13 Mar 2018
Businesses Now Required to Provide Government with Information on Beneficial Ownership

A. Introduction

A new presidential regulation that entered into effect on 5 March 2018 requires companies and other business entities to provide the Government with information on their beneficial owners. The regulation (“Perpres 13/2018”)^[1] states that it is intended to strengthen the fight against money laundering and financing of terrorism, and is necessary so as to allow Indonesia to comply with international financial information-sharing agreements.

B. Definitions

Perpres 13/2018 requires korporasi or “corporations” to collect information on their beneficial owners, and submit such information to an “Authorized Agency,” which is defined in Article 1 point 3 as “an agency, whether at the central or local level, that has the authority to register, authorize, approve, notify, issue business licenses to or dissolve a corporation, or an agency that is vested with supervisory and regulatory powers in respect of a corporation’s business.”

A “Corporation” is defined as “an organized group of persons or assets, whether or not it takes the form of a legal entity” (Article 1 point 1). We should point out here that the English term “corporation” has only recently been accepted into Indonesia legal terminology as korporasi, and that the Indonesian version is often used as a catch-all term that includes business or other arrangements that would not be categorized as corporations in the general English sense of the term.

In line with the local understanding of “corporation”, Article 2(3) provides that the Regulation applies to:

1. Limited liability companies;
2. Foundations;
3. Associations;
4. Cooperatives;
5. Limited partnerships;
6. Unlimited partnerships; and
7. Other forms of “corporation” (quotation marks by ABNR).

A “Beneficial Owner” (pemilik manfaat) is defined by Article 1 point 2 of Perpres 13/2018 as follows:

“... an individual who enjoys the power to appoint and remove the directors, commissioners, managers, trustees, or supervisors of a corporation, who has control over the corporation, who is entitled to receive, and /or actually receives, direct or indirect benefit from the corporation, who is the true owner of the assets or share capital of the corporation, and / or who satisfies the other criteria set out in this Presidential Regulation.”

It should be noted that this definition appears to only recognize individuals or natural persons, and not corporations, as ultimate Beneficial Owners.

C. What Does Reg 13/2018 Require?

For the purposes of this Update, we have confined our discussion to the specific reporting requirements that pertain to a limited liability company (“Company”), as this is the most common form of business organization used by our clients.

Under Article 3(1), every Company is required to identify its Beneficial Owner(s). The criteria for determining the Beneficial Owner of a Company are set out in Article 4(1), namely, that the individual concerned:

1. Owns 25% of the Company’s shares (as recorded in the Articles of Incorporation);
2. Holds 25% of the voting rights in the Company (as recorded in the Articles of Incorporation);
3. Receives more than 25% of the total annual profit earned by the Company;
4. Has the power to appoint, replace or remove directors and commissioners;
5. Has the authority or power to direct or control the Company without the need for authorization or approval from any party;
6. Receives benefit from the Company and/or;
7. Is the true owner of the Company’s share capital.

While not entirely clear from the wording used, Article 4(2) appears to treat the criteria set out in paragraphs 1, 2, 3 and 4 above as being distinct from those in paragraphs 5, 6 and 7, meaning that there seems to be 2 alternative sets of criteria for determining beneficial ownership.

The precise scope of the criterion in paragraph 6 also suffers from a lack of clarity as, if we interpret it literally, it would clearly cover ordinary company employees (who receive benefit in the form of wages) and any shareholders who receive dividends, however small these may be. Further, the enjoyment of contractual benefit (for instance through a licensing or technical assistance agreement) could make an individual (whether foreign or Indonesian) a Beneficial Owner for the purpose of Perpres 13/2018.

According to Article 11, when identifying a Beneficial Owner, a Company shall have regard to the following:

1. Its Articles of Incorporation, and amendments thereto;
2. Agreements pertaining to the corporation’s establishment;
3. Shareholders’ resolutions;
4. Information in the possession of the Authorized Agency;
5. Information from private institutions in which the proceeds of share sales are deposited or transferred to;
6. Information from private institutions that provide or supply benefits from the Company to its Beneficial Owner(s) (informasi lembaga swasta yang memberikan ataumenyediakan manfaat dari Korporasi bagi Pemilik Manfaat);
7. A statement by a director, commissioner, trustee, executive, supervisor and / or officer/employee of the Company, the accuracy of which is capable of being verified;
8. Documents belonging to the Company or third party that shows that the individual concerned is the true owner of the Company’s share capital;
9. Documents belonging to the Company or third party that shows that the individual concerned is the true owner of financial or other assets, or an investment in the Company, and/or;
10. Other information whose accuracy is capable of being verified.

In addition, the Company is required to disclose whether or not a Beneficial Owner‘s identity has been established, and whether or not it has been verified.

Under Article 13(1), besides any Beneficial Owners that may have been identified by the Company, the Authorized Agency itself is empowered to identify other Beneficial Owners based on:

1. An audit conducted by the Authorized Authority in accordance with the provisions of Reg 13/2018;
2. Information from government agencies or private entities that possess information on a Beneficial Owner of the Company, and / or receive a pertinent report from a member of a designated profession;
3. Other information whose accuracy is capable of being verified.

D. ‘Know Your Beneficial Owner’

Article 14(1) provides that a Company is required to apply what is termed the “Know Your Beneficial Owner” (“KYBO”) principle, which, in accordance with Article 15(1), extends to both the identification of a Beneficial Owner and the verification of such Beneficial Owner. “Identification” means ascertaining the particulars of the Beneficial Owner, while “verification” involves checking that these particulars are in fact correct having regard to the relevant supporting documents (see Articles 16 and 17). Should it be deemed necessary, the Authorized Agency may conduct verification (Article 17(2)).

Article 14(2) requires a Company to designate an employee or officer to:

1. Apply KYBO; and
2. Provide information on the Company and its Beneficial Owner(s) at the request of the Authorized Agency or a law enforcement agency.

A Company’s obligations under KYBO apply both at the time of applying for the establishment, registration, authorization, approval and/or licensing of the Company, and when the Company engages in business operations (see Article 15(3)).

KYBO requires submission of information on the beneficial ownership situation to the Authorized Agency (Article 18), together with a declaration that the information provided is accurate. Such information may be submitted by the founder or management of the Company, a notary, or a third party using a power of attorney.

According to Article 19, during the establishment, registration, authorization, approval and/or licensing application stages, the Company is required to submit either the details of its Beneficial Owner(s), if this information is known to it, or a declaration of willingness to do so within seven days of the Company being issued with an operating license or registration number. After the Company commences operations, it is required to provide information on every subsequent change in beneficial ownership within three days of the occurrence of such change (see Article 20).

The information provided to the Authorized Agency should be updated at least once a year (see Article 21).

Article 23 provides that in supervising the application of KYBO, the Authorized Agency will be assisted by the Financial Transactions Monitoring Center (“PPATK”).

Under Article 26, beneficial ownership data that is held by the Authorized Agency may be shared with other requesting law enforcement and governmental agencies (instansi peminta), both domestic and international, having regard to the provisions of the prevailing laws and international treaties. In addition, Article 28 provides that the Authorized Agency may exchange information on KYBO with a “reporting party” (pihak pelapor).

Interestingly, Article 29 expressly provides that third parties may seek information about a Company’s Beneficial Owners by submitting a request to the Authorized Agency under the freedom of information legislation.

E. ABNR Commentary

As we mentioned in Section B above, the definition of Beneficial Owner in Perpres 13/2018 only recognizes individuals or natural persons, and not corporations, as ultimate Beneficial Owners. For foreign shareholders who structure their investment in Indonesia through an ordinary plain-vanilla corporate shareholding in a PMA company, Perpres 13/2018 would appear to be of limited consequence. However, it is uncertain to what extent the provisions of Perpres 13/2018 can or must be applied, or taken into account, in a situation where ultimate beneficial ownership must be reported in connection with, for instance, a substantial shareholding in a company listed on the Indonesian Stock Exchange, where such shareholding is structured through several layers of subsidiaries or an organized group or through a mutual fund.(By: Elsie F. Hakim: ehakim@abnrlaw.com& Ammalia Prama Putri: aputri@abnrlaw.com)

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[1] Presidential Regulation No. 13 of 2018 on the Application of “Know Your Beneficial Owner” by Corporations in the Context of Preventing and Suppressing Money Laundering and Financing of Terrorism / Peraturan Presiden Nomor 13 Tahun 2018 Tentang Penerapan Prinsip Mengenali Pemilik Manfaat Dari Korporasi Dalam Rangka Pencegahan Dan Pemberantasan Tindak Pidana Pencucian Uang dan Tindak Pidana Pendanaan Terorisme.