An Analysis of Government Capabilities in Countering Terrorist Financing in Indonesia

Abstract

Since 2002, Indonesia has enacted policies aimed at Countering the Financing of Terrorism (CFT). This thesis explores the ways in which terrorist groups in Indonesia have developed their financial structure and examines in detail the impact of CFT policies in disrupting illicit financial flows used for terrorism purposes between the period 2002 -2019. To this end, it provides an ethical analysis of the following questions: How have CFT policies used to combat terrorist financing networks in Indonesia, evolved between 2002 to 2019, and what impact have these policies had?

Recent literature in this area presents that the Indonesian government has adopted measures in countering terrorist financing that were consistent with the FATF recommendations. Existing policy analysis discusses policy outputs and outcomes in terms of compliance or otherwise with the FATF recommendations. However, despite operational improvements in Indonesian CFT policies, the threat of terrorism remains relatively high. Law enforcement and policymakers are struggling to keep ahead in tackling terrorist financing crime. Rapid changes in terrorist financing environments, including rising abuse of charities, women and advanced technology in payment systems, pose emerging threats to the effective implementation of CFT policies. The analytical framework utilises a policy evaluation model that includes the concept of evidence-based policy analysis, impact analysis approach, and unintended consequences examination. Drawing on court documents, government reports and interviews with policymakers, investigators and experts in Indonesia, Singapore, Malaysia, the Philippines and Australia, this thesis is unique in which it identifies dynamics of terrorist financing networks and probes shortcomings in Indonesian CFT policies, noting the limited impact on terrorist financing networks.

I argue that terrorist groups in Indonesia responded to changes in legislation, policy and procedures, technology, and social trends. Financial regulatory measures and law enforcement efforts play significant roles in disrupting terrorist financial transactions and thus undermining terrorist activities. In order to counter terrorist financing more effectively, the Indonesian government modified its CFT policies, but without catching up with the changes in terrorist financing tactics. Furthermore, this thesis also shows that the implementation of CFT policies generates intended and unintended consequences, which countries should acknowledge and address to improve policy effectiveness.

Overall, the thesis shows that Indonesian CFT policies are lagging behind the development of technology as the primary channel used by terrorist groups to communicate, raise and move funds. Therefore, the crucial element of terrorist financial flows was left unaddressed. CFT policies fail to address the risks arising from evolving terrorist financing networks in Indonesia. This thesis suggests that there is room for improvement in the implementation of CFT policies to prevent financial support channelled for social welfare outreach through NPOs, and to diminish the misuse of illegal money remittances and financial technology for terrorist financing purposes. The present study will serve as a base for future studies where the growing threats of terrorism may potentially lead to a new era of cyberterrorism. Show more