NEW BENEFICIAL OWNERSHIP REGIME IN INDONESIA POSES COMPLIANCE RISKS FOR CORPORATES

Effective from 5 March 2018, all corporations in Indonesia are required to disclose at least one person as their beneficial owner upon registering for business, pursuant to the Presidential Regulation (Perpres 13/2018) signed by President Joko Widodo on 1 March 2018.

The Regulation requires existing corporations in Indonesia to disclose beneficial owners to designated government ministries and regulatory institutions within a year. Newly formed companies will be required to submit either details of beneficial ownership or a declaration of willingness to do so within seven days of the company being established. After commencement of operations, it is mandatory for the company to provide information regarding changes to beneficial ownership within 3 days.

These developments are part of Indonesia’s implementation of the Financial Action Task Force (FATF)’s international standards on transparency. The goal is to stem the misuse of corporate structures to disguise and convert the proceeds of crime from money laundering, bribery and corruption, terrorist financing and other illegal activities. Making available information regarding legal and beneficial ownership helps government bodies, law enforcement and regulators better “follow the money”.

The Indonesian government appears determined to combat corruption and money laundering after the country was put in 2012 on FATF’s list of jurisdictions with weak anti-money laundering and counter terrorism financing measures. Indonesia was taken off the list in 2015 and submitted an application in 2017 to become a FATF member. The application has yet to be approved.

Key aspects of the Regulation

Types of corporation

The Regulation applies to:

  • Limited liability companies;
  • Foundations;
  • Associations;
  • Cooperatives;
  • Limited partnerships;
  • Unlimited partnerships; and
  • Other forms of corporations.

(Article 2(3))

Meaning of beneficial ownership

Every company must identify its beneficial owner. A beneficial owner is defined as an individual who falls within any of the following categories:

a) Owns 25% of the company’s shares (as recorded in the Articles of Incorporation);

b) Holds 25% of the voting rights in the company (as recorded in the Articles of Incorporation);

c) Receives more than 25% of the total annual profit earned by the company;

d) Is able to appoint, replace or dismiss directors and commissioners;

e) Has the power to direct or control the company without further authorisation from any party;

f) Receives benefits from the company; and/or

g) Is the true owner of the company’s share capital.

(Article 3(1))

The scope of (f) is broad and could potentially cover employees who receive wages from the company and shareholders who receive dividends, regardless of the amount.

Standard of Assessment

Article 11 sets out certain sources that should be taken into account when making the assessment of whether an individual is to be considered a beneficial owner. These include:

  • The Articles of Incorporation and any agreements relating to the establishment of the company;
  • Shareholders’ resolutions;
  • Information from private institutions in which the proceeds of share sales are transferred;
  • Documents belonging to the company or other third party which show that the individual is the true owner of the company’s shares, or of financial or other assets or investments in the company;
  • Any other information the accuracy of which can be verified.

Comment

The preamble to the Regulation emphasises the government’s intention to fight money laundering by preventing corporations being used as a means of directly or indirectly facilitating money laundering and terrorism financing.

The Regulation is an important step towards achieving transparency for companies in Indonesia. Companies should make themselves familiar with the reporting obligations set out in the Regulation and ensure compliance.

Reporting on beneficial ownership is gathering pace elsewhere in Asia with Hong Kong also recently introducing requirements pursuant to FATF international standards. See our e-bulletin here for more details.

 

 

Kyle Wombolt
Kyle Wombolt
Partner, Global Head - Corporate Crime and Investigations
Email | Profile
+852 2101 4005
Pamela Kiesselbach
Pamela Kiesselbach
Senior Registered Foreign Lawyer (England and Wales), Corporate Crime & Investigations
Email
+852 2101 4032
Narendra Adiyasa
Narendra Adiyasa
Partner, HBT
Email | Profile
+62 21 574 4010

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Filed under Asia, Bribery and Corruption, Sanctions and Money Laundering, Sector Updates by Herbert Smith Freehills

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