By Bezaliel Basuki Erlan and Aldilla S. Suwana
Legal entities in Indonesia are now required to declare the identity of beneficial owners and provide information on their beneficial ownership, following the recent enactment of Presidential Regulation No. 13 of 2018 regarding the Implementation of the Principle on Recognizing Beneficial Ownership of Corporations in the Framework of the Prevention and Eradication of Money Laundering and Criminal Acts of Terrorism Financing (March 5, 2018) ("Regulation").
This Regulation is part of the Indonesian government's new disclosure regime to create more transparency in the ownership of business entities and to monitor and control the entities, as well as to reduce opportunities for the misuse of such legal entities for illicit purposes such as money laundering, terrorism financing, tax evasion and corruption. The promulgation of this Regulation is a prerequisite for Indonesia to join other members of the Financial Action Task Force ("FATF"), an inter-governmental body formed to address issues of terrorism financing, money laundering and tax evasion.
Other regulations in the new disclosure regime include Financial Services Authority ("OJK") Regulation No. 12/POJK.01/2017 regarding the Implementation of Anti-Money Laundering and Prevention of Terrorism Financing (APU-PPT) Programs in the Financial Sector (March 21, 2017) and Bank Indonesia Regulation No. 19/10/PBI/2017 regarding the Implementation of APU-PPT for Non-Bank Payment System Service Providers and Non-Bank Money Changing Service Providers (September 11, 2017).
Definition of Beneficial Owner
The Regulation came into effect on March 5, 2018 and applies to all types of business entities in Indonesia including limited liability companies, foundations, cooperatives and firms, as well as associations (persekutuan perdata).
As an example, a beneficial owner of a limited liability company is defined as an individual who:
- holds more than 25 percent of the shares in the limited liability company as stated in the articles of association;
- has more than 25 percent of the voting rights in the limited liability company as stated in the articles of association;
- receives more than 25 percent of the annual income or profit earned by the limited liability company;
- has the authority to appoint, replace or dismiss members of the board of directors and/or board of commissioners;
- has the authority or power to influence or control the limited liability company without obtaining authorization from any party;
- receives benefits from the limited liability company; and/or
- is the true owner of the source of funds for the company's shares.
The Regulation requires corporations to reveal their beneficial owners. In reality, the beneficial owners are often found after layers of ownership are peeled away and the Regulation seems to lack a mechanism to address this issue. By way of comparison, the FATF seems to have a clearer definition of beneficial owner, which it defines as a party who ultimately owns, controls and/or exercises ultimate effective control over a legal person or arrangement.
Registering Beneficial Ownership
The Regulation covers obligations for both (i) existing corporations and (ii) corporations that are still in the process of incorporation.
Covered legal entities must comply with the Regulation by March 5, 2019. The key obligations of a limited liability company subject to the Regulation are as follows:
- disclosure of the beneficial owners through identification and verification;
- designation of an official or employee as the company's representative to implement the beneficial ownership principle and to give related information to relevant authorized government agencies as well as law enforcement agencies;
- provision of a statement letter or registration of the information related to beneficial ownership to the authorized government agency, presumably the Ministry of Law and Human Rights, through the existing Corporation Administration Service System under the Administrative System for Legal Entities (Sistem AHU Online);
- updating the information regarding the beneficial ownership annually; and
- keeping beneficial ownership information up to date, including any change and other related data for a minimum of five years as of the date of incorporation or the date of liquidation.
Information to be collected and disclosed must include the following:
- the full name of the beneficial owner;
- the identity number, driver\'s license or passport number of the beneficial owner;
- place and date of birth;
- his or her nationality;
- his or her residential address on the identity card;
- his or her domicile in the country of origin if the person is an expatriate;
- his or her taxpayer registration number or other similar taxation identity number; and
- the link between the company and its beneficial owner.
The registration and submission of information can be filed by the company's shareholders/executive boards, a notary or an authorized proxy.
Currently, it is unclear when the Corporation Administration Service System will be ready for beneficial ownership registration purposes. While the Regulation requires compliance by March 5, 2019, it is not possible to register at this time.
Impact of the Regulation Enactment
The Regulation points to an intensifying effort by the Indonesian government to create beneficial ownership transparency as part of the implementation of global standards for anti-money laundering and combating the financing of terrorism, such as the FATF.
The data collection is realized from mandatory beneficial ownership disclosure, and government agencies, the central bank and the OJK will be able to create a beneficial ownership database of all companies established in Indonesia. Relevant government and law enforcement agencies may request direct access to the database. Furthermore, access may be granted to other jurisdictions based on bilateral or international treaties, conventions and other forms of cooperation. Pursuant to Law No. 14 of 2008 on Public Information Transparency (April 30, 2008), the public may also request and acquire related information.
As the Regulation requires the disclosure of beneficial ownership by all companies, including those in the process of incorporation, we suspect that any company establishment may be delayed or rejected if the beneficial ownership data is suspected, withheld or concealed. However, we note that to date the government has not established a system to discover beneficial ownership data that has been withheld or concealed.
It should be noted that the Indonesian legal system currently does not recognize beneficial ownership and therefore beneficial owners do not have any protection under the law to enforce their rights. For example, the current Investment Law prohibits share ownership by way of beneficial ownership, popularly known as nominee arrangements.
Supervision and Penalties for Non-Compliance
The Regulation does not specify any penalties for non-compliance but does provide that the failure to comply with certain sections of the Regulation can be subject to sanctions provided in other laws and regulations.
The authorized government agency has the mandate to create implementing regulations or guidelines, which may include administrative sanctions for non-compliance.
In addition to the beneficial owners that are disclosed, the authorized government agency may determine there are other beneficial owners of the company based on an accountability audit, information from other government agencies and private institutions, and/or reports from certain professions.
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