The potential of interprovincial money laundering in Indonesia: investigation on the attractiveness and destination choice
| Date | 01 January 2025 |
| Pages | 215-234 |
| DOI | https://doi.org/10.1108/JMLC-04-2024-0080 |
| Published date | 01 January 2025 |
| Author | Agung Andiojaya,Aqsal Rizky Ramadhani,Riana Rizka,Fayota Prachmasetiawan |
The potential of interprovincial
money laundering in Indonesia:
investigation on the attractiveness
and destination choice
Agung Andiojaya,Aqsal Rizky Ramadhani,Riana Rizka and
Fayota Prachmasetiawan
Indonesia Financial Transaction Report and Analysis Center,
Jakarta Pusat, Indonesia
Abstract
Purpose –The purpose of this study is to ascertainthe level of attractiveness of each province in Indonesia as
a potential destinationfor money laundering activities originating from Jakarta.
Design/methodology/approach –Adopting a quantitative approach, this study uses the Walker Gravity
Model, which has been modified in two key components: the attractivenessand distance variables. The first
modification is achievedby using proxy economic variables, for which data is available at the provinciallevel
within a country. The utilization of proxy data serves to circumvent certain data limitations inherent to the
original model, which is only accessible at the country level. The second modification is introduced to the
distance component, wherein this study develops a distance index that is deemed to be more representative
than physicaldistance used in the original model.
Findings –The research findings indicate a notable correlation between economic activity and the risk of money
laundering, with provinces in closer proximity to Jakarta exhibiting a higher likelihood of being targeted for money
laundering activities. However, there are exceptions for some provinces that, despite their distance from Jakarta,
also demonstrate a high potential for money laundering due to their strong economic ties to the capital city.
Originality/value –The existing studies on money laundering attractiveness, extent and flow at the
provincial level in Indonesia using quantitativeapproaches are limited. This paper provides new insights into
the economic and governance landscapes of Indonesian provinces, highlighting the need for tailored anti-
money launderingstrategies.
Keywords Money laundering, Walker gravity model, Indonesia province,
Inter-provincial money laundering
Paper type Research paper
1. Introduction
The study to quantify the magnitude of money laundering has become many researchers’
concerns since it has acrucial role to understand the scope and impacts of moneylaundering.
It enables the governments to gauge the severity of the issue and formulate an effective
policy response. However,since the primary goal of money laundering is to obscureits illicit
origins, it cannot be directly quantified through readily available statistical data. To
overcome this obstacle, various methods have been developed to measure the scale and
dynamics of money laundering, including case studies (AlQudah et al., 2021;
JEL classification –C23, F52, K24, O17, R12
Journal of Money
Laundering
Control
215
Journalof Money Laundering
Control
Vol.28 No. 1, 2025
pp. 215-234
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-04-2024-0080
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
Arinanda Kurnia, 2018;Bartolozzi et al.,2022), proxy variables (Jayasekara, 2022;Loayza
et al., 2019), and statistical models (Aljassmi et al., 2024;Argentiero et al., 2008;Fronzetti
Colladon and Remondi, 2017;Jullum et al., 2020;Khan et al., 2018;Mehmet and
Wijesekera, 2013;Walker and Unger, 2009). Among the various approaches, statistical
models for estimating money launderinghave garnered significant interest due to their clarity
and ease of replication (FronzettiColladon and Remondi, 2017).
Aljassmi et al. (2024),Argentiero et al. (2008),Jullum et al. (2020),andMehmet and
Wijesekera (2013) conducted research to estimate the magnitude and potentiality of money
laundering using the comparison of countries data. The statistics model they built were
promising but they have some challenges to address the origin and destinationof the money
laundering source since in the most of money laundering issue are involving transnational
crime (Ramdhass and Kumar,2022).
Take into account this issue, Walker and Unger (2009) designed a model that capable to
capture the estimation of global illicit funds. This model can draw the big picture of the
movement of proceeds from transnational crime through the financial system. By adopting
the gravity model approach developed in physics by Sir Issac Newton, the model offers a
means to estimate money laundering volumes and its macroeconomic impacts. This model
has been widely used and updatedby some researchers so that the estimation generatedfrom
this method have been found compatible with recent findings on money laundering (Ene,
2014;Ferwerda et al., 2020,2013;Roman and Schaefer, 2023) especially in the inter-
countries level.
While the gravity model has proven effective at the country level for examining the
magnitude and flow of money laundering, its application at the provincial level within
countries has encountered limitations. One such limitation pertains to the constraints posed
by data availability. This issue is similarly prevalent in the context of Indonesia. The
previous studies that have been conducted to analyze the magnitude and flow of money
laundering in Indonesia have focused on the national level (Ariesiyani and Alham, 2023;
Winardi et al., 2022). Meanwhile, there is a paucity of attention paid to measuring the
magnitude and flow of money launderingacross Indonesian provinces. One of the obstacles
is due to the inherent data limitations of the original version of the gravity model. For
example, variables such as banking secrecy, government attitude, SWIFT membership,
financial deposits, conflict, corruption, and Egmont Group membershipare only available at
the national level. Consequently, to calculate the gravity model using these variables at the
provincial level, it must identify appropriate proxy variables to replace these national-level
indicators.
This study uses a model based on Walker’s Gravity Model to measure the potential flows
and directional trends of money laundering between different regions in Indonesia. To the
best of the author’s knowledge, no previous researchhas investigated the extent and flow of
interprovincial money laundering in Indonesia using this model. By evaluating the
attractiveness of each province as a money laundering destination, this study not only
measures the magnitude and flow of illicit funds but also identifies the factors that make
certain provinces more appealing for money laundering activities. This dual approach
provides valuable insights for policymakers, enhancing their understanding of money
laundering dynamics at the provincial level and enabling more effective targeting of anti-
money laundering strategies.
This paper is organized as follows: The introductory section provides an overview of the
importance of analyzingmoney laundering activities at both national and provinciallevels. It
also delves into previous researchon money laundering using the gravity model, focusing on
the variables typically used and their limitations at the subnational level. The methodology
JMLC
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