
ALSA Local Chapter
UNIVERSITAS PADJADJARAN
ALSA, Always Be One!
Fraud on Company’s Financial Statement as a Violation in Indonesian Capital Market
Andri Noel Hasian Manurung1
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ABSTRACT
Economic development of the financial services sector has had significant positive impacts and contributions on the country’s development, one of which is the implementation of the capital market. Capital market is used by the state as a source of funds by raising them from the public. In addition, the capital market is also utilized by companies to obtain capital without the need for bank loans by selling their stocks to the public. However, in the application of the capital market, there are many problems caused by violations and crimes in the capital market, which are referred to as capital market violations and crimes such as fraud on a company's financial statement. Capital market violations can be committed by people inside the companies such as business actors or people outside the companies such as retail investors. These problems require special attention from the government. The increasing number of retail investors in the capital market signifies the urgency of the better legal protection. The purpose of this study is to examine legal responsibility for the violation practice of fraud on a company's financial statement in the capital market and legal protection for investors.
Keywords: fraud, capital market, financial statement, stock, investor.
BACKGROUND
It takes a lot of funds to build a better country. Loans from other countries are not a strategic approach because there are other potentials that can be utilized to support the country’s development, such as public funds through the capital market. Capital Market is an activity related to the Public Offering and trading of stocks, Public Companies related to the Stocks they issued, as well as institutions and professions related to Stocks. Capital market works as one of the instruments used by the Indonesian government in supporting the country’s economic development. It continues to grow and provide positive impacts for the country’s economy. Capital market is the main option for the state in raising funds massively from Indonesian also foreign citizens so that the state does not require loans from other countries. The government then implemented and promoted the capital market, inspiring the public to contribute to the country’s development through stock investment as well as utilize it as an investment instrument that helps them build their wealth. For citizens as investors, the capital market is used as one of the popular investment instruments.
However, in the continuity of the capital market, many applications are not in accordance with the principles of investment, resulting in capital market violations and crimes. Otoritas Jasa Keuangan (OJK) recorded 162 cases of violations in the Indonesian Capital Market. In detail, 54 cases completed the examination and 108 are in the process of examination. This data shows the important role of supervisory institutions considering how many capital market violations that occurred throughout 2022. These violations will certainly have impacts on how investors see the safety of the capital market as an investment instrument.
According to Law Number 8 Year 1995 on Stock Market known as PM Law, capital market violations and crimes are divided into: insider trading, market manipulation, and fraud. Fraud on a company's financial statement is an attempt made by misrepresenting the quality of a stock. In capital market offenses, the legal object is information. Information is considered to be valuable in stock trading because it can be used for the personal interests of business actors. In this case, the company's financial statement is the main information used as a representation of the company's performance. These attempts are made to attract the attention of shareholders or investors in the capital market. Although fraud on a company's financial statements is not a new case, it is necessary to increase law enforcement to ensure legal certainty given the growing number of issuers in the Indonesian capital market.
1. How are the legal responsibilities for the violation practice of fraud on a company's financial statement?
2. How are the legal protections for investors as victims of the violation practice of fraud on a company's financial statement?
The method used in this research is the normative juridical approach, a legal writing approach that is carried out by examining library data or secondary data as the main writing material. The research used descriptive analyses that are examining and analyzing the applicable legal provisions associated with legal theory and the practice implementation of positive law. The secondary data used in this research are obtained through books, journals, and other relevant sources, which in this case relates to fraud on a company’s financial statement, especially in the Indonesian Capital Market.
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PROBLEM IDENTIFICATION
METHOD
ANALYSIS
Legal Responsibilities for Violation Practice of Fraud on Company’s Financial Statement In society, there are norms that bind every human being. According to Sudikno Mertokusumo, norms are guidelines, standards, or measures for behavior or attitudes in communal life. One type of norm is the rule of law. The rule of law acts as a guideline used to establish public order so that no person has their interests disturbed and becomes a victim of violations and crimes. The rule of law then gives birth to laws that regulate human relations in society.
The capital market as an economic instrument of state development is a place where massive money or funds rapidly flow because it involves not only large investors and companies, but also retail investors (the general public). The development and success of a capital market is determined by the legal system that provides legal certainty for every capital market actor in it. Many parties involved and performing capital market activities require the rule of law that must be obeyed. The implementation of the Indonesian capital market industry must be based on a legal system that pays attention to the rules of law. The regulation on the Indonesian capital market legal system must be able to provide justice for every actor of the Indonesian capital market. Any action of capital market players must comply with and in accordance with applicable law. PM Law lists the institutions that have the duty and authority to administer the Indonesian Capital Market. Badan Pengawas Pasar Modal (Bapepam) as an institution in charge of conducting guidance, regulation, and day-to-day supervision of Capital Market activities is responsible to the Minister of Finance. Bapepam also has the authority to implement laws and regulations and law enforcement. Other institutions such as Bursa Efek acts as a party that organizes and provides facilities to bring together the sale and purchase offers of securities of other parties with the aim of trading stocks between them. In addition to the PM Law, the OJK Law also regulates several matters regarding the Indonesian Capital Market. OJK carries out regulatory duties and supervisory functions of financial services activities in the Capital Market sector.
In an effort to ensure a capital market environment with integrity, safe from violations and crimes, there are hierarchy of laws and regulations in the Indonesian Capital Market legal system: PM Law, Government Regulation, Ministerial Decree. Although the rule of law has created regulations in the capital market that must be obeyed by each actor of the capital market, there are still capital market violations and crimes in Indonesia. The problem of the occurrence of capital market violations and crimes is assumed to be based on several reasons, namely the mistakes of the perpetrators, the weakness of the authorities which include integrity and professionalism, and the weakness of regulations. Therefore, the legal system of the Indonesian Capital Market must be strengthened considering that law is an absolute basis for society in everyday life. PM Law regulates violations and crimes on the Indonesian Capital Market, which are fraud, market manipulation, insider trading. Fraud in the Indonesian capital market is committed in various ways, generally by fraud on a company's financial statements.
The PM Law provides for three types of sanctions to be applied in the Indonesian Capital Market: administrative sanctions, criminal sanctions, and civil sanctions.
1. Administrative sanctions (Article 102 PM Law) Administrative sanctions are sanctions given for capital market violations in the form of written warnings, fines, restrictions and suspension of business activities, revocation of business licenses.
2. Criminal sanctions (Article 103-Article 110 PM Law) Criminal sanctions regulate imprisonment to any party that commits capital market crime. The imprisonment that can be given varies from one year up to ten years depending on the crime.
3. Civil sanctions (mostly based on PT Law and the Civil Code) Civil sanctions allows stakeholders to file a civil lawsuit for violations committed by the company's executives that result in losses to the company.
One of the biggest cases of fraud on a company's financial statements in Indonesia is the Garuda Indonesia Fraud Case. On June 28, 2019, PT Garuda Indonesia Tbk. (GIAA) was officially found guilty and sanctioned by several institutions including the Ministry of Finance, OJK, and Bursa Efek Indonesia (BEI) for fraud in revenue recognition on the company's 2018 financial statements. In 2018 GIAA recorded a net profit of US$ 809.85 thousand or equivalent to Rp 11.33 billion (exchange rate of Rp 14,000). The profit was obtained due to the surge in other operating income, which totaled US$ 306.88 million. PT Garuda's management included the funds obtained into income which was actually only a receivable. Two Garuda commissioners, Chairil Tanjung and Dony Oskaria, refused to sign PT Garuda's 2018 financial statements. They had an objection to the revenue recognition of the In-Flight Connectivity Service Provision Cooperation Agreement transaction, between PT Mahata Aero Teknologi and PT Citilink Indonesia. Pusat Pembinaan Profesi Keuangan Kemenkeu (PPPK) and OJK then conducted an audit of PT Garuda. PPPK discovered violations committed by Akuntan Publik (AP) or auditors of Kantor Akuntan Publik (KAP) who conducted an audit of PT Garuda Indonesia Tbk., which affected the independent auditor’s report. In addition, KAP is considered to have not yet implemented an optimal quality control system related to consultation with external parties.
OJK then issued a verdict on Garuda's fraud case as the following:
1. Provide a Written Order to PT Garuda Indonesia Tbk. to revise the company's 2018 financial statements for violating Article 69 PM Law;
2. Issuing an administrative sanction fine of Rp 100 million to PT Garuda Indonesia Tbk. for violation of OJK Regulation Number 29/POJK. 04/2016;
3. Issuing an administrative sanction fine of Rp100 million each to all directors of PT Garuda Indonesia Tbk. for violating Bapepam Regulation No. VIII.G.11;
4. Issuing an administrative sanction fine of Rp100 million jointly and severally to all directors and commissioners of PT Garuda Indonesia Tbk. that signed the company’s 2018 financial statement for violating OJK Regulation Number 29/POJK.04/2016;
5. Issuing administrative sanction of Pembekuan Surat Tanda Terdaftar (STTD) for one year to KAP, as auditors who audited the company’s 2018 financial statement for violation of Article 66 PM Law jis. OJK Regulation Number 13/POJK.03/2017;
6. Provide Written Orders to KAP to improve quality control policies and procedures for
violations of OJK Regulation Number 13/POJK.03/2017.
The sanctions given to PT Garuda Indonesia Tbk. are expected to provide legal responsibilities in accordance with the violations committed by each party to the regulations and laws.
Legal Protections for Capital Market Investors as Victims of Fraud on Company's Financial Statement
The capital market is where investors and companies meet. Companies need funds as capital so they sell their stocks. In order for the implementation of the capital market to take place properly, legal protection is needed for every capital market actor, especially retail investors. The number of capital market violations and crimes increase shows the importance of protection for investors. To maintain the credibility and trust of the capital market as an instrument that builds the country, the PM Law and capital market supervisory institutions must be able to guarantee legal certainty for investors. Transparency is one of the most important
fundamental principles in capital market implementation. Contrary to banking financial services that apply the principle of confidentiality, the capital market guarantees the principle of transparency. Article 1 Number 25 of the PM Law obliges each issuer party to provide material information that can affect investors decisions and stock price movements. This principle of transparency is expected to provide legal protection to investors, especially retail investors. In maintaining the sustainability of the Indonesian Capital Market, OJK regularly publishes capital market statistics reports to provide a periodic overview of the development of the capital market in Indonesia through weekly and monthly publications.
Law enforcement must not be separated from the framework of justice, because otherwise law enforcement will become counter-productive, which in turn will backfire on the Indonesian Capital Market. Every investor who is going to buy stocks needs to provide himself with knowledge of the capital market and pay attention to the financial statements and company prospects in making decisions in order to avoid losses or fraud.
PM Law is the legal basis for capital market investors against capital market violations and crimes. Article 93 PM Law states that each party shall not, in any manner whatsoever, make any statement or provide information that is materially untrue or misleading so as to affect the price of stock in the stock market. The consequence of protection for investors is the application of the full disclosure principle, because every investment decision contains risk, issuers and supporting professionals in the capital market must be responsible for the accuracy of data and completeness of information. Full disclosure principles obliges issuers (companies) to present financial statements that can affect stock price in a complete and precise manner.
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Legal protection mechanisms for investors when there have been capital market violations and crimes are also an essential part of capital market law. The PM Law regulates that disputes in the capital market can be resolved through arbitration, mediation, or court. Article 111 PM Law states that any Party who suffers damage as a result of a violation of this Law and or its regulatory compliance system may claim compensation, either individually or together with other Parties that have similar claims, against the Party or Parties responsible for the violation. In addition, OJK also has a role in mediating disputes among investors and capital market players. Retail investors can file consumer lawsuits and request legal defense from OJK. Article 30 OJK Law states that OJK has the authority to provide legal defense for consumers and public by ordering or taking certain actions to financial service institutions to resolve complaints of consumers who have been disadvantaged and file a lawsuit to recover the assets of the affected party and obtain compensation from the party that caused the disadvantage to the consumer. OJK provides a complaint service that can be accessed by retail investors via the website. Compared to stakeholders, retail investors as shareholders have more limited information making them vulnerable to potential losses. Therefore, the PM Law obliges issuers for the company’s financial statement that is precise and easy for investors to understand.
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CONCLUSION
In the capital market, the object of law is information. Any information related to a company can change the value of a stock. Therefore, Indonesian Capital Market laws must be able to regulate responsibilities and provide protection for every capital market actor. PM Law has clearly regulated the responsibilities for capital market violations and crimes along with legal protection for investors who perform transactions in the capital market, in this case the violation of fraud on a company's financial statement. Along with other regulations of financial institutions that carry out other supervisory functions such as Bapepam and OJK, PM Law remains the main reference if there are violations and crimes on the capital market. Legal protection for retail investors also needs to be given attention because retail investors are the actors that drive the capital market. The principle of transparency is a solid fundamental that provides legal protection for capital market investors. In achieving a developed and sustainable capital market, Indonesian Capital Market must be able to provide legal certainty for every capital market actor. Legal certainty for each party will then build trust that helps the image of Indonesian Capital Market so that foreign investors want to participate in the evolving Indonesian Capital Market. With this, the capital market can be relied upon as a very crucial instrument in developing the country through the economic sector.
REFERENCES
Book
Bernard Nainggolan, Buku Ajar Hukum Pasar Modal, Yogyakarta: Publika Global Media, 2023.
M. Irsan Nasarudin (et.al.), Aspek Hukum Pasar Modal Indonesia, Jakarta: Kencana, 2014.
Sudikno Mertokusumo, Mengenal Hukum, Yogyakarta: Liberty, 1995.
Journal
Rahmadiani Putri Nilasari, “Perlindungan Hukum Terhadap Investor dalam Transaksi Jual Beli
Efek Melalui Internet”, Yuridika, Vol. 26, No. 3, 2011.
Geovani Brilliant, “Perlindungan Hukum Bagi Investor dalam Pasar Modal”, Das Sollen: Jurnal
Kajian Kontemporer Hukum dan Masyarakat, Vol. 2, No. 2, 2024.
Internet
Teti Purwanti, OJK Catat 162 Kasus Pelanggaran Pasar Modal Sepanjang 2022, https://www.cnbcindonesia.com/market/20221229190039-17-401308/ojk-catat-162-kasus -pelanggaran-pasar-modal-sepanjang-2022#.
Wulan Sari (et.al.), Ini Putusan Kasus Laporan Keuangan Tahunan PT Garuda Indonesia 2018,
https://setjen.kemenkeu.go.id/in/post/ini-putusan-kasus-laporan-keuangan-tahunan-pt-gar uda-indonesia-2018.
Danang Sugianto, Garuda Diduga Manipulasi Laporan Keuangan, Bagaimana Pengawasan
Rini?, https://finance.detik.com/bursa-dan-valas/d-4524789/garuda-diduga-manipulasi-laporan-keuangan-bagaimana-pengawasan-rini.
Legislation
Law Number 8 Year 1995 on Stock Market.
Law Number 21 Year 2011 on OJK.
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The Author is an undergraduate student in Faculty of Law, Padjadjaran University, Bandung, andri23002@mail.unpad.ac.id
Article 1 Number 13 PM Law.
Teti Purwanti, OJK Catat 162 Kasus Pelanggaran Pasar Modal Sepanjang 2022, https://www.cnbcindonesia.com/market/20221229190039-17-401308/ojk-catat-162-kasus-pelanggaran-pasar-modal-sepanjang-2022#:, accessed November 23, 2024.
Article 90 PM Law.
Sudikno Mertokusumo, Mengenal Hukum, Liberty, Yogyakarta, 1995, p.4.
M. Irsan Nasarudin, (et.al.), Aspek Hukum Pasar Modal Indonesia, Kencana, Jakarta, 2014, p. 258.
Danang Sugianto, Garuda Diduga Manipulasi Laporan Keuangan, Bagaimana Pengawasan Rini?, https://finance.detik.com/bursa-dan-valas/d-4524789/garuda-diduga-manipulasi-laporan-keuangan-bagaimana-penga wasan-rini, accessed 8 December 2024.
“Legal Basis and Rules for Import Duty on Imported Goods”, SIP Law Firm, November 20 2023, https://siplawfirm.id/dasar-hukum-dan-aturan-bea-masuk-barang-impor/?lang=id
Wulan Sari (et.al.), Ini Putusan Kasus Laporan Keuangan Tahunan PT Garuda Indonesia 2018, https://setjen.kemenkeu.go.id/in/post/ini-putusan-kasus-laporan-keuangan-tahunan-pt-garuda-indonesia-2018, accessed 8 December 2024.
Bernard Nainggolan, Buku Ajar Hukum Pasar Modal, Publika Global Media, Yogyakarta, 2023, p. 27.
M. Irsan Nasarudin (et.al.), Op.Cit. (Note 6), p. 278.
Rahmadiani Putri Nilasari, Perlindungan Hukum Terhadap Investor dalam Transaksi Jual Beli Efek Melalui Internet, Vol. 26, No. 3, 2011, p.277.
Geovani Brilliant, Perlindungan Hukum Bagi Investor dalam Pasar Modal, Vol. 2, No. 2, 2024, p.8-9.
Article 30 OJK Law.
Cross-Border Thrift: The Rise of Indonesia’s Secondhand Market and its Implications in International Law
Veronica Piqe Febeline, Nadine Fakhira Putri Ravanti
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ABSTRACT
Nowadays, thrifting has become a trend, especially among the youth. In Indonesia itself, the activity of importing used goods is increasing, even though there is already a ban on national regulations. This research analyzes how export-import activities in transnational transactions, especially regarding thrifting regulations, are implemented both nationally and internationally in the eyes of the world. This article uses a legal research approach that examines the current regulations regarding thrifting, which is also supported by scholarly journals, articles, and various library sources. Furthermore, this research also aims to provide insights on how effective the regulations governing thrifting in Indonesia are, given the increasing number of second-hand imports that can threaten the domestic economy. It is hoped that this article can raise public awareness of the excessive consumption of second-hand goods that can harm both export and import countries.
Keywords : Thrift, Export-Import, Transnational Transactions
BACKGROUND
The development of technology through globalization made it possible for international cross-border trade to happen. Accessibility of the global market prompted new up-and-coming trends in Indonesia, one of them being thrifting. Second-hand trading, more familiarly known as “thrifting” has become a new phenomenon in Indonesia. Etymologically, the word 'thrift' comes from the word 'thrive', which means to flourish or progress. Meanwhile, the term 'thrift' refers to a way of utilizing money and goods wisely and efficiently. In practice, thrifting is defined as buying second-hand goods. However, it's not just a second-hand transaction; it also involves the personal satisfaction of finding a unique, rare, or cool item at a much more affordable price. Enthusiasts usually enjoy every step of the process.
The practice gained its popularity through social media platforms, where people introduced second-hand clothes as cheap, affordable, and fashionable clothing. Reviews quickly circulated on the internet, ultimately influencing people to participate in the trend through online e-commerce sites such as Shopee and Tokopedia, rapidly increasing the business’ turnovers. Based on data, imports of used clothing in Indonesia experienced a significant spike in the 2018-2020 period, with volumes reaching hundreds of tons. However,
the volume of used clothing imports shows a downward trend from year to year, until finally
in 2021 the figure managed to fall below 10 tons.
The practice of trading secondhand clothes actually emerged after the Asian financial crisis in 1998, as it used to be an economical solution. However, the development of social media and online e-commerce has changed the perception of thrifted clothes from practicality to an influential habit. This, popularized the new lifestyle of buying used fashion products ranging from used clothes to used shoes or better known as “thrifting” in Indonesia.
Despite the everlasting trend of the lifestyle, the business of trading used clothes is in fact prohibited in Indonesia. Back in 2014, the government disclosed the regulations regarding importing goods through Law Number 7 of 2014 regarding Trade. Imported goods must be new goods, including but not limited to clothing, concerning the fear of bacteria contamination in the used second-hand clothes. Through the law, the government enacted solely on the prohibition of used goods, not necessarily all trade of goods. However, the law does condemn the practice of thrifting in Indonesia, thus making it illegal.
In spite of the strict regulations made by the government, some businesses tried to work their way around it by saying it was “thrifted”, hence emphasizing it as if it was local second-hand product when in reality it's not. These kinds of practices display the contradiction between the regulations that were set by the government and the overall compliance with the law. Consequently, the situation sparked the need for a further analysis regarding the importance of the continuous importing of used goods, or better known as the trend of thrifting in Indonesia.
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PROBLEM IDENTIFICATION
1. How does the Indonesian foreign regulation (Transnational Business Law) address and regulate imports of used goods?
2. To what extent has the regulation of thrifting activities in Indonesia been effective in achieving its intended objectives, considering the rapid growth and increasing popularity of this practice within the country?
METHOD
This article employs a legal research approach to analyze the existing regulations governing thrifting. The study is further supported by insights drawn from scholarly journals, academic articles, and a variety of library resources. Legal materials were collected through document studies by tracing and reading primary and secondary materials related to the study. The primary objective of this research is to evaluate the effectiveness of regulations governing the importation of second-hand goods in Indonesia. In an effort to understand the phenomenon of thrifting in Indonesia itself, the study will also use empirical legal research to analyze the compliance with the national law. Additionally, it aims to raise public awareness about the potential risks posed by the excessive practice of thrifting on both national and international scales.
ANALYSIS
1. Regulations regarding the import of used goods based on the Indonesian foreign regulation (Transnational Business Law)
As export and import activities occur in many countries around the world, the goods exchanged also vary. According to Law Number 17 of 2006 on Amendment to Law Number 10 of 1995 regarding Customs and Excise Affairs, export is defined as the activity of sendinggoods out of the customs territory, where the goods are subject to export tax by the state, and in comparison, import refers to the activity of bringing goods into the customs territory, which is subject to the imposition of import duties in accordance with the provisions of the law. The goods traded are imported used goods that are diverse, ranging from televisions, air conditioners, footwear, clothing, and many more.
The arrangements related to importing foreign used goods are regulated through Indonesian Law Number 7 of 2014 regarding Trades. The said regulation actually prohibited importing used goods, as they would not be allowed to enter Indonesia upon their arrival. Article 50 Paragraph 2 of the law stated that the prohibition was due to the protection of national security in social, cultural, and public morals, intellectual property rights, as well as the health and safety of humans and the environment. The ban on imported goods was issued as a response to the testing on imported used clothing conducted by the Ministry of Trade which showed the hazardous bacteria living on the clothes. Test results reveal the mold fungus on the clothes which can cause physical health issues, namely itch and allergic reactions when the clothes make direct contact with the skin.
Various parties, including the government, business actors, and the public are very concerned about the complex provisions of second-hand goods imports. A fairly clear legal framework for regulating the import of second-hand goods is provided by Law No. 17/2006 on Customs and Law No. 7/2014 on Trade. The ban on second-hand goods largely aims to safeguard public health, the environment, and economic stability. For example, used goods such as imported clothing often contain bacteria or mold fungi that can cause allergies or skin diseases. This shows that strict supervision is needed for second-hand goods entering Indonesia. However, the law permits the import of certain second-hand goods that meet set criteria. Ministry of Trade Regulation No. 20 of 2021, especially Article 18 allows the import of second-hand goods with strategic benefits, such as capital goods required for infrastructure development or industrial production. For example, industrial activities in the country can be helped by importing used machinery that is not available domestically. Also, for humanitarian reasons and urgent needs, second-hand goods used for post-disaster recovery, such as medical equipment or heavy machinery may be allowed.
Instead, the government is trying to balance this policy by considering its economic and environmental consequences. Local industries may suffer from uncontrolled imports of second-hand goods, especially SMEs that make similar products. In addition, used goods that are not fit for use have the potential to become waste, which burdens the Indonesian government in terms of environmental management. As a result, the government should increase supervision at ports, ensure that only used goods meet the criteria, and raise public awareness of the importance of buying local products. Aside from regulation, collaboration
across ministries and related agencies is essential to ensure that policies are properly implemented. For example, the Ministry of Trade should cooperate with Customs to check import documents, while the Ministry of Health is responsible for testing goods that may endanger health. Equally important, the public and businesses should be kept informed of the risks and benefits of importing second-hand goods. The government can balance the needs of industry, public protection, and environmental sustainability with integrated measures.
2. Effectiveness of Thrifting Regulations in Indonesia Amidst Its Rising Popularity
Due to the massive demand for thrift clothes in Indonesia, “thrift” sellers usually find another method to sell the clothes. They usually refurbish the clothing by washing the clothes with antibacterial cleaners and restyling them in order to give them a new and clean look. A lot of sellers also used professional photography settings to make it look more convincing, then labeled the clothes at a discounted price to attract people who were looking for affordable and stylish clothes. Aside from the violation of Law Number 7/2014, this is also a violation of Consumer Protection Law Number 8/1999 Article 8 Paragraph (2) which explicitly explains that a business actor is prohibited from selling used goods without providing direct information to the customer that the goods were not new.
Contrary to the massive thrift market in Indonesia, the government has also been trying to stop the business by raiding the markets and destroying the clothes. In Sidoarjo, East Java, the government destroyed an estimated 824 sacks of used clothing that was worth at least Rp10 billion.
In order to effectively uphold the regulations regarding the practice of thrift, it is important to consider the fact that Indonesia has yet to normatively regulate the practice of thrifting, thus making it a grey area for the practice itself. Especially when a lot of people have made their whole living through importing and selling second-hand clothes by being a seller and/or distributor. The vague regulations on the practice of thrift, combined with the soaring high interest on thrifting has made the practice was still done until this day.
The growing popularity of thrifting in Indonesia brings both benefits and obstacles to many people. On the one hand, this habit has made its way into the lifestyle of many people, especially the younger generation who are conscious of sustainability issues. When people buy second-hand clothes, not only do they get items at a cheaper price, but they also reduce the amount of textiles that are discarded. One of the biggest contributors to carbon emissions and waste in the world is the fashion industry. As a result, thrifting is considered an eco-friendly solution to reduce the adverse effects of fast fashion. Thrifting also helps small
businesses like second-hand clothing stores, creates jobs, and boosts the local economy.
On the other hand, unclear thrifting regulations caused many problems. To protect the local textile industry and public health, the government implemented policies and raids to control the import of second-hand clothing. Imported second-hand clothing often does not meet hygiene and safety standards and can cause skin diseases and allergies. The government took strict measures to stop the illegal trade, such as by destroying thousands of sacks of used clothing in Sidoarjo. However, this action has been criticized as many communities depend on thrifting as a main source of income.
Thrifting is still a legal issue in Indonesia as there are no clear regulations. Although Law No. 7/2014 on Trade and Minister of Trade Regulation No. 20-2021 strictly prohibit the import of non-standard second-hand goods, they are still ineffective in practice. The high demand for imported second-hand clothing shows the real needs of the people that cannot be ignored. As a result, the government should review their methods for thrifting by considering the economic, social, and environmental impacts. It is crucial to consider broader solutions, such as creating regulations governing the level of cleanliness of used clothing before it is imported and sold in Indonesia. In addition, the government can help the growth of the local second-hand clothing market by encouraging businesses to use domestic goods. Public awareness about the importance of choosing safe and clean second-hand goods can be increased through proper information dissemination. Thrifting can be a practice that is not only legal but also provides maximum benefits to the environment and society if done in a more purposeful and collaborative manner.
The government should understand the origins of thrifting's popularity in society. Economic reasons and lifestyle changes are driving a more sustainable fashion trend. Reusing clothes as a way to contribute to environmental conservation attracts the attention of many young customers. Even online communities and platforms that encourage thrifting as part of modern culture support this trend. With its growing popularity, banning it entirely without providing alternative solutions could lead to major problems, such as an increased black market and illegal trade. More flexible regulations can help protect the local textile industry and meet the market demand for thrifting.
One measure that can be taken is to create a specialized area or market for the trade of second-hand clothing where sellers must adhere to specified hygiene requirements. In addition, the involvement of the private sector, such as e-commerce sites in the management of thrifting markets can open up new opportunities for innovation, such as the development of better technologies for the quality of used clothing. This not only supports sustainability but also encourages economic growth that is still environmentally friendly.
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CONCLUSION
The development of technology through globalization has introduced many new ways and trends, one of them being cross-border transactions called thrifting. While thrifting used to be purely motivated by economic values, it has now shifted to being a trend in Indonesia. The new and popular lifestyle trend however, was actually deemed illegal in Indonesia as it was importing used clothes. Indonesia’s regulations prohibited used goods from entering Indonesian borders through Law Number 7/2014 to protect national security as it was deemed dirty and hazardous for the people to consume. Despite that, the business of thrift clothes has seemingly never slowed down. Due to the increasingly large demand for the clothes, sellers usually refurbished the clothes to make them seem brand new. Even worse, they also stated in the marketing that they were new clothes when in fact, it was imported used goods. This raises a new spectrum of problems that violate Consumer Protection as the consumer should have the right to receive information regarding the goods they are looking to buy. The continuous circulation of thrift clothes in Indonesia raises alarms regarding the law enforcement from the government itself. The lack of supervision alongside the vague regulations made the practice still being carried out. In an attempt to understand the high demand of thrifted goods, the government should revise its regulation in order to accommodate the needs of the people, for instance, requiring the thrift sellers to undergo a hygienization process to make thrifting legal for people to enjoy and access.
BLIBIOGRAPHY
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The Author is an undergraduate student in Faculty of Law, Padjadjaran University, Bandung, veronica22002@mail.unpad.ac.id
The Author is an undergraduate student in Faculty of Law, Padjadjaran University, Bandung, nadine22003@mail.unpad.ac.id
Ghesa Gafara, “A Brief History of Thrifting”, USS Feed, 2019, https://ussfeed.com/a-brief-history-of-thrifting/pop-culture/
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Aulia Rahmawati, Syafida, Ririn, “Thrift Shopping and Indonesian Urban Youth Fashion Consumption”, Cardiff University Press, October 1 2022, https://jomec.cardiffuniversitypress.org/articles/224/files/submission/proof/224-1-556-1-10-20221209.pdf
Adel Andila, “Import Statistics of Used Clothes for the Last 5 Years”, Good Stats, March 23 2024, https://data.goodstats.id/statistic/statistik-impor-pakaian-bekas-5-tahun-terakhir-RLqTo
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Ayu Widya, Suraji. 2024. “Problems with Thrifting Used Clothes Bazaar in Surakarta”. Jurnal Kajian Ilmu Sosial, Politik dan Hukum 163-171
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Azizan Fatah, Deya Alvina Puspita Sari, Isnaini Syifa Irwanda, Lauren Ivena Kolen, P. Gusti Delima Agnesia. 2023. "Pengaruh Larangan Impor Pakaian Bekas Terhadap Pengusaha Thrift." Jurnal Economina 288- 292
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Widiarty, W. S. (2023). Legal Guidance and Supervision of Imported Clothing Products Based on Indonesian National Standards (SNI). International Journal of Law, 9(5), 216-220.
Guo, S., Choi, T. M., & Zhang, J. (2021). Second-hand-clothing imports in least-developed-countries: The collapse of local clothing manufacturing and remedial measures. IEEE Transactions on Engineering Management, 70(5), 1774-1793.
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Cryptocurrency as a New Platform for Money Laundering
in the Digital Era
Nashifa Tsarwa Fadiya Anggiani , Reven Saputra , Naufal Faiz Subandi
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ABSTRACT
Technological advancements have driven major changes in the banking sector, especially with the rise of digital currencies. Cryptocurrencies offer advantages such as privacy and anonymity, fast transactions, and accessibility, but they also face major challenges related to regulation and financial security that have the potential to become a target for perpetrators of money laundering crimes. The anonymity of users in cryptocurrencies creates difficulties for anti-money laundering programs that rely on the Know Your Customer (KYC) principle, so that it requires special attention by the government and all levels of society. The purpose of this study is to determine the regulation of money laundering using cryptocurrency in Indonesia and to determine steps that can be taken to enhance the effectiveness of supervision of money laundering crimes using cryptocurrency. This research uses normative legal research methods. The results of this study assess that the use of cryptocurrency as a means of money laundering requires strict supervision by law enforcement officials and a binding legal basis regarding the use of cryptocurrency as a means of payment in Indonesia so as to minimize the occurrence of a crime, especially money laundering by irresponsible parties.
Keywords: Anti-money laundering, cryptocurrency, financial security, money laundering.
BACKGROUND
The rapid development of cryptocurrency has significantly transformed the global financial system. Cryptocurrencies, such as Bitcoin, Ethereum, and others, are decentralized digital currencies that offer an alternative to traditional banking and cash transactions. These currencies operate on blockchain technology, providing users with anonymity, security, and global accessibility. As of recent years, cryptocurrencies have gained widespread use not only for legitimate purposes but also as a tool for illegal activities, including money laundering. According to Jeffrey Robinson, the term "money laundering" is used because the process involves converting money associated with crime or obtained illegally or "dirty" into money that appears to be obtained legally or "clean." In money laundering offenses, there are generally two components or variants of crime: the predicate offense and the money laundering offense itself. Speaking of the predicate offense, this refers to the crime that is the original source of illicit assets (dirty money) that are then laundered. According to reports by global regulatory agencies, billions of dollars are laundered annually through crypto assets due to the anonymity they offer. Cases such as the Liberty Reserve scandal and various darknet markets illustrate the increasing role of cryptocurrency in facilitating criminal activities. Financial institutions and regulators are becoming more aware of the growing risks, leading to more scrutiny and concerns about how to control illicit financial flows within the digital space.
Legal frameworks and regulatory guidelines aim to ensure that financial transactions are conducted in a transparent and lawful manner, preventing the abuse of financial systems for criminal purposes, including money laundering. International bodies such as the Financial Action Task Force (“FATF”) have issued recommendations to combat money laundering in the digital world, including cryptocurrency transactions. FATF guidelines encourage governments to implement stringent Know Your Customer (“KYC”) and Anti-Money Laundering (“AML”) regulations for cryptocurrency exchanges. Many countries have enacted laws that require cryptocurrency exchanges to comply with these standards, including mandatory identity verification for users, transaction monitoring, and the reporting of suspicious activities. The goal is to align cryptocurrency use with the same regulatory standards applied to traditional financial institutions to prevent it from becoming a haven for illicit activities.
Despite the introduction of regulatory frameworks, there remains a significant gap between the actual implementation and the ideal regulatory environment. Many cryptocurrency exchanges, especially those operating in countries with lax regulations, fail to enforce KYC and AML protocols effectively. This allows bad actors to exploit loopholes, creating a mismatch between the intention of laws and their execution. Additionally, the decentralized nature of cryptocurrencies and the difficulty in tracking blockchain transactions pose challenges for law enforcement agencies. The lack of global regulatory uniformity further complicates efforts to combat money laundering through cryptocurrencies, as some jurisdictions are more lenient than others. This regulatory inconsistency creates opportunities for criminals to exploit the weakest link in the global financial system. Given these challenges, questions arise regarding the effectiveness of law enforcement in addressing money laundering crimes involving cryptocurrency in Indonesia and what steps can be taken to improve the supervision of cryptocurrency transactions to prevent money laundering.
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METHOD
The method used in this study is the Library Research method or often known as normative legal research. In this case, it focuses on the implementation of legal regulations regarding money laundering crimes using cryptocurrency, both positive law and international law. The secondary data in this study includes data obtained indirectly through a literature review covering laws and regulations, international legal provisions, journals, and other relevant sources.
ANALYSIS
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The Law Enforcement of Money Laundering Crimes Using Cryptocurrency in Indonesia
Money laundering is the process of hiding the proceeds of illicit or illegal activities to bury the connection between the original criminal activity and the illicit funds. Money laundering is often only a secondary act preceded by an unlawful act, namely the predicate crime. In relation to the predicate crime, money launderers are divided into two types, namely Self Laundering and Third Party Money Laundering. Self Laundering is carried out by perpetrators who are directly involved in the predicate crime, while Third Party Money Laundering is carried out by perpetrators who are not directly involved in the predicate crime. Although the law has regulated the scope of money laundering, there are several main stages in the money laundering process. In general, there are three stages, namely placement, layering, and integration.
1. Placement is the phase of placing money from the predicate crime into the financial system, either using a bank account, buying a number of financial instruments, smuggling to other countries or smuggling assets or wealth in other forms.
2. Layering is the phase where the perpetrator of the crime of money laundering tries to separate the proceeds of the crime from its original source through several stages of financial transactions to eliminate or disguise the name of the owner.
3. Integration is the phase where the proceeds of crime are diverted into official activities so that they appear clean from any criminal acts. Cryptocurrencies are considered one of the most popular methods of money laundering. Cryptocurrency is designed with very complex cryptography and methods, making it difficult to counterfeit. Some of the reasons for the complexity of government and law enforcement intervention in the cryptocurrency financial system are as follows: first, the cryptocurrency system disguises the identity of the original user with a virtual account because the address and protocol do not require client identification; second, the cryptocurrency system is completely digital without the need for people; third, cryptocurrency does not limit the number of existing accounts so that objectively all transactions that occur cannot be monitored or controlled; fourth, the anonymous nature of the cryptocurrency system prevents certain tracking of its activities. In addition, transactions can be carried out through the TOR (Tor-Onion Router) network, which directs certain web traffic through several relays, thereby hiding the user's actual IP address (internet protocol address). This makes the cyber laundering scheme through cryptocurrency difficult to reveal the identity of the perpetrator of cyber laundering.
The decentralized nature of cryptocurrencies, operating on a peer-to-peer network, limits Bank Indonesia's ability to monitor them, resulting in a lack of regulatory oversight for these transactions, which occur directly between users. Bank Indonesia (BI) regulates cryptocurrencies, Article 34(a) of PBI No. 18/40/PBI/2016 states that payment service providers in Indonesia are prohibited from processing transactions involving virtual currencies. Additionally, BI Regulation No. 19/12/PBI/2017 forbids financial technology operators from utilizing virtual currency payment systems, as cryptocurrencies are not recognized as legal tender. Article 62 of PBI No. 20/6/PBI/2018 further restricts electronic money operators from processing virtual currency transactions. Moreover, PBI No. 23/6/PBI/2021 prohibits payment service providers from engaging with payment sources from virtual currencies. According to Article 1 of the Regulation of the Minister of Trade No. 99 of 2018, along with BAPPEBTI Regulation No. 3 of 2019, cryptocurrencies are classified as commodities eligible for futures contracts on the Futures Exchange. However, due to the anonymity of cryptocurrencies, traditional investigative principles like "follow the money" and "follow the suspect" have become outdated and ineffective, as tracing such digital "money" poses significant challenges.
The legal regulations governing the crime of money laundering in Indonesia are regulated in Law No. 8 of 2010 on the Prevention and Combating of the Crime of Money Laundering (“UU TPPU”). Thus far, money laundering prevention in Indonesia has been carried out with preemptive, preventive and repressive stages in accordance with applicable laws and regulations. If a cryptocurrency exchange service provider finds a suspicious financial transaction, it is mandatory to report the findings to the PPATK. The user's identity will then be traced until it is narrowed down and the user's identity is known. The company's responsibility in collaborating to eradicate money laundering crimes is stated in the provisions of Article 23 paragraph (1) of the UU TPPU, including: (1) Suspicious financial transactions; (2) Cash financial transactions in an amount of at least IDR 500,000,000.00 (five hundred million rupiah) or with foreign currency of equivalent value, which are carried out either within 1 (one) working day; and/or (3) Transactions of funds from and to abroad.
Indonesia has adopted the FATF-recommendation "Travel Rule," governed by BAPPEBTI Regulation No. 8 of 2021, requiring virtual asset service providers to report sender and receiver information for cryptocurrency transactions exceeding USD 1,000 in Rupiah. This regulation aims to reduce the risk of cryptocurrency being used for money laundering. While efforts to monitor cryptocurrency flows in Indonesia are largely based on general principles, initial provisions, such as those in Article 9 of the Electronic Information and Transactions Law (Law No. 11 of 2008), require businesses to provide accurate information regarding contracts, producers, and products. Additionally, buyers of crypto assets must verify their identities, supported by BAPPEBTI's regulation for crypto trading on the Futures Exchange. FATF on money laundering has recommended 3 (three) categories that are required to report financially as per recommendations 12 and 16, including: (1) Financial institutions; (2) Non-financial institutions, and; (3) Professions.
However, Indonesia still requires more robust regulations and enforcement mechanisms for using cryptocurrency in money laundering, which remains challenging due to the anonymous nature of transactions. Asset confiscation guidance is still based on conventional BPK standards, which lack relevance given the virtual and cross-border mobility of cryptocurrency assets. Under Article 3 of UU TPPU, actions to conceal or disguise criminal proceeds, including conversion into cryptocurrency, are punishable by up to 20 years in prison and a fine of IDR 10 billion. Although the law allows for the confiscation of assets reasonably suspected of being linked to criminal activities, ambiguity exists as cryptocurrency is neither classified as currency nor a security within the law’s scope. Therefore, law enforcement relies on the “other acts” provision to address new forms of money laundering. Globally, the U.S. and Germany have developed specific legal frameworks for handling cryptocurrencies in money laundering cases, underscoring the need for Indonesia to improve its regulatory and investigative capabilities in profiling and recovering crypto assets used in such crimes.
Steps that can be taken to increase the effectiveness of oversight of cryptocurrency transactions to prevent money laundering
The problem of using cryptocurrency in UU TPPU has not been regulated in detail in Indonesian criminal provisions so that it can cause problems in handling cyber laundering using cryptocurrency. In essence, UU TPPU can be used as a binding legal basis to provide legal protection as well as provide sanctions against perpetrators who commit money laundering crimes.
So in its implementation, UU TPPU is considered irrelevant when used in the scope of Cryptocurrency, so it is necessary to revise the Law on Money Laundering or create special regulations related to Cryptocurrency in money laundering because there are no clear and binding regulations when viewed from the current regulations. The use of cryptocurrency as a digital currency should be based on several principles, namely, the principle of legal certainty which places a legal basis for the use of digital in society; the principle of benefit which shows the use of technology in improving welfare; the principle of caution that everyone needs to pay attention to the risks that occur to themselves and others; the principle of good faith which shows that there is no purpose that results in losses to other parties and; the principle of technological neutrality where the use of information technology and electronic transactions is able to go hand in hand with the development of the era.
In addition to the urgency of regulating the use of cryptocurrency in money laundering crimes, Indonesian government financial institutions require anti-money laundering procedures focused on the exchanges between financial institutions and cryptocurrency platforms. This would help distinguish typical customer behavior from potential money laundering activities. For instance, if an individual makes multiple large deposits into a crypto exchange from a bank account with no apparent source of income, this behavior may signal potential money laundering. These types of transactions differ markedly from standard, low-risk customer activity, such as routine payroll deposits followed by small withdrawals. By implementing AML protocols tailored to monitor the flow between banks and crypto exchanges, financial institutions can begin to more effectively differentiate ordinary customer behavior from high-risk actions.
A real-world example can be seen in countries like the United States and the European Union, which have pioneered “Know Your Transaction” (KYT) and “Know Your Customer” (KYC) procedures. These procedures require crypto exchanges to track not only the identity of account holders but also monitor transactional behaviors in real-time, allowing law enforcement and financial authorities to detect suspicious transactions. The United States’ Financial Crimes Enforcement Network (FinCEN) mandates cryptocurrency platforms to report transactions above a certain threshold, just as banks do, ensuring that large transfers—whether in crypto or fiat—are documented and monitored.
Indonesian authorities can implement a similar approach, creating a legal framework that ensures cryptocurrency exchanges are held to the same standards as traditional banks. This would include robust KYC requirements and establishing guidelines for suspicious activity reporting (SARs) specific to crypto transactions. BAPPEBTI, Indonesia’s Commodity Futures Trading Regulatory Agency, has already taken steps by requiring crypto exchanges to implement customer identity verification. However, a broader strategy is needed to regulate transactions systematically and ensure better cross-exchange communication.
Furthermore, law enforcement agencies need to enhance transaction monitoring efficiency by optimizing information technology (IT) capabilities by employing advanced data analytics and artificial intelligence. Machine learning algorithms can be utilized to identify money-laundering patterns, such as placement, layering and integration. With such technology in place, authorities can detect red flags and address suspicious transactions more efficiently, regardless of their complex or anonymous nature.
Money laundering is an important thing to handle considering that this crime is not only national in nature but also has an international dimension (transnational) and is one of the 17 (seventeen) most dangerous crimes according to the United Nations Congress on The Prevention of Crime and Treatment of Offenders, Cairo 1955 (Garnasih, 2017). It can be concluded that the urgency of the UU TPPU and other regulations in harmonizing the enforcement of money laundering crime laws is very important to do. The implementation of a strategy in accordance with the objectives of the TPPU Law is expected to reveal suspicious (unhealthy) transaction flows, especially regarding the Cryptocurrency Money Laundering mode. By adopting international best practices and enforcing robust monitoring, Indonesia could mitigate the risks associated with cryptocurrencies, ensuring they support economic growth without facilitating financial crimes.
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CONCLUSION
The rise of cryptocurrency as a digital asset in Indonesia presents both opportunities and challenges, particularly in relation to money laundering. Cryptocurrency's complex cryptographic structure, decentralized nature, and anonymity make it attractive for cyber laundering activities, complicating the efforts of Indonesian law enforcement and financial regulators to monitor illicit financial flows effectively. Despite the presence of Indonesia’s Law No. 8/2010 on the Prevention and Combating of Money Laundering Crimes (UU TPPU), current AML frameworks are not yet tailored to address cryptocurrency transactions fully. To conclude, Indonesia's legal framework needs revised AML regulations specific to digital currencies, alongside the development of principles such as legal certainty, benefit, caution, good faith, and technological neutrality to guide the responsible use of cryptocurrency. Using international examples, such as the United States and European Union’s adoption of Know Your Transaction (KYT) and Know Your Customer (KYC) standards. Additionally, this study recommends enhanced monitoring procedures and IT-optimized transaction analyses to help distinguish typical user behaviors from potential money laundering. This approach could equip Indonesian regulators and financial institutions to identify suspicious transactions more effectively and adapt AML strategies to the realities of a rapidly evolving digital financial landscape.
REFERENCES
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Mohammad Irfaul Darojat, “Cross-Border Money Laundering Using Cryptocurrency. Perspective of Forms of Cooperation in Handling Between Countries”, Anti Corruption Journal, Volume 12 Issue 2 (2022), p.60-75.
Nicholas Ajello, “Fitting a Square Peg in a Round Hole: Bitcoin, Money Laundering, and the Fifth Amendment Privilege Against Self-Incrimination,” Brooklyn Law Review 80, no. 2 (January 1, 2015): 80, https://brooklynworks.brooklaw.edu/blr/vol80/iss2/4.
Pramudiya, K. F. (2021). Pertanggungjawaban Pelaku Money Laundering Melalui Binance Coin. Jurnal Hukum dan Pembangunan Ekonomi, 9(1), 40–51. https://doi. org/10.20961/hpe.v9i1.52518.
Anton Jaksa Trisakti and Eko Soponyono, “Upaya Pencegahan Tindak Pidana Pencucian Uang Dalam Bentuk Uang Kripto (Bitcoin) Menggunakan Prinsip Kehati-Hatian Perbankan,” Jurnal Belo 7, no. 1 (2021): 37–54.
FATF Recommendations, “International Standards on Combating Money Laundering and The Financing of Terrorism & Proliferation”, November 2023.
Rohman MN. Tinjauan Yuridis Normatif Terhadap Regulasi Mata Uang Kripto (Cryptocurrency) di Indonesia. Jurnal Supremasi. 2021;11(2):1-10
Vitalii Rysin and Mariia Rysin, “The Money Laundering Risk and Regulatory Challenges for Cryptocurrency Markets,” in RESTRUCTURING MANAGEMENT. MODELS - CHANGES - DEVELOPMENT., ed. Marek Dziura, Andrzej Jaki, and Tomasz Rojek (Torun, Poland: Department of Economics and Organization of Enterprise of the Cracow University of Economics, 2020), 187–201, https://www.researchgate.net/publication/347564474_RESTRUCTURING_MA NAGEMENT_MODELS_-_CH ANGES_-_DEVELOPMENT.
Law No. 8 of 2010 on the Prevention and Combating of the Crime of Money Laundering
Law No. 11 of 2008 on the Electronic Information and Transactions Law
The Author is an undergraduate student in Faculty of Law, Padjadjaran University, Bandung, nashifa22003@mail.unpad.ac.id
The Author is an undergraduate student in Faculty of Law, Padjadjaran University, Bandung, reven22001@mail.unpad.ac.id
The Author is an undergraduate student in Faculty of Law, Padjadjaran University, Bandung, naufal22019@gmail.com
Mohammad Irfaul Darojat, “Cross-Border Money Laundering Using Cryptocurrency. Perspective of Forms of Cooperation in Handling Between Countries”, Anti Corruption Journal, Volume 12 Issue 2 (2022), p.60-75.
Nicholas Ajello, “Fitting a Square Peg in a Round Hole: Bitcoin, Money Laundering, and the Fifth Amendment Privilege Against Self-Incrimination,” Brooklyn Law Review 80, no. 2 (January 1, 2015): 80, https://brooklynworks.brooklaw.edu/blr/vol80/iss2/4.
Pramudiya, K. F. (2021). Pertanggungjawaban Pelaku Money Laundering Melalui Binance Coin. Jurnal Hukum dan Pembangunan Ekonomi, 9(1), 40–51. https://doi. org/10.20961/hpe.v9i1.52518
Anton Jaksa Trisakti and Eko Soponyono, “Upaya Pencegahan Tindak Pidana Pencucian Uang Dalam Bentuk Uang Kripto (Bitcoin) Menggunakan Prinsip Kehati-Hatian Perbankan,” Jurnal Belo 7, no. 1 (2021): 37–54.
FATF Recommendations, “International Standards on Combating Money Laundering and The Financing of Terrorism & Proliferation”, November 2023.
Rohman MN. Tinjauan Yuridis Normatif Terhadap Regulasi Mata Uang Kripto (Cryptocurrency) di Indonesia. Jurnal Supremasi. 2021;11(2):1-10
Vitalii Rysin and Mariia Rysin, “The Money Laundering Risk and Regulatory Challenges for Cryptocurrency Markets,” in RESTRUCTURING MANAGEMENT. MODELS - CHANGES - DEVELOPMENT., ed. Marek Dziura, Andrzej Jaki, and Tomasz Rojek (Torun, Poland: Departmen of Economics and Organization of Enterprise of the Cracow University of Economics, 2020), 187–201, https://www.researchgate.net/publication/347564474_RESTRUCTURING_MANAGEMENT_MODELS_-_CH ANGES_-_DEVELOPMENT.
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Small but Mighty: The Impact of MSMEs on Indonesia's
Green Economy
Defrina Chalista Mumpuni , Cahaya Pertiwi Putri Hamid , Fasya Yashifa Aurellia
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ABSTRACT
Micro, Small, and Medium Enterprises (MSMEs) are integral to Indonesia's economy, contributing significantly to employment, poverty alleviation, and regional development. This paper explores the role of Micro, Small, and Medium Enterprises (MSMEs) in promoting sustainable development within Indonesia's green economy. With the backdrop of global shifts toward sustainability, Indonesia recognizes the potential of MSMEs to support economic growth while adhering to environmental sustainability principles. Historically rooted in national legislation, MSMEs are integral to Indonesia's economic fabric and vital for achieving Sustainable Development Goals (SDGs). The study adopts a qualitative and analytical approach, utilizing normative and empirical legal research to dissect the legal framework governing MSMEs operational sustainability. By focusing on specific sectors such as agriculture, manufacturing, and tourism, the study assesses the effectiveness of current policies and the implementation of sustainable practices among MSMEs.
Keywords: MSMEs, green economy, legal framework, eco-friendly practices.
BACKGROUND
The idea of a more sustainable economy has been discussed for several decades, gradually evolving into a fundamental aspect of global policymaking. In the past few years, sustainability has risen to the forefront of international agendas, driven by an increasing awareness of the economic and environmental challenges posed by climate change and environmental degradation. Research has consistently shown that the traditional economic model, which prioritizes industrial growth often at the expense of environmental health, is unsustainable in the long term. Consequently, the concept of the green economy has emerged as a solution to align economic progress with environmental sustainability. Promoted by international institutions like the United Nations Environment Program (UNEP), the Organisation for Economic Co-operation and Development (OECD), and the Green Economy Coalition, the green economy seeks to balance economic growth with ecological responsibility. This approach aims to support social development, improve human well-being, and significantly reduce environmental risks and ecological scarcities, ensuring that future generations inherit a viable planet. Integrating environmental and economic strategies is crucial because economic expansion, though necessary for societal advancement, inevitably affects the environment.
In Indonesia, Micro, Small, and Medium Enterprises (MSMEs), or Usaha Mikro, Kecil, dan Menengah (UMKM), are pivotal to the country's economic structure. MMSMEs have long been recognized as one of the driving sectors and the backbone of Indonesia's economy. The concept of MMSMEs in Indonesia dates back to 1999 through the enactment of Undang-Undang Nomor 9 Tahun 1999 concerning the Establishment of the Municipality of Banjarbaru. This was later refined by Undang-Undang Nomor 20 Tahun 2008 on Micro, Small, and Medium Enterprises, which provided more comprehensive regulations for MMSMEs. MSMEs play a crucial role in sustainable development in Indonesia, especially in the economic sector.
MMSMEs are not only a backbone of Indonesia's economy but also a key component in achieving sustainable development goals (SDGs). When aligned with green economy principles, their operations can significantly reduce environmental impacts while promoting social inclusivity. Many MSMEs, particularly those in agriculture, manufacturing, and tourism sectors, are uniquely positioned to adopt eco-friendly practices that support sustainability. For instance, small-scale agricultural enterprises utilizing organic farming methods or local manufacturers prioritizing renewable energy can play a pivotal role in reducing the country's carbon footprint. By incorporating sustainable practices into their operations, MSMEs can create a ripple effect throughout the economy, promoting greener supply chains and fostering environmentally responsible consumption.
MSMEs play a vital role in advancing sustainable development, particularly in the economic sector. These enterprises provide opportunities for individuals to establish their own businesses and create employment, thereby helping to reduce Indonesia's high unemployment rate. As per data from the Ministry of Cooperatives and MSMEs, in 2019 there were 65.5 million MSMEs in Indonesia, accounting for 99.99% of the country’s total business entities. Moreover, MSMEs employed around 123.3 million individuals. Their contribution to Indonesia’s Gross Domestic Product (GDP) is 60.5%, surpassing the 38.9% contribution from larger enterprises. This underscores the importance of MSMEs in generating employment and bolstering the country's overall economic resilience.
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IDENTIFICATION OF THE PROBLEM
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How do Small and Medium Enterprises (MSMEs) in Indonesia currently contribute to the green economy, and what are the specific areas where their impact is most significant?
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How effective are current government policies and regulations in supporting the transition of MSMEs towards sustainable practices within the green economy framework? What legal obligations do MSMEs have under Indonesian law regarding environmental sustainability, and how well are these laws understood and implemented by MSMEs?
METHOD
The essay employs a qualitative and analytical approach to explore the contributions of Micro, Small, and Medium Enterprises (MSMEs) to Indonesia's green economy. The method combines normative legal research, which focuses on analyzing laws and regulations regarding the green economy, and empirical legal research, which involves data collection through surveys and interviews with stakeholders in the MSME sector. Descriptive analysis and an extensive literature review synthesize existing data and insights. This comprehensive methodology facilitates in-depth policy analysis and enables examining specific case studies across crucial industry segments within the green economy, ensuring a robust exploration of MSMEs' contributions.
ANALYSIS
1. Indonesia’s MSMEs: A Green Economic Backbone
The concept of a green economy is fundamentally rooted in the recognition that traditional models of economic growth—those driven by unchecked industrial expansion and resource extraction—are increasingly unsustainable due to their harmful environmental impact. Decades of rapid economic growth worldwide have come at a high ecological cost, leading to significant environmental degradation, biodiversity loss, climate change, and the depletion of natural resources. This realization has sparked a global shift in how economic progress is conceived, with a growing emphasis on balancing economic development and ecological stewardship. The green economy framework, therefore, is designed to harmonize economic advancement with environmental sustainability, aiming for a model where growth enhances human well-being while minimizing environmental risks, reducing resource depletion, and addressing the broader challenges of climate change.
In Indonesia, Micro, Small, and Medium Enterprises (MSMEs) are integral to the country's economic development and transition toward a more sustainable, green economy. MSMEs form the backbone of Indonesia's economy, contributing significantly to its overall growth, employment, and regional development. Accounting for over 99% of the country's business entities, MSMEs employ millions of people and are responsible for more than 60% of the nation's Gross Domestic Product (GDP). Given their entrenched role in the economy, MSMEs are uniquely positioned to contribute to the green economy by adopting sustainable practices and innovations that promote environmental preservation while fostering inclusive economic growth.
a. MSMEs: Pioneers in Sustainable Agriculture, Renewable Energy, and the Circular Economy
Micro, Small, and Medium Enterprises (MSMEs) are critical players in Indonesia's transition to a green economy, significantly contributing to sustainable agriculture, renewable energy, and the circular economy. In agriculture, MSMEs are adopting eco-friendly practices like organic farming, which reduces harmful chemical use and improves soil fertility while also commanding higher market prices. Agroforestry is another method they use to promote biodiversity and carbon sequestration, helping combat deforestation and land degradation. These enterprises are at the forefront of creating environmentally friendly solutions while enhancing economic resilience.
In the agricultural sector, MSMEs increasingly adopt sustainable methods such as organic farming, which minimizes harmful chemicals like synthetic fertilizers and pesticides. This shift preserves soil health, reduces water pollution, enhances food security, and improves crop yields. Additionally, organic products often command premium prices in local and global markets, providing economic benefits to MSMEs. Many MSMEs are also implementing agroforestry practices, combining tree cultivation with traditional farming, which promotes biodiversity and helps sequester carbon. These practices combat environmental issues like deforestation and create a more sustainable agricultural sector that aligns with Indonesia's long-term development goals. MSMEs are leading the way in renewable energy by adopting and promoting technologies such as solar panels, micro-hydro power, and biogas systems. By providing affordable and renewable energy solutions, particularly in rural areas with limited access to the national grid, MSMEs are reducing the country's reliance on fossil fuels and lowering carbon emissions. They are also creating green jobs by producing and installing renewable energy technologies, further contributing to Indonesia's energy transition.
Additionally, MSMEs are making significant strides in waste management by embracing the principles of the circular economy. They actively recycle and upcycle waste materials like plastics, glass, and metal, transforming them into valuable products such as building materials, textiles, and consumer goods. This helps reduce the environmental impact of waste and fosters economic growth by creating new markets for recycled goods. Furthermore, MSMEs involved in upcycling are turning discarded items into higher-value products, particularly in the fashion and design industries, where eco-conscious consumers seek sustainable alternatives. Through these efforts, MSMEs are reducing their environmental footprint and supporting economic growth and job creation, making them essential players in Indonesia's green economy. Their contributions to sustainable agriculture, renewable energy, and waste management are helping to create a more resilient and sustainable future for the country.
b. MChallenges and Barriers for MMSMEs in the Green Economy Transition
One of the biggest challenges MSMEs face in adopting green technologies is limited access to capital. The high upfront costs of renewable energy, energy-efficient upgrades, and sustainable materials can be prohibitive for businesses with tight financial margins. Although these investments offer long-term savings, the initial expenses often must be lowered. Traditional banks view MSMEs as high-risk borrowers, making securing loans for sustainability projects hard. Additionally, green financing options, like green bonds, are not always accessible or well-understood by MSMEs, creating a financing gap.
The regulatory landscape also poses challenges, with complex environmental regulations and costly compliance processes needing to be more manageable for smaller businesses. Obtaining permits and certifications for green initiatives is often time-consuming and expensive. To address these issues, the government should streamline regulations, simplify compliance, and provide incentives like tax breaks, grants, and subsidies for MSMEs investing in sustainable practices. The government can transform these obstacles into opportunities by easing financial and regulatory barriers, enabling MSMEs to thrive in the green economy and contribute to sustainable growth. Collaborative efforts between government agencies, financial institutions, and MSMEs are essential to providing the resources and support needed to accelerate the transition to a green economy.
2. Government Policy in Supporting MSMEs Towards Sustainable Practices
a. Effectiveness of Government Policies in Facilitating MSME Transition to Sustainable Practices
The current Indonesian government has firmly committed to supporting the transition to a green economy. On the international level, the government is active in global commitments such as the Paris Agreement to reduce carbon emissions, where MSMEs are expected to contribute to achieving the emission reduction target. On the national scale, the government has started various initiatives to strengthen the environmental foundation of different economic sectors, including MSMEs. This is reflected in several policies that have been introduced, such as the National Medium Term Development Plan or Rencana Pembangunan Jangka Menengah Nasional (RPJMN), which emphasizes the importance of integrating environmental aspects into economic activities. The government's vision and efforts, both nationally and internationally, are a step towards creating a sustainable development of both environmental and financial aspects to improve the welfare of the Indonesian people.
Some of the Indonesian government policies to support MSMEs towards sustainable practices within the green economy framework include :
● Financing Innovation
Implementing a green economy in MSMEs requires a lot of money to create environmentally friendly business practices, especially when using technology to support a green economy. Hence, the government launched Green Sukuk and established the Environmental Fund Management Agency or Badan Pengelola Dana Lingkungan Hidup (BPDLH) to facilitate MSMEs' access to financing needed to invest in environmentally friendly technology and business practices. Not only that but there is also a Sustainable Finance policy through the Financial Services Authority or Otoritas Jasa Keuangan (OJK), encouraging the provision of access to financing for environmentally-oriented MSMEs through both conventional banking and Islamic financial institutions.
● Business Model for Green MSME Development
Bank Indonesia developed a business model that classifies MSMEs based on the stages of implementation of environmentally friendly practices. The business model classifies MSMEs into 3 (three) categories based on the implementation stage: eco-adopter, eco-entrepreneur, and eco-innovator. The classification is based on several indicators, namely, in terms of production, marketing, human resources, and finance. It aims to provide a clearer picture of the condition of MSMEs and the financing needs required so that it can assist financial institutions in providing more targeted support to MSMEs that want to transition to more sustainable business practices.
● Eco-friendly Product Standard
Environmentally Friendly Product Standards. The government develops regulations governing environmentally friendly product standards. This regulation aims to ensure that products circulating in the market meet specific requirements related to their environmental impact. The government developed regulations regarding environmentally friendly product standards through Undang-Undang Nomor 32 Tahun 2009 tentang Perlindungan and Pengelolaan Lingkungan Hidup dan Peraturan Pemerintah Nomor 28 Tahun 2009 tentang Produk Ramah Lingkungan. The aim is to encourage manufacturers to produce more environmentally friendly products and provide clear information to consumers regarding the environmental impact of the products they buy.
● Training Programs
The government organizes various training programs to increase MSME players' awareness and skills in implementing sustainable business practices. The training covers multiple topics, from waste management and energy efficiency to using environmentally friendly raw materials. This program is related to the Minister of Cooperatives and Small and Medium Enterprises Regulation, which encourages the development of MSMEs through education and training. The policy aims to provide MSMEs with the necessary knowledge and skills to adopt more sustainable business practices.
Despite implementing the policy with good intentions, some shortcomings still need to be considered in optimizing its effectiveness. First, literacy and awareness of the green economy concept among MSMEs, particularly in rural and disadvantaged regions, still need to be improved. Many MSMEs need to fully grasp the long-term benefits of transitioning to green practices, which hampers their adoption. Additionally, there needs to be more specific supervision following training sessions on the green economy, which makes it difficult to assess whether the knowledge gained is effectively implemented. While training has been conducted frequently in urban areas like the capital city, MSMEs in remote locations often need equal access to education and resources, limiting their capacity to embrace sustainable practices.
Access to green finance also remains a challenge. Despite sustainable financing regulations, small and medium-sized MSMEs, particularly in remote areas, often need access to or sufficient information about this funding. This causes only some MSMEs to benefit from existing policies, so the effectiveness of these policies still needs to be improved in their implementation. The results of research from the Journal of Economic Education on the Application of the Green Economy Concept in increasing the income of Tofu MSMEs in the Tofu Hamlet of Situbondo Regency is one of the examples that the application of the Green Economy to MSMEs in more remote areas is still difficult to do. Implementing the Green Economy of tofu MSMEs in Situbondo Regency still needs to fulfill the ten principles of implementing the Green Economy. Applying these principles only focuses on reprocessing solid waste to add economic value.
Thus, it can be concluded that the current Indonesian government policy supporting the transition of MSMEs towards sustainable practices within the green economy framework has shown some significant progress. This reflects the government's commitment to making MSMEs part of the solution to global environmental challenges. However, the effectiveness of these policies still needs to be improved, especially in terms of implementation in the field. One of the biggest obstacles is the low literacy level of MSME players on the concept of the green economy and the importance of adopting environmentally friendly practices in daily business activities. Many MSMEs, particularly in rural and remote areas, still need to gain an understanding of the long-term benefits of sustainable practices and how technology can support this transformation.
b. Legal Obligations of MSMEs in Environmental Sustainability Under Indonesian Law
MSMEs can support Indonesia's economy with the data mentioned above. However, the operation of MSMEs also negatively impacts the environment. There are several obligations MSMEs must fulfill to support environmental sustainability under Indonesian law. MSMEs often overlook the use of product packaging, which leads to large amounts of plastic waste. For example, around 1,5 million plastic waste MSMEs in the culinary sector frequently use plastic materials for their packaging. Moreover, MSMEs often establish their businesses in random locations. These practices need to be regulated, and it is the responsibility of MSME operators to mitigate these negative impacts, as mandated by the following laws:
1. Article 35 of Law Number 32 of 2009 on Environmental Protection and Management (PPLH Law) states that Micro Enterprises are not required to prepare an Environmental Management and Monitoring Plan (UKL-UPL) , but they are obligated to submit a statement of commitment for environmental management and monitoring.
2. Article 20, paragraph 3 of Law No. 18 of 2008 on Waste Management states that in conducting business activities, production materials must be used that generate as little waste as possible, can be reused, recycled, and/or easily decomposed by natural processes.
3. Article 32 of Law Number 6 of 2023 concerning the Stipulation of Government Regulation in Lieu of Law Number 2 of 2022 on Job Creation as Law further regulates MSMEs that have an environmental impact, requiring them to prepare an Environmental Impact Assessment (AMDAL) in conducting their business.
4. Articles 12 and 13 of Government Regulation No. 81 of 2012 on Household Waste Management and Similar Household Waste regulate that business actors, defined as producers, must reduce waste generation by formulating waste reduction plans and producing products using packaging that is biodegradable or generates minimal waste, as well as engaging in waste recycling activities.
Therefore, it can be concluded that in the operation of MSMEs, attention must still be given to their environmental impact, both in terms of the risks from business management and the waste produced. However, many MSMEs are now using eco-friendly packaging and even turning it into a unique selling point for their products.
CONCLUSION
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In conclusion, the Indonesian government has made notable progress in fostering the transition of Micro, Small, and Medium Enterprises (MSMEs) toward sustainable practices within the green economy framework. Various policies and initiatives demonstrate the government’s commitment to integrating environmental considerations into economic activities, particularly in support of MSMEs, which form the backbone of the Indonesian economy. These efforts aim to align economic growth with ecological responsibility, encouraging businesses to adopt practices that enhance their competitiveness and contribute to broader environmental sustainability goals. Despite these advancements, several challenges continue to hinder the effective implementation of green practices among MSMEs. One significant issue is the low level of literacy and awareness surrounding the green economy, particularly in rural and disadvantaged regions. Many MSMEs need a clearer understanding of the long-term benefits of adopting sustainable practices, which hampers their ability to make informed decisions and embrace necessary changes. Additionally, while training programs have been initiated, more follow-up and support are needed to gauge the effectiveness of these efforts in real-world applications. Access to financing for green initiatives remains another major obstacle for MSMEs. High upfront costs associated with sustainable technologies and practices can be prohibitive, especially for smaller enterprises with limited financial resources. Although government policies exist to promote green financing, many MSMEs, particularly in remote areas, need help accessing these funding opportunities. Therefore, enhancing educational outreach, simplifying regulatory requirements, and improving access to green financing are crucial steps for the government to empower MSMEs. By addressing these barriers, Indonesia can better harness the potential of its MSMEs to drive sustainable economic growth and mitigate environmental impacts effectively.
SUGGESTION
The ideal policy for Indonesia today about the Green Economy is to focus on increasing literacy and awareness to implement the green economy among MSMEs, which can be done by creating training but must be carried out by the government evenly for regions in Indonesia, central and remote areas. In addition, it is necessary to conduct further supervision by the government after the training is held to ascertain whether MSMEs in Indonesia implement it to ensure and optimize the implementation of the green economy in Indonesia. Synergies between the government, the private sector, and non-governmental organizations are also essential to ensure the sustainability of these policies across all industries.
REFERENCES
Aliyah, A.H. (2022). Peran Usaha Mikro Kecil dan Menengah (UMKM) Untuk Meningkatkan Kesejahteraan Masyarakat. WELFARE Jurnal Ilmu Ekonomi, Volume 3, Jilid 1, hlm. 64-72.
Data UMKM. (n.d.). Kementerian Koperasi dan UKM. https://umkm.depkop.go.id/
Didi Kurniawan, “In 2024 There Will Be 30 Million MSMEs Starting On Boarding To Digital, Indonesian Chamber Of Commerce And Industry: The Government Must Make Supporting Rules”, https://voi.id/en/economy/339047. Hervé, A., Schmitt, C., & Baldegger, R. (2021a). Digitalization, Entrepreneurial Orientation & Internationalization of Micro, Small, and Media Sized Enterprises.
Office of Assistant to Deputy Cabinet Secretary for State Documents & Translation, “Government to Maintain MSMEs’ Role as Economic Backbone”, https://setkab.go.id/en/govt-to-maintain-msmes-role-as-economic-backbone/.
Peraturan Pemerintah Nomor 81 Tahun 2012 on Pengelolaan Sampah Rumah Tangga dan Sampah Sejenis Sampah Rumah Tangga.
Undang-Undang Nomor 20 Tahun 2008 on Micro, Small, and Media Sized Enterprises.
Undang-Undang Nomor 6 Tahun 2023 on Penetapan Peraturan Pemerintah Pengganti Undang-Undang Tahun 2022 Tentang Cipta Kerja.
Undang-Undang Nomor 18 Tahun 2008 on Pengelolaan Sampah.
Undang-Undang Nomor 32 Tahun 2009 on Perlindungan dan Pengelolaan Lingkungan Hidup.
The Author is an undergraduate student in Faculty of Law, Padjadjaran University, Bandung, defrina22001@mail.unpad.ac.id
The Author is an undergraduate student in Faculty of Law, Padjadjaran University, Bandung, cahaya22001@mail.unpad.ac.id
The Author is an undergraduate student in Faculty of Law, Padjadjaran University, Bandung, fasya22004@mail.unpad.ac.id
Didi Kurniawan, “In 2024 There Will Be 30 Million MSMEs Starting On Boarding To Digital, Indonesian Chamber Of Commerce And Industry: The Government Must Make Supporting Rules”, https://voi.id/en/economy/339047, accessed 3rd October 2024.
Office of Assistant to Deputy Cabinet Secretary for State Documents & Translation, “Government to Maintain MSMEs’ Role as Economic Backbone”, https://setkab.go.id/en/govt-to-maintain-msmes-role-as-economic-backbone/, accessed 2nd October 2024.
Article 35 of Undang-Undang Nomor 32 Tahun 2009 on Perlindungan dan Pengelolaan Lingkungan Hidup
Article 20 paragraph 3 of Undang-Undang Nomor 18 Tahun 2008 on Pengelolaan Sampah
Article 32 of Undang-Undang Nomor 6 Tahun 2023 on Penetapan Peraturan Pemerintah Pengganti Undang-Undang Tahun 2022 Tentang Cipta Kerja Article 12 and 13 of Peraturan Pemerintah Nomor 81 Tahun 2012 on Pengelolaan Sampah Rumah Tangga dan Sampah Sejenis Sampah Rumah Tangga
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Massive Destruction of Cultural Heritage Caused by Russian
Invasion: Ukraine Refuses to Surrender
Sandra Salwa Afifah , Nalendra Bharata Kusuma
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ABSTRACT
The war between Ukraine and Russia has been going on for two years. The current Ukrainian-Russian war has caused unprecedented damage, resulting in the destruction of a number important and historic buildings including cultural heritage. In this case, international regulations are needed to keep cultural heritage away from the impact of conflict. This research analyzes the role of the International Committee of the Blue Shield (ICBS) in protecting cultural heritage amidst the Russian-Ukrainian conflict and examines the effectiveness of international rules that protect cultural heritage amidst the conflict. This article uses a legal research approach that examines the current state of affairs in Ukraine and Russia, conducting a thorough investigation through scholarly journals, articles, and various library sources. International law has regulations that protect cultural heritage in conflict areas, such as the Hague Convention of 1954. Then, these regulations are also supported by the presence of international organizations such as UNESCO which has the sole aim of protecting cultural heritage in a conflict. In the article, it is explained that ICBS plays a role in protecting cultural heritage in Ukraine by encouraging the application of international humanitarian law, especially policies regarding the protection of cultural property regulated in the 1954 Hague Convention. Apart from that, it was also found that regulations regarding the protection of historical buildings such as cultural heritage, only protect repressively, not preventively.
Keywords: Destruction, Cultural Heritage, Ukrainian-Russian War
BACKGROUND
In February 2022, Russia initiated its invasion of Ukraine, marking the beginning of a two-year-long exhausting journey for Ukraine. The war has inflicted unprecedented damage, resulting in the destruction of numerous significant and historically important buildings including cultural heritage. The UN Special Rapporteur in the field of cultural rights (UN Special Rapporteur) noted that cultural heritage should be understood as “living and in an organic relationship with human beings,” a perspective which “encourages its preservation and discourages its destruction. In the midst of war and massive destruction of cultural heritage in Ukraine caused by Russian Invasion, Ukraine remains resolute and refuses to surrender. The massive destruction has not only caused irreparable harm to important structures but has also created a challenging environment throughout the country. By 2023, the Ministry of Culture and Information Policy (MCIP) calculated that 664 sites of the cultural heritage of Ukraine were damaged or destroyed. Furthermore, UNESCO also verified that 343 sites, including 127 religious sites, 151 buildings of historical and/or artistic interest, 31 museums, 19 monuments, 14 libraries, and 1 archive have been damaged since February 2022 until February 2024. This destruction signals a serious international law problem, as international law covers the protection of key buildings.
International law stipulates that objects and sites of cultural, religious, or historical importance benefit from additional protection based on treaty and customary international law. More clearly, Article 38 of The Geneva Convention 1949 states that parties to the conflict shall avoid damage to buildings dedicated to religious, artistic, scientific, educational or charitable purposes and historical monuments unless such buildings are used for military purposes. The rules for protecting important buildings are also outlined in the 1945 Hague Convention on the Protection of Cultural Property in the Event of Armed Conflict, to which both Russia and Ukraine are parties. This convention applies to both movable and immovable property of great importance to the cultural heritage of every person. The UN Special Rapporteur in the field of cultural rights (UN Special Rapporteur) noted that cultural heritage should be understood as “living and in an organic relationship with human beings,” a perspective which “encourages its preservation and discourages its destruction.
The International Committee of the Blue Shield (ICBS), a group of experts that updated the 1945 Hague Convention for the Protection of Cultural Property in the Event of Armed Conflict, has actively taken measures to safeguard Ukraine's cultural heritage buildings. Named after the protective symbol in the 1954 Hague Convention, the blue and white shield, the ICBS has also adopted the Hague Convention symbol as its logo. The organization was formed through meetings between ICOMOS and the International Council of Museums (ICOM) and later decided to expand its scope to include UNESCO. In 1996, the ICBS was formally registered as a standing emergency coordination and response committee of four non-governmental organizations in Paris, with UNESCO and the International Centre for Conservation (ICCROM). Today, the ICBS is understood by some as the international equivalent of the Red Cross or Red Crescent, used to mark both protected cultural property and cultural heritage professionals. Amid the Russia-Ukraine conflict, the ICBS has expressed deep concern regarding the destruction of Ukraine's cultural heritage due to the Russian invasion. As a response to this concern, the Blue Shield actively works in Ukraine, supporting colleagues in safeguarding the country's heritage and assessing measures for recovery, restoration, and repair.
The considerable support provided by ICBS under The Hague Convention has played a vital role in assisting Ukraine in recovering, restoring, and repairing its cultural heritage. The UN General Assembly managed to expel Russian from the Human Rights Council but the complete expulsion from the organization is not feasible. It is because according to Articles 5 and 6 of the United Nations Charter, only the Security Council, including Russia as a permanent member, has the authority for suspension or expulsion measures. The likelihood of Russia being expelled from this decision-making council is low, given that any changes would require unanimous approval from the Council. Similarly, in the context of preserving cultural property, UNESCO lacks the authority to independently intervene, either through sanctions or military means. It is why some people declare that the international regulations are still inadequate to guarantee an effective and concrete system of protection for cultural assets. However, UNESCO has demonstrated effectiveness in actively contributing to the partial restoration of a collective sense of security.
Hence, many efforts have been made by the international committee through the protection afforded by international law. However, regulations need to be amended to have a significant impact on the protection of Ukraine. Therefore, this article will discuss how international law supports Ukraine amidst its conflict with Russia and will delve into the study of cultural heritage protection in Ukraine under international law to determine its effectiveness.
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PROBLEM IDENTIFICATION
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How is international law, particularly the efforts of the International Committee of the Blue Shield (ICBS) to protect Ukraine's cultural heritage amid the conflicts based on The Hague Convention?
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Has the protection under international law of Ukraine's cultural heritage devastated by the war with Russia been effective?
METHOD
This article employs a legal research approach that examines the present circumstances in Ukraine and Russia, conducting thorough investigations through scholarly journals, articles, and various library resources. The primary goal of this research is to gather information regarding the safeguarding of cultural heritage amidst conflicts, with a focus on international law perspectives.
ANALYSIS
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The efforts of the International Committee of the Blue Shield (ICBS) to Protect Ukraine’s cultural heritage amid the conflicts based on international law, particularly The Hague Convention
The ongoing conflict between Russia and Ukraine continues to inflict significant damage on Ukraine's rich cultural heritage, posing ongoing threats and challenges. In response to these challenges, the International Committee of the Blue Shield (ICBS) stands as a dedicated international organization committed to protect the cultural heritage in armed conflict. Anchored from the Hague Convention, the mission of ICBS is the preservation and respect of cultural assets, including heritage sites. By establishing and promoting standards for risk mitigation and training experts at regional and national levels, the ICBS aims to enhance preparedness and resilience against disasters. Moreover, the committee actively engages in public awareness campaigns to underscore the importance of safeguarding cultural heritage. Through proactive measures such as disaster prevention programs and post-crisis rebuilding initiatives, the ICBS works tirelessly to mitigate the impact of conflicts and natural disasters. Furthermore, it plays a vital role in mobilizing resources for swift intervention during emergencies. Across the globe, the ICBS has spearheaded numerous initiatives to safeguard cultural heritage in line with the Hague Convention, including in conflict zones like Ukraine, demonstrating its unwavering commitment to preserving our world’s shared heritage.
In the midst of the conflict between Ukraine and Russia, there are growing concerns regarding the safety and security of Ukraine's national monuments, which are recognized as an essential part of the country's cultural heritage. Recently, the Kiev History Museum reported damage to the ICBS, which promptly responded with attention and concern. The ICBS has been actively engaged in safeguarding Ukraine's cultural heritage and has been successful in mobilizing support from the international community, especially the heritage community, to raise awareness about the potential risks facing cultural properties, including those in Ukraine. This collective effort has drawn significant global attention to Ukraine's situation. The ICBS recognizes the critical importance of preserving Ukraine's historical, artistic, and scientific heritage and welcomes the recent establishment of a Blue Shield National Committee for Ukraine as one of the ways to support Ukraine’s cultural heritage amid the conflicts. The ICBS strongly supports the Ukrainian National Committee's initiative to safeguard the country's diverse cultural heritage and its efforts to coordinate and document cultural assets. ICBS believes it is crucial to work collaboratively to ensure the protection of Ukraine's cultural heritage and they really appreciate the efforts of all stakeholders in this regard.
The ICBS also shows their sympathy for Ukraine’s damage by reviewing the policies and authorities as well as continuing to promote the implementation of international humanitarian law, specifically the policy regarding the protection of cultural property outlined in the Hague Convention of 1954. This convention was adopted to underscore the notion that damage to cultural property belonging to any people equates to damage to the cultural heritage of all mankind, as each individual makes a contribution to the culture of the world. It is also to notify people the importance of the world’s heritage should receive international protection. Given that Ukraine's cultural heritage has suffered damage due to the attack from Russian invasion, the ICBS endeavors to mobilize people around the world to come together and assist Ukraine in addressing this issue. Besides that, the ICBS strives to implement the article of the Hague Convention and support the implementation of this convention as for the protection of Ukraine’s cultural heritage. Furthermore, the ICBS has engaged with the representatives of the Ukrainian Ministry of Defence, Directorates of International Law, and Humanitarian Affairs to facilitate coordination of diverse capabilities across the Ministry to support cultural heritage protection as for their effort to solve the cultural heritage damages problems.
The ICBS put its effort into protecting and supporting Ukraine’s cultural heritage through many aspects. The ICBS also tends to bring Russia to the International Court for causing damage and targeting the cultural heritage as an object to destroy. Nevertheless, ICBS is still in the process of collecting the proof and evidence from all available digital imagery they have. The ICBS stated that one of the cultural institutions cited is an important art and local history museum in the Kyiv oblast. This museum is strongly linked to Ukrainian identity and was located in an area formerly occupied by Russian troops. The ICBS was thinking that the action of burning and destroying the museum was on purpose since the museum was burned out while the nearby village and adjacent houses remained undamaged. To send this action to the international court, the ICBS collected the testimony from eyewitnesses, and the witness stated that the museum was destroyed by a single rocket or artillery strike. However, the ICBS president is still in the process of earning more evidence since the evidence they have is not enough yet to proceed to the international court. Nonetheless, the ICBS is still on the side of helping and protecting Ukraine's cultural heritage as it is the responsibility of all humans in the world.
The effectiveness of protection under International Law of Ukraine’s cultural heritage destroyed by the war with Russia
The Russian-Ukrainian conflict has caused many buildings in Ukrainian areas to be destroyed due to Russian attacks. This has raised numerous concerns because the buildings that are attacked or become targets of attack are not only military buildings, but also civilian buildings such as residents' houses, public facilities, or even cultural heritage such as museums, religious buildings, and other historical buildings. It would be very unfortunate if a building with historical value was destroyed due to direct or indirect attacks on the building. Therefore, to prevent invaluable losses, international organizations have formed international regulations whose main aim is to prevent conflict attacks targeting civilian buildings, especially cultural heritage buildings such as museums or places of worship. Today, many international law instruments, as the 1954 Hague Convention, and international organizations, as the United Nations Educational, Scientific and Cultural Organization (UNESCO) provide hard and soft law instruments prohibiting cultural heritage destruction in situations of armed conflict and times of peace. There are three main treaties on the theft of cultural property: The 1954 Hague Convention, UNESCO, and UNIDROIT.
Emerging from the horrors and devastations of the Second World War, the 1954 Convention for the Protection of Cultural Property in the Event of Armed Conflict (‘Hague Convention’) became the first international instrument to focus solely on the preservation of cultural property during conflicts. Article 1 of The 1954 Hague Convention defines the term “cultural property” shall cover “movable or immovable property of great importance to the cultural heritage of every people; buildings whose main and effective purpose is to preserve or exhibit the movable cultural property defined in sub-paragraph; centers containing a large amount of cultural property”. In Article 2, the protection of cultural property shall comprise the safeguarding of and respect for such property. Then, Article 4 of the Hague Convention requires its States Parties to respect the cultural property located on the territories of States Parties. This means that States parties must prohibit, prevent and put an end to any theft, pillage, misappropriation and vandalism directed against cultural property, and refrain from reprisals against it. More importantly, it also means that States Parties must refrain from exposing cultural property and its immediate surroundings to destruction or damage, and from any acts of hostility directed against such property.
Various regulations for protecting cultural property or cultural heritage in armed conflict apply to the Russian-Ukrainian conflict. However, as long as this conflict continues, regulations regarding the protection of cultural heritage appear to be ineffective in preventive efforts. International rules seem to be only intended for repressive measures that are enforced after the conflict is over, not to prevent damage to cultural property. Therefore, cultural property is actually not safe from attacks during armed conflict. Moreover, civilian objects, including cultural property, can still be legitimate military targets if they contribute effectively to military action by virtue of their nature, location, purpose or use (such as if troops are stationed in a museum), and if the capture, neutralization or redeployment of the property the culture offered definite military advantages (and was not simply a matter of military convenience).
International law is considered to have gaps in the applicable regulations. There are three major gaps in the existing law on repatriation: the lack of a forum to resolve disputes, weak obligations to return stolen cultural property, and minimal adoption of the UNIDROIT Convention. As it stands, there is no explicit call for repatriation when a State Party loots art. State Parties must rely on their own courts, which may lack jurisdiction or authority to enforce judgments. Moreover, Agreements regarding the theft of cultural property are not customary international law so it is difficult for countries to comply with their agreements. To minimize attacks on cultural property, international law considers attacks on cultural heritage a war crime and can be prosecuted before the International Criminal Court. Article 7 (1) (h) ICC Statute states that “Such attacks may also be considered a crime against humanity when they amount to persecution, if they are “committed as part of a widespread or systematic attack […] against any identifiable group or collectivity on political, racial, national, ethnic, cultural, religious, gender […], or other grounds that are universally recognized as impermissible under international law”. However, this effort is a repressive step that cannot completely prevent a party from carrying out acts of destruction of cultural heritage.
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CONCLUSION
The ongoing Russia–Ukraine conflict has caused grave harm to Ukraine's cultural heritage that in turn unmasks remarkable gaps and failures within the international legal regime safeguarding these assets in times of war. Even though international agreements, such as the 1954 Hague Convention, and organizations like the International Committee of the Blue Shield (ICBS), have met important achievements regarding cultural heritage safeguarding matters, they are mainly framed towards post-conflict negative repression measures rather than positive preventive policies. In the meantime, this reactive approach has not been successful to fully prevent any deliberate as well as unintentional wartime destruction and cultural sites could continue to be under risk amidst ongoing military operations.
The efforts by the ICBS have been instrumental in raising global awareness and mobilizing resources to safeguard and restore damaged cultural sites in Ukraine. The ICBS has been particularly effective in advocating for the implementation of international humanitarian laws and supporting Ukraine through various initiatives aimed at protecting its cultural heritage, such as public awareness campaigns, disaster prevention programs, and mobilizing international support for Ukraine’s cultural heritage. Despite these commendable efforts, the existing legal instruments have shown limited effectiveness in mitigating the immediate threats posed by warfare. The prevailing legal frameworks lack the necessary enforceable measures to prevent the destruction of cultural heritage during active conflicts, highlighting the need for a more proactive approach.
Therefore, there is a need to establish more enforceable international standards that will ensure multiple levels of protection of cultural heritage, specially in the areas affected by conflict. Following the downturn, there will be a requirement for more elaborate policies that blend prevention with enforcement and encourage increased international collaboration. In the fight against further cases, it is desperately needed now to include proactive protection plans in strengthening the legal framework as well as enhancing international collaboration and resource distribution. Closing these gaps will enable the international community to safeguard cultural heritage while maintaining it for future generations despite periods of conflict. All these diverse approaches will not only secure our cultural heritage, but also secure the common inheritance of humanity, emphasizing that we must protect the world’s overall history and identity.
REFERENCES
Article 38 of The Geneva Convention 1949
Andriy Kostin, “The Russian assault on Ukraine’s heritage,” International Bar Association, February 28, 2024, https://www.ibanet.org/The-Russian-assault-on-Ukraines-heritage#:~:text=It%20also%20prohibits%20their%20use,tenet%20of%20customary%20international%20law.
Botti, Federica, and Cristina Bianchi. "Cultural Heritage and Religious Phenomenon between Urbicide and Cancel Culture: The Other Side of the Russian–Ukrainian Conflict." Religions 14, no. 4 (2023).
Blue Shield Statement on Ukraine – IFLA, n.d. https://www.ifla.org/publications/blue-shield-statement-on-ukraine/
Brenna Keane, “Does International Law have an Effective Framework to Address the Looting of Cultural Property as Seen in Ukraine?” Michigan Journal of International Law (April, 2023)
Cunliffe, E. (2023, June 1). BSI supports cultural protection law in Ukraine. Blue Shield International. https://theblueshield.org/bsi-supports-cultural-protection-law-ukraine/
Kristin Hausler and Berenika Drazewska, “How does international law protect Ukrainian cultural heritage in war? Is it protected differently than other civilian objects?” British Institute of International and Comparative Law, 1.
Newcastle University, “Cultural Heritage Protection in Armed Conflict,” https://research.ncl.ac.uk/chp-conflict-and-displacement/resources/internationallawandchprotection/#:~:text=Today%2C%20many%20international%20law%20instruments,conflict%20and%20times%20of%20peace.
Robert Bevan, “Heritage Destruction Brings Putin One Step Closer to Prosecution, According to Landmark Report,” The Art Newspaper - International Art News and Events, September 13, 2023, https://www.theartnewspaper.com/2023/09/13/heritage-destruction-brings-putin-one-step-closer-to-prosecution-according-to-landmark-report.
The Blue Shield International, “International Committee of the Blue Shield (ICBS) - Blue Shield International,” Blue Shield International, February 17, 2022, https://theblueshield.org/about-us/history/international-committee-of-the-blue-shield-icbs/.
The Author is an undergraduate student in Faculty of Law, Padjadjaran University, Bandung, sandra22001@mail.unpad.ac.id
The Author is an undergraduate student in Faculty of Law, Padjadjaran University, Bandung, nalendra22001@mail.unpad.ac.id
Alice Smahina, “Capture or destroy: 18 monuments of Ukrainian architecture that Russia destroyed”, Rubryka, September 21, 2023, “https://rubryka.com/en/article/18-pamyatok-arhitektury-yaki-zrujnuvala-rosiya/
Article 38 of The Geneva Convention 1949
The Blue Shield International, “International Committee of the Blue Shield (ICBS) - Blue Shield International,” Blue Shield International, February 17, 2022, https://theblueshield.org/about-us/history/international-committee-of-the-blue-shield-icbs/.
Botti, Federica, and Cristina Bianchi. "Cultural Heritage and Religious Phenomenon between Urbicide and Cancel Culture: The Other Side of the Russian–Ukrainian Conflict." Religions 14, no. 4 (2023): 535.
The Blue Shield International, Op. Cit.
“Blue Shield Statement on Ukraine – IFLA,” n.d. https://www.ifla.org/publications/blue-shield-statement-on-ukraine/
Unesco. Final act of the Intergovernmental Conference on the Protection of Cultural Property in the Event of Armed Conflict, The Hague, 1954. Unesco, 1954. https://unesdoc.unesco.org/ark:/48223/pf0000082464
Cunliffe, E. (2023, June 1). BSI supports cultural protection law in Ukraine. Blue Shield International. https://theblueshield.org/bsi-supports-cultural-protection-law-ukraine/
Robert Bevan, “Heritage Destruction Brings Putin One Step Closer to Prosecution, According to Landmark Report,” The Art Newspaper - International Art News and Events, September 13, 2023, https://www.theartnewspaper.com/2023/09/13/heritage-destruction-brings-putin-one-step-closer-to-prosecution-according-to-landmark-report.
Newcastle University, “Cultural Heritage Protection in Armed Conflict,” https://research.ncl.ac.uk/chp-conflict-and-displacement/resources/internationallawandchprotection/#:~:text=Today%2C%20many%20international%20law%20instruments,conflict%20and%20times%20of%20peace.
Brenna Keane, “Does International Law have an Effective Framework to Address the Looting of Cultural Property as Seen in Ukraine?” Michigan Journal of International Law (April, 2023)
Andriy Kostin, “The Russian assault on Ukraine’s heritage,” International Bar Association, February 28, 2024, https://www.ibanet.org/The-Russian-assault-on-Ukraines-heritage#:~:text=It%20also%20prohibits%20their%20use,tenet%20of%20customary%20international%20law.
Kristin Hausler and Berenika Drazewska, “How does international law protect Ukrainian cultural heritage in war? Is it protected differently than other civilian objects?” British Institute of International and Comparative Law, 1.
Ibid.
Newcastle University, op. Cit.
Kristin Hausler and Berenika Drazewska, op. cit.
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