Jakarta Globe’s query, said it “worked closely with law enforcement on this matter” and “is dedicated to responding quickly to all lawful requests to support agencies in their investigations.”

“The company proactively reports any suspicious activities and invests significant time and resources into our vigilant efforts to prevent terrorist activity on the PayPal platform,” the statement said.

The PPATK is an independent agency tasked with preventing money laundering and terrorism financing by analyzing reports from banks, the local bourse, insurance companies, money changers and other nonbanking financial institutions and provide reports to the National Police.

According to the agency’s latest statistics, which are open to the public, 3.8 million transactions were reported in the January-May period this year, up 4.4 percent compared to same period a year earlier.

The PPATK handed over 148 analysis results involving 1,031 suspicious transactions that were carried out in the first five months of this year to police investigators. Nine of which were categorized as related to terrorism funding.

Fintech however, is only one of several methods used by terrorists to purchase weapons, equipment, supplies and services. Ivan Yustiapandana, research division director at the PPATK, said the smuggling of cash remains one of the methods used by terrorists.

The Counterterrorism Committee of the United Nation Security Council also points out on its website that terrorists require money to operate, which may come from both licit and illicit sources – often in the form of multiple small donations, instead of one large sum of money.

Legal Framework

Samuel Asset Management economist Lana Soelistianingsih told the Jakarta Globe that she believes the PPATK has so far been efficient in detecting terrorism funding with the support of laws and regulations that comply with international standards.

“I think Indonesia cannot afford to not follow the international rules of the game,” she said.

Under Indonesia’s 2013 Law on the Prevention and Eradication of Terrorism Financing, anyone who provides, collects, gives or lends money to terrorists may be liable to a maximum penalty of 15 years in prison and a Rp 1 billion ($75,000) fine.

Bank Indonesia and the Financial Services Authority (OJK) also have their own detailed regulations that allow financial services to identify and report suspicious transactions to the PPATK.

Indonesia also joined the Financial Action Task Force (FATF), an intergovernmental body established in 1989 to protect the international financial system by implementing and promoting legal, regulatory and operational measures to combat money laundering and terrorist financing.

‘High Threat of Terrorism’

Providing money – including donating, crowdfunding, collecting and borrowing – for terrorist activities is not only illegal in Indonesia but may potentially also be a major human rights violation.

Bahrun Naim’s funding in January, for example, might be the tip of the proverbial iceberg of Indonesia’s links to Islamic State, which has been responsible for thousands of deaths.

According to the Global Terrorism Index 2016, a report by nonprofit think tank, the Institute for Economics and Peace to measure and understand the impact of terrorism, Islamic State was the deadliest terrorist group in the world in 2015.

The report said the group killed 6,141 people in that year, at an average of 6.4 deaths per attack.

A separate report, titled Regional Risk Assessment on Terrorism Financing 2016 on Southeast Asia and Australia, claims that Indonesia faces “a high threat of terrorism.”

According to the report, there are approximately 568 Indonesians currently engaged in the conflict in Syria and Iraq, while another 183 people are believed to have returned home.

The Indonesian authorities have disrupted a number of groups but the report said violent extremist networks “remain intact.”

Writing by Dion Bisara