BETAHITA.ID – As many as 44 legal entities holding concessions for pulpwood plantations are known to refrain from reporting their beneficial owners. This is because the Indonesian government, as a member of the Financial Action Task Force (FATF), has issued a policy that requires every business entity to report its beneficial owners so that the public can access the information.

The findings of the “rogue” business entities are the result of a brief analysis conducted by Transformasi untuk Keadilan (TuK) Indonesia, Woods and Wayside International (WWI), Publish What You Pay (PWYP), and Transparency International Indonesia (TII) on 284 legal entities (companies), consisting of 277 companies holding pulpwood plantation licenses and seven pulp mill companies.

In its report, the civil society groups said that of the 284 companies whose profiles were analyzed, more than 229 (80 percent) companies had complied and reported their beneficial owners, 44 (16 percent) companies did not report their beneficial owners, and 11 (4 percent) other companies could not be found in a search in the beneficial owner registration system managed by the Ministry of Law and Human Rights.

The group explained that seven pulp mill companies have reported beneficial owners, but the accuracy of reporting by some of these companies could be better. According to them, an individual widely recognized as one of the largest investors in Indonesia’s pulp sector was not reported as a beneficial owner of any company in the industry. For six companies in the pulp sector, offshore companies were reported as beneficial owners, not private individuals.

View from the height of the PT TPL factory located in Porsea District, Toba Regency, North Sumatra./Foto:

“Even though the Indonesian government already requires every business entity, including timber plantation companies, to report their beneficial owners so that the information is publicly accessible.”

The group’s findings also highlight that verification mechanisms and sanctions for violations and inaccurate reporting are critical to the success of these transparency initiatives. The recommendations can be applied to improve the effectiveness of beneficial ownership reporting obligations more broadly in other natural resource sectors and across the Indonesian economy more generally.

“Compared to the 35 percent compliance rate of all legal entities in Indonesia, the pulp sector’s 80 percent compliance rate is a significant achievement in the implementation of beneficial ownership identification policies in one of Indonesia’s strategic natural resource sectors,” said Linda Rosalina, Director of TuK Indonesia, in a January 31, 2024 release.

Linda explained that the analysis was conducted by comparing the beneficial owner reports, which can be accessed through the national registry system, with information on the ownership and control of certain companies through financial reports, reports from the media, publications from civil society organizations, and company profile data accessed through the system at the Ministry of Law and Human Rights.

“Examination of these data shows that the reported beneficial ownership data does not reflect the publicly known ownership dynamics of businesses in the pulp sector,” Linda said.

The brief noted that the two dominant producers in the sector, the Sinar Mas Group and the Royal Golden Eagle (RGE) Group, are known to use complex and layered corporate structures in various overseas jurisdictions, which can obscure beneficial owner information.

The group said that among the most significant omissions was the name of Sukanto Tanoto, chairman and founder of APRIL Group, which is known as the controlling shareholder for two pulp mills and several pulpwood companies with extensive land holdings.

Based on information in the beneficial owner reporting system collected in November 2023, neither Sukanto Tanoto’s name nor his immediate family members were found in the beneficial owner reports for companies analyzed in the pulp sector.

Instead of reporting Sukanto Tanoto as a beneficial owner, most companies affiliated with APRIL Group reported senior company executives as beneficial owners, did not report helpful owners, or reported offshore companies as beneficial owners. Some APRIL companies reported Praveen Singhavi and Sanjay Tanwani as beneficial owners.

Praveen Singhavi and Sanjay Tanwani have long been part of APRIL Group’s executive team. They are publicly understood to be senior employees of the group, ultimately reporting to the controlling shareholder, Sukanto Tanoto.

Even if these reports are assumed to be accurate, they may only sometimes meet the internationally accepted criteria for being defined as beneficial owners. The group noted that the Indonesian regulation allows for the reporting of beneficial owners in this way. However, it is undoubtedly intended to do something other than do so.

In response to the findings in this policy brief, APRIL’s corporate parent group, RGE, responded that its group companies comply with all applicable laws and regulations in Indonesia.

“PT RGE Indonesia and RE group companies operating in Indonesia comply with all applicable laws and regulations in Indonesia, including but not limited to corporate disclosure requirements,” said Ignatius Purnomo, Head of Corporate Communications of PT RGE Indonesia, in a letter to the group, dated January 29, 2024.

Other companies controlled by Sukanto Tanoto report companies domiciled in jurisdictions outside Indonesia as beneficial owners. For example, PT Toba Pulp Lestari, which operates a pulp mill in North Sumatra and is widely known to be controlled by Sukanto Tanoto, reports its beneficial owner as Pinnacle Company Pte Ltd, a holding company registered in Singapore.

In this case, Indonesian regulatory provisions make it clear that beneficial owners are natural legal subjects, and this type of improper reporting potentially violates Indonesia’s rules for recognizing and reporting beneficial owners.

Instead, all the companies the Sinar Mas Group recognizes as being under its direct control have reported their beneficial owners as Oei Tjie Goan, also known as Teguh Ganda Widjaja, the group’s chairman and patriarch of the Wijaya family. This list of companies includes three of Sinar Mas Group’s pulp mills-PT Indah Kiat Pulp & Paper, PT Lontar Papyrus Pulp & Paper, and PT OKI Pulp & Paper Mills-and six pulpwood plantation companies stated to be owned and controlled by Sinar Mas.

Neither Oei Tjie Goan, aka Teguh Ganda Widjaja, nor any other member of the Wijaya family are reported as beneficial owners for the 24 companies that the Sinar Mas Group controls civil society suspects through complex ownership structures. The beneficial owners reported for these 24 companies are more accurately defined as formal shareholders, not the Wijaya family members suspected of ultimately controlling and benefiting from the business activities of the various companies.

This accuracy issue underscores concerns that regulating and concealing data on beneficial owners who control and benefit from company operations continues to occur in the pulp sector.

“This finding should indicate the next steps to be taken by the government, be it the Ministry of Law and Human Rights, or sector ministries, in this case the Ministry of Environment and Forestry, to verify the reports submitted by the various companies,” said Ferdian Yazid of TII.

The report explains that experiences from other countries that have implemented beneficial ownership reporting show that achieving a high level of reporting compliance is not accessible if it is not accompanied by the availability of clear and firm sanctions for companies that do not comply with disclosure obligations.

Currently, beneficial ownership reporting regulations in Indonesia qualify companies that fail to register or report incorrect beneficial ownership information as violating the law. However, the sanction arrangements are minimal, primarily on accuracy issues.

Effective implementation of sanctions also requires the availability of reliable verification mechanisms. However, the Ministry of Law and Human Rights indicates on the main page of the report that it does not verify the beneficial ownership data submitted by the companies.

The group explained that to achieve the goal of transparency and accountability in implementing beneficial ownership policies, it is important to introduce the government to ways to verify the information submitted by companies.

The MoEF, for example, is trying to do this by requiring companies to submit official shareholder information and other relevant documents that serve as supporting documents for each corporation’s beneficial owner reporting.

“Challenges in verifying beneficial owner data can be faced by strengthening the information exchange function between ministries and institutions and providing space for the public to provide input on beneficial owner data that companies have reported,” said Aryanto Nugroho, PWYP National Coordinator.

The group considers that the MoEF’s example of using such supporting documents to verify beneficial ownership reporting could be an important comparator for the MoH to consider for wider implementation of mandatory beneficial ownership reporting across the Indonesian economy.

Several countries, the group said, have implemented sanction regimes and verification mechanisms to incentivize beneficial ownership disclosure, providing valuable examples that are important for the Indonesian government to consider in its efforts to improve compliance and accuracy of beneficial ownership reporting.

Source: Betahita