Draft Presidential Regulation on Application of the Principle of Recognizing the Beneficiary Owners of Corporations in the Framework of Prevention and Eradication of Criminal Acts of Money Laundering and Criminal Acts of Terrorism is considered as the government’s progressive efforts in preparing legal instruments for the implementation of beneficial owners.

The government is drafting a rule that will later require corporations to provide information about who the actual beneficial owner of the company is. This principle arrangement recognizes the beneficiaries of the corporation because of the large number of corporations that are used as a means by criminal offenders who are beneficiaries.

A researcher from Publish What You Pay (PWYP) of Indonesia, Agung Budiono, said that the government’s commitment to drafting a Presidential Regulation on the Application of the Principle to Recognize the Beneficiary Owners of Corporations in the Prevention and Eradication of Money Laundering and Terrorism Criminal Acts is to reveal ownership or controlling identities in line with efforts upholding the principles of transparency in the oil and gas and mineral sector. This was stated in the 2016 Standard Industries Transparency Initiative (EITI / Transparency Initiative in the Extractive Industries).

“This is going to be politically very advanced. With this, all corporations must declare who owns the benefits, “Agung said when interviewed by hukumonline in Jakarta, Wednesday (5/31) yesterday.

The annual EITI report, released at the end of May 2017, shows a breakthrough in which Indonesia’s commitment to implementing a beneficial owner is stated. The Government of Indonesia has also outlined a road map for beneficial ownership transparency, where this era of openness began this year and then revealed the names, domiciles, and citizenship of people or groups of people who control companies specialized in the oil and gas and mineral industry starting in 2020.
Broadly speaking, the implementation of the road map is divided into three stages. First stage, determining the definition, level of information disclosure, and determining the most effective way related to the beneficial owner for data management and how to collect data in 2017. Second stage, determining the ministries or institutions responsible for beneficial owner reporting as well as developing the institutional and legal framework in 2018. In this stage, there will also be a study related to regulations that hinder or support the implementation and dissemination of this transparency regulation in the extractive industries. The last stage, in 2019, entered the implementation phase.

“The purpose of this EITI is to improve compliance and reputation of the country. This means that when, in the transparent mining business, governance will be better, “Agung said.

From the implementation of the beneficial owner, Agung continued, it is expected to have an impact on the entire industrial sector, not only the oil and gas and mineral and coal industries, for example, the impact of the openness of the beneficial owner to revenue in the taxation sector. Take, for example, company A in Indonesia sells coal at a value of Rp. 700 million to company B at Rp. 750 million, which is actually a subsidiary of company A. From the sale, company A has a profit of Rp. 50 million.

Long story short, company B resold the coal to company C which is in a tax haven country for Rp 1 billion. This means that there is a profit of Rp 250 million, which is avoided by the company and its subsidiaries. Agung said, if later regulations regarding the principle of recognizing beneficial owners are enforced, companies that try to avoid tax by shifting profits can easily be targeted and tracked financial flows as evidence.

“This can be followed up sectorally. Finally, you can know, once the NPWP is declared, the Directorate General of Taxes can know the tax. So, this has a further impact on other authorities, “said Agung.

Agung continued, so far the effort to reveal the real beneficial owner is very difficult. PWYP Indonesia’s own experience, tracing the true beneficial owner through documents recorded in the Ministry of Justice and Human Rights General Law Administration (AHU) system often does not produce results. Requests for official documents that must be redeemed by paying PNBP fees also did not help reveal who owns the benefits of a particular group of businesses.

“We check with AHU to buy the company’s AHU data. One data (the price) is 500 thousand (starting from the GMS and the latest establishment), there are names of directors, commissioners, shareholders. But the legal entity obtained from AHU is inadequate. We get to layer 3 and 4, but we cannot look for a PT with a legal status outside Indonesia such as a tax haven country. AHU data alone is not enough actually. Therefore, it is important for us to encourage the declaration of beneficial ownership, “said Agung.

The implementation of the road map will indeed involve a number of agencies, including the Coordinating Ministry for Economic Affairs, the Ministry of National Development Planning, the Ministry of Law and Human Rights, the Ministry of Finance, the Presidential Staff Office (KSP), the Corruption Eradication Commission (KPK), the Transaction Reporting and Analysis Center Finance (PPATK), Financial Services Authority (OJK), to Bank Indonesia (BI).

Each ministry/agency is also preparing a study to determine whether a legal umbrella is needed for implementation. For example, the draft of the Presidential Regulation on the Application of the Principle of Recognizing Beneficiaries from Corporations in the Prevention and Eradication of Money Laundering and Terrorism Criminal Acts coordinated by PPATK is an example of filing legal umbrella for the implementation of a beneficial owner.

The Chairman of the Presidential Drafting Team, Yunus Husein, explained the background of the issuance of this Perpres to find out transactions in the corporation whether money laundering and terrorism financing were indicated. This is in line with the best practices that occur internationally. In addition, this preparation also intends that Indonesia comply with recommendations 24 and 25 of the Financial Action Task Force (FATF) on money laundering. Yunus continued, the draft Perpres had been submitted to President Joko Widodo. That is, the draft Perpres is only waiting for the President’s signature.

“Requesting transparency for beneficiary ownership issues from legal entities, from corporations, and from legal arrangements or transactions, he can be related to legal entities and who is behind the transaction,” Yunus told Hukumonline at the end of May.

(Also Read: Peek at the Presidential Regulation Draft Recognizing Corporate Benefit Owners)

Based on the draft Perpres obtained by hukumonline, the intended benefit owners are individuals within the corporation that can appoint or dismiss directors or management of the corporation, have the ability to control the corporation, are entitled to and / or receive benefits from the corporation both directly and indirectly, are the actual owner of corporate funds or shares and / or fulfills the criteria as stated in this Perpres.

Whereas what is meant by corporations includes, limited liability companies, foundations, associations, cooperatives, limited partnership, firm alliance or other forms of a corporation. In this draft regulation, it is stated that each corporation is required to determine at least one beneficial owner.

In addition, the competent authority, namely the central and regional government agencies that have the authority to register, authorize, or dissolve a corporation or an institution that has the authority to supervise and regulate the business sector of a corporation, can also determine the beneficial owner outside the beneficial owner mentioned by the corporation.

The determination of other beneficial owners by the competent authority is based on an assessment sourced from the results of an audit of the corporation by the competent authority, information from government agencies, private institutions that manage data, beneficiary information, receives reports from certain professions that contain information on the beneficial owner. Also, other information that can be justified.

The draft regulation also states that corporations must appoint officials/employees responsible for applying the principle of recognizing the beneficial owners of the corporation, providing information about the corporation and the beneficial owners of the corporation at the request of the competent authorities and law enforcement agencies.

The application of the principle of recognizing beneficial owners by corporations is carried out through identification and verification. The application is carried out at the time of the request for the establishment, registration and / or endorsement of the corporation, and the corporation runs its business or activities.

Information on the beneficial owner of the corporation at least includes the full name; residence identification number, driver’s license, or passport; date of birth; citizenship; residential address listed on the identity card; address in the country of origin in the case of foreign nationals; Taxpayer Identification Number (NPWP); and the relationship between the corporation and the beneficial owner. All this information must be accompanied by supporting documents.

The corporation is required to submit true information accompanied by a statement regarding the beneficial owner to the Authorized Authority. If needed, the Authority can verify the suitability of the beneficial owner’s information with supporting documents. Corporations are required to regularly update information on beneficial owners every year.

Related to supervision, this draft regulation gives its mandate to the Authority. In carrying out its supervisory duties, the Authority can set regulations or guidelines as the implementation of this Perpres, conduct audits of corporations, and carry out other administrative activities within the scope of duties and responsibilities in accordance with the provisions of this Perpres.

Supervision by the Authority is carried out based on the results of a risk assessment of money laundering and terrorism financing crimes. In conducting oversight, the Authority in cooperation with the Financial Transaction Reports and Analysis Center (PPATK). If needed, the Authority can coordinate with related institutions according to their authority.

“Corporations that do not implement the provisions in this Presidential Regulation are subject to sanctions with the provisions of the legislation,” Article 14 of the draft Perpres.

While in addition to the PPATK, the Ministry of Law and Human Rights is also waiting for a Presidential Decree (Keppres) so that the submission of a Presidential Regulation can be immediately carried out. The Perpres was submitted because there was no delegation of beneficial owners in the regulations at the level of the law. in this case, the Ministry of Law and Human Rights cannot submit a Draft Government Regulation (RPP) if there are no laws supporting the beneficial owner.

In addition, the KPK is conducting a second study that also contains a risk assessment for the implementation of a beneficial owner. The study will determine several important matters such as the level of disclosure and who can access the beneficial owner’s information. The KPK study is expected to be completed in August 2017. The opening of this BO information caught the public’s attention after the disclosure of the names of 1,038 Indonesian taxpayers in the Panama Papers case.

Although not all of them are criminal, there are some who are indicated to have committed violations such as tax manipulation, money laundering and the establishment of fictitious companies or nameplate companies. The seriousness of the Indonesian government for the disclosure of beneficial owner information is demonstrated by its commitment to the anti-corruption summits forum that took place in London on May 12, 2016. Indonesia also joined a number of global initiatives that have requirements for disclosing beneficial owner information. In addition to EITI, Indonesia also participated in the FATF and the implementation of the BO G20 Principles.