How blocked transactions expose Indonesian banks to overlapping obligations

A trading intermediary that facilitates cross-border transactions for its clients (the Company) maintains its accounts with a state-owned bank in Indonesia. The Company routinely remits payments to overseas counterparties on behalf of its clients. It ran into a problem that will be familiar to any company that moves money across borders: some of its outbound transactions were blocked by the US Treasury’s Office of Foreign Assets Control (OFAC), while others simply vanished into the bank’s systems, showing inconsistent statuses with no clear resolution.

The Company’s material loss arising from the blocked and unresolved transactions totalled $17 million. Aside from this calculable loss, the Company also suffered immaterial losses that go beyond the monetary figure. This included disruptions to the Company’s ongoing operations, reputational exposure, and the erosion of trust among the Company’s clients.

What makes the case instructive is not the blocking itself but the bank’s conduct that followed. Prior to the block taking effect, OFAC had requested from the bank additional documentation on the relevant transactions to be provided by the Company. The bank never passed that request on to the Company. It later notified the customer of the OFAC-blocked transactions, but only those, and only after a delay. As for the remaining transactions, they were never explained, refunded, or otherwise resolved.

Notwithstanding the Company’s efforts to reach an amicable resolution with the bank through bilateral meetings, mediation before the relevant authority, and formal complaints lodged through official channels, the bank remained silent throughout. This left the status of the Company’s funds unresolved, with no explanation forthcoming and no compensation offered.

At its core, this case is not primarily a dispute about the underlying transactions, nor even about OFAC’s request itself. Rather, it raises a consumer protection issue that sits at the intersection of Indonesian banking law, consumer protection regulations, and extraterritorial sanctions compliance. The central question is, to what extent must a bank in Indonesia continue to fulfil its customers’ rights under the prevailing laws – particularly rights to information, transparency, timely resolution, and material compensation – while complying with a blocking order issued by a foreign authority such as OFAC?

Under Article 5, paragraph 1 of Law No. 3 of 2011 on Fund Transfer (the Fund Transfer Law), a fund transfer order that has secured acceptance functions as a contract. While the bank is obligated to halt execution of a transfer once a foreign authority orders it under Article 23, paragraph 1 of the Fund Transfer Law, the bank is also obligated to notify the customer on the same day or the following business day at the latest.

This obligation demonstrates that a banking institution is more than merely an entity that collects funds from the public; it is also a service provider subject to a separate regime of law, from a consumer protection perspective, as reflected in the Fund Transfer Law. Viewed from this perspective, the bank’s role is equally bound by obligations that treat the customer not merely as a depositor but as a consumer entitled to timely and adequate information regarding the status of its funds.

Furthermore, the contractual obligation of a transfer order goes beyond just a timely notification whenever a prohibition order from authorities occurs. A more fundamental duty lies in the following action of the bank. The bank’s obligation to inform the customer is prudent as under Article 21, paragraph 1, read together with Article 22 of the Fund Transfer Law, it even survives well beyond normal circumstances such as natural disasters, infrastructure failures, and clearing-system breakdowns. If the duty to communicate survives an earthquake, it is hard to see why it would not survive something far more foreseeable such as a request for additional documentation.

Notwithstanding the bank’s obligation to comply with a foreign authority’s blocking order under Article 23 of the Fund Transfer Law, the spirit and principle of continuing to pursue execution of the transfer order, as reflected in Article 22 of the Fund Transfer Law, should nonetheless prevail, particularly where the fault lies not with the consumer but with the bank’s negligence.

This is further reinforced by the good faith principle under Article 1338, paragraph 3 of the Indonesian Civil Code, which requires that agreements be performed in good faith. Where the Company, as the party acting in good faith, bore no fault in the circumstances leading to the block, the burden of the bank’s negligence should not be allowed to fall on the Company by way of an unresolved and uncompensated loss.

The bank’s role extends beyond a mere collector of public funds. As a commercial bank, it remains bound by the prudential principle set out in Article 14, paragraph 19 of Law No. 4 of 2023 on the Development and Strengthening of the Financial Sector (the Indonesian FSDS Law). This principle carries particular importance, as a trustworthy banking system is expected to enhance national economic growth. This duty is the standard against which the bank’s conduct in this case should be measured. A bank that leaves transactions unexplained for months, ignores meeting requests, rejects mediation, and ultimately leaves the case without compensation is difficult to reconcile with prudent, risk-managed operations.

That prudential duty, and its relation to consumer protection, is reinforced by two further layers of regulation, each attaching for a distinct reason. The bank is subject to Bank Indonesia Regulation No. 6 of 2026 on Consumer Protection (the BI Consumer Protection Regulation) because its conduct falls within the Payment System as defined under that regulation. Under Article 27 of the BI Consumer Protection Regulation, a bank is required to equip the payment system with an official channel through which consumers can obtain information. Furthermore, elucidation of Article 87 of the BI Consumer Protection Regulation requires accessible financial literacy tools, including transaction notifications that inform consumers on an ongoing basis.

In the present case, the bank appears to have lacked the infrastructure that articles 27 and 87 require, an infrastructure that would otherwise have kept the Company informed of its transactions’ status. This gap compounded, rather than caused, the disruption already set in motion by the bank’s failure to relay OFAC’s documentation request.

Aside from the BI Consumer Protection Regulation, a bank is separately subject to the Regulation of the Financial Services Authority No. 22 of 2023 on Consumer and Public Protection in the Financial Services Sector (the OJK Consumer Protection Regulation). Article 57, paragraph 1 of the OJK Consumer Protection Regulation requires accurate, correct, and timely reporting on the position and movement of consumer funds, precisely what the bank failed to provide for the unresolved transactions in the present case.

For the foregoing reasons, it is submitted that the bank’s prudential obligations extended beyond the mere acceptance of the transfer order to encompass its subsequent management, communication, and resolution of the transaction. Accordingly, the material loss of $17 million and the immaterial loss arising from months of unexplained and unresolved transactions were not incidental consequences of the foreign blocking order but the direct and foreseeable result of the bank’s failure to uphold its prudential duties in the post-transaction phase.

Even if the bank were to escape OJK sanction, on the basis that it was bound to comply with a foreign blocking order, that compliance does not, by itself, prevent the bank from liability. As established above, the blocking of the Company’s funds did not arise from any failure on the Company’s part to satisfy the underlying requirements for the transfer, nor from OFAC’s order in isolation. It arose, in material part, from the bank’s negligence and failure to pass on OFAC’s documentation request and to notify the Company within the timelines mandated by the Fund Transfer Law. That negligence is a separate wrong, and it survives independently of whatever administrative deference the bank may be afforded for its compliance with the foreign order itself.

On that basis, the Company retains legal recourse through a claim in tort under Article 1365 of the Indonesian Civil Code. The unlawfulness required for such a claim is grounded in the bank’s breach of specific obligations under the Fund Transfer Law, the Indonesian FSDS Law, and the OJK Consumer Protection Regulation, examined above. That breach, distinct from the bank’s compliance with OFAC’s order, caused demonstrable material and immaterial loss for which no explanation or compensation has been offered.

In addition, should funds placed in the bank’s custody remain unaccounted for over an extended period, with no explanation as to their status, the circumstances may also warrant a criminal complaint for embezzlement under Article 486 of the new Indonesian Penal Code, which criminalises the unlawful appropriation of property belonging to another that is already in one’s lawful possession. Whether the facts ultimately support such a characterisation is a separate question, but the possibility itself illustrates that administrative compliance with a foreign directive offers the bank no blanket shield against the civil, and potentially criminal, consequences of its own negligence.

This disruption in cross-border transactions has exposed a structural weakness that current banking regulation does not adequately address: consumers are left without meaningful legal protection whenever a bank fails to provide sufficient information regarding the status of their funds. In the present case, this gap manifested in the bank’s failure to inform the Company in a timely manner, a failure that directly contributed to the blocking of the Company’s funds and left it with no clear avenue for recourse. Reforms are needed to close that gap.

In the present case, the blocking of the Company’s funds arose not from the OFAC order itself but from the bank’s negligence; namely, its failure to pass on OFAC’s documentation request and to notify the Company in time. Yet the bank was, at the same time, bound to comply with a blocking instruction issued by a foreign authority, a demand it could not simply disregard. This leaves an unresolved gap: the bank must comply with a foreign order it cannot control, while current regulation offers no mechanism for compensating a customer whose funds are caught in that compliance, particularly where the bank’s lapses compound the disruption.

There ought to be a specific regulation governing what happens when a cross-border transaction is delayed, held, or otherwise disrupted. This would set a baseline standard for documentation-request pass-through, notification timelines, and resolution pathways, so that consumers are not left to absorb the consequences of failures elsewhere in the payment chain. Such a regulation would need to address three elements:

• Documentation-request pass-through, requiring banks to relay any request for information from a correspondent bank, clearing house, or intermediary institution to the customer within a short, defined window, together with the reason for the request and what the customer is expected to provide.

• Notification timelines, obliging banks to inform customers at each material change in a transaction’s status within a set maximum period.

• Resolution pathways and compensation, establishing a tiered process for unresolved disputes with defined compensation triggers where a bank fails to meet its notification or resolution obligations. Notwithstanding that Article 110 of the OJK Consumer Protection Regulation provides that consumers may obtain compensation subject to an OJK written order, the proposition of tiered process may strengthen the existing mechanism.

Regulation alone will not resolve the underlying problem if consumers still lack an instrument that facilitates their needs. Alongside the regulatory framework, what is equally necessary is infrastructure, on the bank’s part, that makes transaction status visible and verifiable in real time. This is not merely an aspirational standard; it is arguably already demanded by the bank’s existing obligations under the Fund Transfer Law; namely, to notify customers promptly and to remain accountable for the funds under its custody.

A tiered regulatory mechanism, in other words, can only be as effective as the banking infrastructure built to support it, and banks should not wait for new regulation to begin strengthening the systems their existing legal obligations already require. This should take the form of:

• Real-time transaction-status dashboards, giving customers live visibility of a transaction’s position, ideally interoperable with existing international tracking standards such as SWIFT’s GPI tracker;

• A dedicated notification channel, separate from general account or marketing communications, reserved specifically for transaction-status alerts, with a regulatory floor of mandatory notifications for major status changes such as holds or rejections; and

• A standardised escalation mechanism, giving each bank a single, clearly signposted path for disputes, with defined service-level timelines.

What is clear is that neither regulation nor infrastructure alone will resolve the problem in cross-border transactions. The escalation mechanism under Proposal 2 should feed directly into the compensation trigger under Proposal 1, so that a breach of service-level timelines is not just visible to the customer but automatically assessed for compensation by the regulator.