Both the Memorandum of Understanding (MoU) and Law on the Governing of Aceh (LoGA) came into being in a setting complicated not only by the legacies of war and the 2004 tsunami, but also historically ingrained practices which constitute Aceh's hidden, often predatory economy. For years layers of personal interest and decision-making have operated outside any domain of scrutiny or law, due in part to structural roots inherited from the Suharto era. The Indonesian military (TNI) was known in Aceh as a corrupt institution, managing a series of enterprises including illegal logging, drug production and trafficking, and prostitution, as well as 'security' payments viewed by many as extortion. There was a long-standing saying about serving with the military in Aceh: 'You leave with an M-16 and return with 16 M', referring to the military-issue rifle and Rp.16 billion (equivalent to US$1.76 million – an exaggerated estimate of the earnings of corrupt officers). This practice was not limited to Aceh. Soldiers posted to the conflict zone on the eastern island of Ambon in the same period were known to smuggle out everything from exotic parrots to coral for the open market. The role of natural resource extraction in West Papua is also notorious for its negative impacts.

The Free Aceh Movement (GAM) for its part was known at times to mirror such practices. Through control of interior upland areas (particularly from 1998-2002) income was gained from taxing logging operations, or more unusually active involvement in illegal logging on the part of some GAM members themselves. Today unemployed former GAM soldiers can find daily labour in illegal logging, which has been on the increase since the end of the war. Challenges for the peace process and for the future of Aceh include: the legacy of security sector business and illegal operations for financial gain, corruption as a way of life and the fate of natural resources which up to now have been abundant in this fertile area of Sumatra.

Military self-financing as accepted practice in Indonesia originated in part from the merging of professional military units and regionally based guerrillas or people's fronts to form the first national army. This beginning led naturally to the establishment of semi-autonomous localised units responsible for independent funding and logistics arrangements. Military commercial activities became common, even accepted, practice – not an abuse of power but convention. The TNI received only 30 per cent of its operating expenses from the national government and self-financed the remaining seventy percent. For a recent example of this, a study by Suzanne Burford documents the 2006 defence budget as 23.6 trillion rupiah or US$2.6 billion whereas the actual needs are estimated at US$ 6.2 billion. This 'off-budget' funding (extra-budgetary and unaccountable) is derived from formal military-owned enterprises, non-institutional or informal business and mafia-like criminal activity.

Tempo Interactive documented that under the DOM period more than 100 military posts in the Lhokseumawe Industrial Zone vicinity of the ExxonMobil refinery meant the company channeling approximately US$4000-10,000 per day to the TNI. A 2003 study by Lesley McCulloch observed that during the war "many of the villages in the area surrounding Lhokseumawe ...are among the poorest in Aceh. Too afraid to farm the fields because of the level of violence in the area, and with their infrastructure destroyed in 'sweeping' operations by the locally based military, the civilians suffer social and economic impoverishment as a direct result of the economic activities of the security personnel in their area."

Military self-financing thus became intrinsically linked to abuses of power, corruption and human rights violations. The conflict of interests between providing security and profit-seeking entailed abusive and routine behaviours including intimidation, extortion, property seizures and profiteering. It was common knowledge that the military and police were involved in various protection rackets, also controlling legal and illegal trade in fishing, drugs, coffee, peppers, logging and weapons. One visible practice was the levying of fees on private and public vehicles traveling on the Banda Aceh-Medan east- and west-coast highways by the military and police, particularly the paramilitary police. Recent evidence indicates that in the immediate aftermath of the MoU there was a restructuring of corruption and rent-seeking, rather than any significant reduction in such activity. It should be recognised that the current Indonesian government is making efforts to control military business activities nation-wide. Under 2004 legislation military foundations will now be supervised by the Defence Department with the Indonesian government taking over all military business holdings by 2009.

Aceh is rich in tropical hardwood trees, with timber second only to oil and natural gas in importance as an export. The World Bank and the Indonesian government estimated in the late 1990s that 69 per cent of Aceh's total land area remained forested. With current rates of deforestation, predictions are that remaining forests could be only 40 per cent by 2010.

Long an economically and politically significant export commodity for Indonesia, demand for wood was fuelled internally by reconstruction after the tsunami. Under both Sukarno and Suharto timber concessions were rewards for political cooperation, initially extended to military elites and locally influential individuals in exchange for alliances with emerging political parties. Destructive logging has cleared vast rainforests to feed timber-based industries exporting plywood, pulp, paper, furniture and other wood products to consumer countries. A study prepared by the Down to Earth project of the International Campaign for Ecological Justice in Indonesia concluded: '[t]he forests are being felled to make way for large-scale commercial pulpwood and oil palm plantations; for mining, gas and oil projects; for roads and industry. The profits go to the investors, while local communities are left to bear the social and environmental scars.'

Sidney Jones points out that enforcing regulation against illegal logging is complicated by the complex decentralisation measures approved by the Indonesian parliament as early as 1999. In Aceh, additional layers of confusion appeared with the special autonomy legislation in 2001, the tsunami in 2004 and efforts to revise the special autonomy law in 2006. It is not always clear who has actual authority for enforcing the law against illegal logging at different levels of government. Even at district level the division of labor between the local forestry office and police is not always clear, and the result is inaction. Where there is a will to address the problem, corruption can render measures ineffective. Corruption takes many forms: in an International Crisis Group study, Sidney Jones observes patterns of '[b]uying and selling logging permits to unscrupulous entrepreneurs; seizing illegal logs and then reselling them; falsely declaring illegal logs to be legally logged, for a price.' There are additional problems with Indonesian national bureaucracy and sheer red tape, with as many as 21 transactions in different departments required to get permits to log legally.

In 2006 it was estimated that local government in Aceh received revenues five times higher than before decentralisation in 1999. In the same year, two studies, one conducted by the Central Bank and another by Padjajaran University, concluded that as a result of decentralisation and special autonomy Aceh was becoming one of the most corrupt rather than one of the richest provinces in Indonesia. Many people in Indonesia are aware of the danger of 'KKN' – collusion, corruption and nepotism – being decentralised rather than reformed. This will be a long-term challenge calling for structural change; national reform in military practices, new governance with accountability and transparency in Aceh, and the creation of legitimate sources of income and gain.