The 51-member countries of the Extractive Industries Transparency Initiative(EITI) held their international meeting in Jakarta on 23-24 October 2017. This was attended by about 400 participants representing their countries EITI association, civil society groups, companies, government bodies, consultants and researchers etc. The focus of the seminar is to support the new EITI initiative to develop “Beneficial Ownership” (BO) open registers and supporting government laws. This initiative is to counter parts of the industries that have a bad smell, such as – tax evasion, money laundering, inappropriate political influence etc, which is so often associated with hidden ownership structures. The United Kingdom and Ukraine have developed such open BO registers of companies, directors, owners and politically connected parties, while a number of other countries (including Indonesia) have developed roadmaps to achieve this EITI goal by January 2020.

The seminar comprised some main hall presentations and panel discussions, plus a number of break out discussion groups. These highlighted that each country is beginning from a different starting point, with different company structures (trusts, listed companies, unincorporated companies, nominee relationships, golden shares and more), different government institutions, and different legal systems. The two countries with a working BO program have very different programs. This diversity of backgrounds and applications is a source of inspiration on how different approaches may be considered in achieving the BO goals of each country. EITI operates with a Multi Stakeholder system of government bodies, civil society and companies. Each of these groups had booths with well-presented printed material to socialize EITI.

Overall this was a great sharing and learning success for EITI, or as one delegate put it ‘We now know what we don’t know”.

Indonesia showed significant support to this EITI program, with short presentations by the Minister of Mines and Energy, along with senior directors from the KPK, Minister of Finance, Executive Office of the President, and Coordinating Minister of Economic Affairs. The Executive Office of the President indicated a draft Presidential Instruction – in lieu of a law- has been prepared, and is being refined. It is hoped the instructio will be issued late this year or early next year. It would seem Indonesia’s approach is to prepare a BO program that encompassed not just the extractive sector, but all industry sectors. The government agency to take on the responsibility for the BO program is not yet decided, but one likely candidate may be the coordination of economic affairs.

Freeport was also a significant contributor, having a booth and speaking at a number of break out events. Freeport explained that it strongly supports EITI and the BO initiative as an avenue to develop trust between the company and its business partners, and it is a significant factor in demonstrating their social license to operate.

Some interesting discussion points included; –

1. Should a separate BO register be developed, or simply form linkages between various data repositories, such a Ministry of Finance, Ministry of Law, Ministry of Mines and such. Different digital formats are being applied, and most seem to provide for limited free access, and paid access (modest amount) for more complete data access. All proposals indicated there should be a complete register of all players, and not just a register of suspicious parties.
2. How to include banks, financial institutions and to adjust bank secrecy laws within each country. Similarly, how to expose contracts with State bodies (eg. SOE such as Aneka Tambang). In Indonesia, as in some other countries, local banks are fearful of the Central Bank, and this may be a useful approach.
3. How to approach the international BO, with mostly limited legal support for cross border data sharing.
4. The issues associated with validating and verifying data, and setting criteria to define Beneficial Ownership.
5. Setting processes and penalties for BO non-compliance. It would seem an initial soft approach of small fines and reminders followed by more severe penalties of bank freezing, dissolve company and jail may follow.
6. Funding the BO program with free and paid data options.

• Most countries looked for some form of cost-benefit approach in determining priorities for using the data under the current limited EITI national budgets.

1. The Indonesian KPK provided some interesting statistics, wherein 1,850 of IUP’s (24%) do not have a tax number, some 90% have not paid their rehabilitation deposit and post mining fee, and overall the State estimates it is owed some Rp 23 trillion (US$1.8 billion) in unpaid royalties, fees and such. In many cases the government does not know who the “real” owners are. Other countries identified similar issues, along with huge numbers of small miners being a difficult task to approach.
2. Minister of Mines – Ignatius Jonan – urged not to waste too much time on preparing a road map, the issues are known, so get on with developing the program.
3. A number of companies (Stat Oil, Freeport etc) have established BO programs to scrutinize their partners, government fees, shareholders, suppliers, and contractors.
4. Some international NGO’s are starting new initiatives to tackle cross border and other BO issues.
5. Most governments, including Indonesia, look to see how other government approach issues in order not to “re-invent”, but adapt a solution.

Some personal after-thoughts from the seminar include; –

1. EITI has a successful model of “reminding” government, industry and civil societies to work together to make transparent payments from industry to government, and the disbarment of royalties to the people. This new Beneficial Ownership initiative is likely to meet new walls of resistance, particularly where BO are linked to politically influential persons at the national and local level. It is here in suggested the EITI may need to adjust its approach to achieve its goals. Perhaps one more forceful option may be to increase access to the media, even to the point of engaging WikiLeaks?
2. One question was how to encourage companies to participate in the BO program, This did not seem to find much traction at the time. But on reflection EITI may retain its foot-hold in this issue by developing an award program similar to Indonesia’s environmental compliance rating gold – black program.

Source: Linkedin/Ian Wollff