The passage of Law No. 4/2026 has sparked controversy over its expansion of Bank Indonesia's mandate and its introduction of special bonds such as Patriot Bonds and Red and White Bonds, among 17 amendments to Law No. 4/2023 on Financial Sector Development and Strengthening (P2SK). While both provisions have attracted public scrutiny, particular concern has centered on the legal protections granted to funds used to purchase these special bonds. Critics argue that these protections create a regulatory loophole that could be exploited for illicit purposes.

Article 50A of Law No. 4/2026 authorizes the state asset fund Daya Anagata Nusantara (Danantara) to issue special bonds, including Patriot Bonds and Red and White Bonds. The provision at the center of the debate grants state protection to purchasers of these bonds from criminal prosecution, taxation claims, and civil lawsuits. It also stipulates that data and information related to purchases of these bonds cannot be used as a basis for tax assessments or as evidence in court proceedings.

The privileges apply only to investors who purchase the bonds in the primary market. The bonds may subsequently be transferred to other parties or pledged as collateral for loans. Notably, eligible investors include participants in Indonesia's two previous tax amnesty programs.

Those tax amnesty programs were criticized for creating moral hazard, as taxpayers could have been encouraged to disclose only part of their assets in anticipation of future leniency. Critics argue that access to special bonds with legal protections may reinforce those incentives by providing a mechanism that could shield previously undisclosed assets from scrutiny.

Patriot Bonds themselves have attracted controversy since their introduction. Despite offering coupon rates significantly below prevailing market yields, the bonds reportedly received strong investor interest. Public scrutiny intensified after reports emerged that the bonds were marketed through private placements and that several Indonesian conglomerate owners were allegedly pressured to purchase the securities despite their designation as voluntary instruments.

The Finance Ministry has defended the policy, arguing that the legal protection applies only to funds used to purchase the special bonds. Other assets or cash flows that remain untaxed or are linked to criminal activity would still be subject to enforcement measures. According to the ministry, the policy is intended to encourage funds that have remained outside the formal economy to enter the financial system. The ministry also emphasized that the opportunity to purchase Danantara's special bonds will only be available for a six-month period.

The Financial Transaction Reports and Analysis Center (PPATK) has stated that it is conducting internal discussions on whether the provisions of Law No. 4/2026 could affect Indonesia's standing within the Financial Action Task Force (FATF), the international body responsible for setting standards to combat money laundering, terrorist financing, and the proliferation of weapons of mass destruction.

The legal protections granted to buyers of Danantara's special bonds have alarmed many observers. Economists argue that the policy, together with other measures introduced under Law No. 4/2026, including Article 248A establishing an International Financial Center within a special economic zone for family offices, pension funds, venture capital firms and sovereign wealth funds, could increase the risk of Indonesia being perceived as a destination for money laundering. One concern is that illicit funds from both domestic and foreign sources could enter Indonesia through family offices and subsequently be legitimized through purchases of these protected bonds.

Legal experts note that while Article 50A satisfies formal legal requirements because it is explicitly authorized by statute, the provision should still be evaluated on substantive grounds, including principles of fairness, proportionality, and legal rationality. They also point to the possibility that the article could conflict with Article 27 of the 1945 Constitution, which guarantees equality before the law. According to these experts, the provision may be defensible only if its application is strictly limited to investors acting in good faith.

An economist observed that Danantara's issuance of special bonds with legal protections effectively functions as an off-balance-sheet financing mechanism. By issuing securities through a sovereign wealth fund rather than directly through the government, liabilities can be classified as corporate obligations rather than sovereign debt. Such arrangements are commonly used by sovereign wealth funds as shadow fiscal mechanisms. While this approach may help alleviate fiscal pressures amid sluggish investment activity, it also creates contingent liabilities because investors are likely to view the government as the ultimate guarantor of the risk.

PPATK could mitigate some of the moral hazard concerns through rigorous customer due diligence and know-your-customer requirements. Nevertheless, the potential money laundering risks and the perception that the administration of President Prabowo Subianto is willing to accommodate funds of questionable origin may undermine investor confidence in Indonesia and raise concerns about the country's standing within FATF. To safeguard Indonesia's credibility and reputation in international financial markets, the government should reconsider the legal protection provisions attached to Danantara's special bonds.