INDONESIA
By Mouna Wasef*
The Jakarta Post-Mar 28
The issuance of Presidential Regulation No. 13/2018 on recognizing and disclosing the beneficial ownership (BO) of corporations, which aims to prevent and eradicate crimes of money laundering and terrorism, should be appreciated. These two criminal acts are indeed threats to the stability and integrity of the economic and financial system, endangering the foundations of society, nation and state. It is important to reveal the BO because corporations can be used as direct or indirect means of perpetrating criminal acts. Especially in terms of money laundering, the criminal act is a form of corruption and often related to crimes in the field of natural resources.
Corruption and natural resources are the two sides of a coin. Based on the research published by Indonesia Corruption Watch (ICW), there were 110 corruption cases related to natural resources from 2010 to 2017, with state losses amounting to Rp 2.5 trillion (US$181 million) and bribes totaling Rp 22 billion. The mode of corruption also varied, ranging from abuse of authority, misuse of budget, embezzlement, mark up, bribery and gratuities.
In many cases, the issuance of natural resource management permits is closely related to political interests and control of local economic resources. It is common knowledge that government officials and their family members and cronies benefit directly from natural resource control.
The BO disclosure is expected to prevent the use of proxies and nominee shareholders to cover the flow of money derived from corruption and tax evasion. Often, large corruption scandals have something in common — perpetrators take advantage of anonymous structures of corporate, trust and legal entities that are located in different jurisdictions as a means to transfer and hide illegal funds. Tax evasion can also be a reason to disguise the origin, control and amount of benefits received, breaking the chain of ownership to avoid some or all tax obligations.
The BO criteria can cause confusion. First, there are seven BO criteria for a limited liability company. Are these criteria cumulative, or if someone meets one criterion, such as ownership above 25 percent, then can they be categorized as BO? Based on the ICW study on BO in the coal business, tracing the BO requires tracing several layers of ownership registered at the Directorate General of Legal Administration under the Law and Human Rights Ministry.
Many corporations are owned by other corporations, so the real BO of the first layer ownership is hard to determine. It will be even harder to trace if the shareholder is a foreign corporation registered in a tax haven.
Second, the Presidential Regulation requires corporations to appoint officials or employees to provide information on corporations and corporate BOs. Submission of this information must be accompanied by a statement.
Unfortunately, this obligation is not accompanied by clear sanctions. Article 24 only states corporations that do not comply are subject to sanctions in accordance with laws and regulations.
Law No. 8/2010 on the prevention and eradication of money laundering specifies administrative sanctions to be applied to the reporting party, namely financial service providers and other providers of goods or services, if they do not keep records and identity documents of service users conducting financial transactions.
This sanction is in the form of a written warning, public announcement of action or sanction, and/or administrative fine. But are these sanctions appropriate for a corporation that does not provide its BO information? The law also mentions that if money laundering is committed by a corporation, criminal charges may be imposed on the corporation’s controlling personnel, who are not necessarily the BO.
In Bank Indonesia Regulation No. 11/28/PBI/2009 on anti-money laundering and counterterrorism financing programs, administrative sanctions are imposed on banks as providers of financial services if they do not create anti-money laundering action plans and fail to report suspicious financial transactions.
Penalties are not applied to corporations in general, although banks are also a form of corporate business. In the law on limited liability companies, sanctions are given to a company that conducts business activities in the field and/or related to natural resources that does not carry out its social and environmental responsibilities.
If the sanctions are unclear, does this mean authorities only rely on the honesty of the corporation to provide true BO information? This course must be reviewed, considering the required stages of verification and triangulation of data in order to obtain valid and reliable data.
The third regards the public’s access to information. The Presidential Regulation stipulates that any person may request BO information from the relevant authority in accordance with legislation on public information disclosure. The question is how much of a complete BO identity will be given, given eight components of identity such as full name, identity number, residence, place and date of birth and their taxpayer identification number. In Article 17 on excluded information, such information can reveal private secrets, such as assets and income. This information may only be provided if a secret party is disclosed with written consent and/or relates to a person’s position in public office.
Finally, the agency authorized to supervise. The Presidential Regulation stipulates that the relevant authority is a government organization either at the central or regional level with the authority of registration, approval, notification, business licensing or dissolution of the corporation, or an organization authorized with supervision and regulation of the corporation’s business field.
Thus a dozen agencies are authorized to receive and verify the BO report. Typically government data often differs among different institutions even though it is about the same thing, such as coal production and export data from the Energy and Mineral Resources Ministry, Trade Ministry and the Central Statistics Agency.
*The author is a researcher at the Indonesia Corruption Watch.
(first published in The Jakarta Post – http://www.thejakartapost.com/academia/2018/03/28/revealing-the-layers-of-beneficial-ownership.html)
