Immediate Outcome 5 (Legal Persons and Arrangements)
Public availability of information on the creation and types of legal persons and arrangements
447. Information on the creation, nature and obligations of the different types of legal persons is widely available in Indonesia through a number of different websites, publications in conventional and social media as well as leaflets and brochures.
Primarily, the information can be obtained from the website of ditjen Administrasi Hukum Umum (AHU)14 of the Ministry of Law and Human Rights (MLHR).
448. In 2018 Indonesia transitioned from a system of multiple registries for different types of legal persons to a centralised registry known as the Sistem Administrasi Badan Hukum (SABH) located at ditjen AHU to obtain the necessary business certificate. This central registry contains basic information (see R.24) on all types of legal persons existing in Indonesia. More detailed beneficial ownership information is obtained through the incorporation deed prepared by the notary and this is archived with ditjen AHU.
Identification, assessment and understanding of ML/TF risks and vulnerabilities of legal entities
449. Indonesia has assessed the ML/TF risks of legal persons and legal arrangements and developed a comprehensive understanding of the threat profile, vulnerabilities and impact of legal persons and arrangements through the National Risk Assessments, separate sectoral risk assessments (i.e., Risk Assessment on Legal Persons 2017, Risk Assessment on ML/TF by Using Legal Arrangement Schemes 2019, and ML Sectoral Risk Assessment on Foreign Limited Liability Companies 2020). Indonesia also issued a document on Gap Analysis on Beneficial Ownership of Legal Person/Legal Arrangement in Indonesia towards International Standards in 2018.
450. Based on these studies, LLCs, especially companies that operate trading businesses, are exposed to higher ML risks and foundations (Yayasan), especially social foundations and religious institutions, are exposed to higher risks for TF. ML normally occurs via transfers in the banking sector, especially with better IT infrastructure and financial technology that allows for quick transfers anytime and anywhere and in terms of the origin of illicit money, Indonesia’s highest international risks are associated with Singapore. The 2022 NRA also notes LLCs are of high risk as perpetrators and facilitators for ML. In particular, through the use of false identities, nominees, foreign trusts, family members or third parties.
Indonesia explained that the reference to nominees refers to strawmen and third parties whose names are used by perpetrators to conceal proceeds of crime.
451. LEAs’ experience in investigating ML and financial crime involving also legal persons contributes to their identification and understanding of risks of legal persons. Case studies presented by Indonesia reflected instances of the use of informal nominees or the use of strawmen to hide the real or beneficial owners of property and assets in the conduct of ML/TF activity. Indonesia would benefit from more detailed analysis and understanding of this in its risk assessments as well as coming up with effective mitigating measures to address this.
14 www.ahu.go.id
452. Although there are no trusts formed in Indonesia, foreign trusts operate in Indonesia through special purpose vehicles and shell companies for the purpose of investment and loans, and thus present ML/TF risks. Although Indonesia recognises that foreign LLCs presented vulnerabilities, the risk assessment notes that in practice, the threat from such companies is not significant as ML investigations in 2017 to 2018 do not significantly feature the use of such instruments. The conclusions of the risk assessment are reasonable but would benefit from updated consideration of ML investigations.
453. As Indonesia has not classified waqfs as legal arrangements, the sectoral risk assessments have not considered the risks associated with such arrangements.
Nevertheless, the strictly centralised monitoring and maintenance by the authorities as described below, address concerns that may arise from any gaps in risk understanding of the waqf framework in Indonesia. Strengthening these measures built on more robust understanding of the risks arising out of the waqf framework will ensure that the legal arrangement is not abused for ML/TF.
454. The sectoral risk assessments have been widely disseminated to competent authorities and the private sector. However, competent authorities and entities of the private sector have a variable understanding of ML risks and vulnerabilities of Indonesian legal persons (see IOs. 3 and 4). PPATK and LEAs’ understanding of ML/TF risks and vulnerabilities of legal entities is informed by the regular investigations they conduct to uncover the beneficial owners of legal entities to follow the evidence and trace illicit assets, and this also feeds into the sectoral risk assessments.
Mitigating measures to prevent the misuse of legal persons and arrangements 455. Indonesia has adopted some mitigating measures aimed at preventing the misuse
of legal persons, which are discussed below along with an analysis of their effectiveness in practice.
456. Intervention of notaries in the incorporation process and subsequent changes in companies’ structure: Indonesia has a system that requires that BO information of companies is provided and rests with the SABH and maintained by ditjen AHU.
However, the verification of the information is done primarily by notaries where their involvement is required at the incorporation stage as well as where there are subsequent changes in structure and the changes are required by law to be contained in a public deed. Other changes to the company structure not requiring a public deed does not require the intervention of notaries and in such a case, there is no verification of the changes by an independent authority. In the case of SPLLCs, both in the incorporation process and for updates of changes, the fact that a notary is not required, presents a gap to the system. Further, although the number of declarations of beneficial ownership information has significantly increased since 2020, the current numbers remain relatively low. The relatively low number of entities that have registered their beneficial information raises concerns on the overall effectiveness of the system. Indonesia acknowledges this and is making efforts to address this through domestic socialisation and in cooperation with international stakeholders.
457. Except for SPLLCs, the incorporation process of legal persons in Indonesia commences with the drafting of the incorporation deed by a notary followed by the registration of the company in the SABH. During this process of preparing the incorporation deed, the notary is obliged to collect and verify all the basic and beneficial ownership information of the legal person and this has to be provided within seven days of the legal entity obtaining its operational license. Similar intervention of notaries is required in subsequent changes on companies’ structure whenever those changes require a public deed. The ditjen AHU has a passive role in the maintenance of the registry and conducts very limited verification of the basic and beneficial ownership information that is registered. As such, there is no alternative verification mechanism in situations where there is no intervention of a notary.
458. SPLLCs only require a letter of establishment which contains the basic and beneficial ownership information, submitted directly in the SABH by its founder.
The absence of the intervention of a notary (since an incorporation deed is not required for the creation of SPLLCs), means that there is no independent process of verification of its basic and beneficial ownership information. However, the potential risks posed by this gap are mitigated by the fact that these companies are targeted towards micro-businesses that do not require a large amount of capital (i.e., not more than IDR 5 billion (EUR 340 000)) as well as ownership limitations (i.e., only natural persons who are citizens of Indonesia). At the time of the on-site, only 26% of SPLLCs have included beneficial ownership information.
459. Legal entities are obliged to update their basic and beneficial ownership information annually as well as within three days of any changes to the legal entity’s beneficial ownership. This can be done by a notary or any company official as the legislation states that changes in BO can be done in the SABH by notaries, the founders or the managers of the company or any other person upon whom the company bestows. Considering that there is no obligation for the notary to be regularly involved, the role of the notary as a gatekeeper at this stage is not sufficient. Again, ditjen AHU has a passive role in the maintenance of the registry and does not verify the information. Further, despite the existence of these procedures, only 28.5% of the total universe of entities registered in SABH (47% of active legal persons) have registered their beneficial ownership information in the system.
460. The notary is responsible for verifying the documents submitted by the applicant (except SPLLCs) and this is done through CDD and KYC principles. The notary may thus reject an application based on the implementation of these principles. If ML/TF violation is suspected, the notary must terminate the relationship with their client and report the transaction to PPATK via the goAML website. However, only 38 STRs have been submitted by notaries since 2017. Notaries are licensed and supervised by MLHR. MLHR and the Notary Association did not demonstrate to the AT that their limited supervision activities, mainly triggered by public complaints (see IO.3), are effective in ensuring compliance with requirements relevant to IO.5. However, the frequency of supervisions has increased since 2021 and 2022.
461. Foreign investment in LLCs: Indonesia’s legislation only allows foreign investment in LLCs through share purchase or subscription at the time of establishment and the minimum paid-up capital is IDR 2.5 billion (EUR 170 000). In addition, the Capital Investment Coordinating Board imposes obligations related to control of company activities in its approval process. The verification of the source of funds and identification of foreign investors and business owners are captured by the CDD process conducted by notaries while preparing the public deed of incorporation of the LLC.
462. Prohibition on bearer shares/bearer share warrants: Pursuant to Indonesia’s Company Law legislation enacted in 2007 and Indonesia's Capital Investment Law Number 25 of 2007, bearer shares cannot be issued. Bearer shares of public companies were removed from the market in the transition to electronic script, and the Company Law legislation includes provisions that cover conversion of bearer shares when a company modifies its Deed of Establishment or shares are transferred. MLHR and LEAs have not identified bearer shares in any activities associated with LLCs. No other type of legal persons issues shares. Bearer share warrants are expressly prohibited in Article 33. Indonesia's Capital Investment Law and the Company Law legislation require that any transfer of shares shall be conducted with a ‘deed of transfer’, which must be submitted to the company in writing and registered in SABH. MHLR and LEAs have not identified bearer share warrants in their activities.
463. Nominee shareholders and directors: Nominee shareholders (both domestic and foreign investors in LLCs) are prohibited under the Capital Investment Law. Since express trusts cannot be formed in Indonesia, nominee shareholders under a trust arrangement cannot be formed. Indonesian law also does not recognise the concept of nominee directorship. Any formal rights and obligations associated with the condition of director, when performed by a third party, will depend on the granting of specific powers through power of attorney drafted by a notary where both parties – nominator and nominee – are identified. In the absence of legislation that obliges nominee directors and shareholders (e.g., from foreign trust arrangements), Indonesia relies on existing CDD/KYC processes to identify nominee arrangements.
(IO.4).
464. Waqfs: All the elements of a waqf i.e., the waqif, the nazir, the assets pledged and the pledge itself, the allotment and the waqf period, as well as documents proving ownership of the assets, must be included in a deed which is registered by the PPAIW (representative of the Minister of Religious Affairs - MoRA) with the competent authority (Badan Wakaf Indonesia or the Indonesian Waqf Board - BWI) within seven days. The BWI will then make an announcement to the public of the registered waqf assets.
465. Under Indonesian law, the BWI under the MoRA, is the regulator and supervisor of waqf in Indonesia and may use the services of public accountants in its supervision of waqfs. MoRA cooperates with OJK in the mapping and inspection of Islamic Financial Institutions in relation to cash waqfs. The BWI provides guidance to the nazir in managing and developing waqf assets as well as provides broad oversight in the management of waqf assets the origins of which must be ‘halal’ and owned by the wakif. Aside from conducting his affairs in line with the aims of the waqf and within the limitations of the sharia and statutory regulations, the nazir must manage waqf assets transparently and regularly produce financial and performance reports that are accessible to the waqif as well as a cash waqf management report every six months to BWI and MoRA. The registration framework provides a level of transparency as information on existing waqfs is available publicly and therefore competent authorities have accurate and timely access to the information, including beneficiary information.
466. BWI previously released the Zakat Core Principles and Waqf Core Principles in conjunction with other relevant authorities in order to provide guidelines for zakat and waqf management pursuant to international standards on financial prudence and governance. Waqfs are nevertheless vulnerable to misuse and LEAs have uncovered TF cases which involved the misuse of waqfs. As such, it may be useful for Indonesia to consider employing specific AML/CFT measures (including beneficial ownership identification and verification) in the regulation and supervision of waqfs.
Timely access to adequate, accurate and current basic and beneficial ownership information on legal persons
467. Competent authorities can access basic and beneficial ownership information on legal persons that is publicly available in the ditjen AHU registry and accessible through this weblink: https://ahu.go.id/pencarian/profil-pemilik-manfaat. The publicly available information includes the name of the beneficial owner, the beneficial owner’s corporate correspondence and the beneficial owner’s relationship with the corporation.
468. Aside from the basic and beneficial ownership that is publicly available, competent authorities that have an MOU with MLHR, i.e. PPATK, DG Tax, MoF, Ministry of Agriculture, Ministry of Resources and Energy, National Land Agency, Ministry of Cooperative, SMEs, BNI, BPD Jawa Barat, Financial and Development Supervisory Agency, Ministry of Environment and Forestry, Ministry of Home Affairs, AGO, State Secretariat and INP, are also able to obtain more detailed beneficial ownership information of legal persons through a secure site accessed via a username and password in real time or through a manual request to MLHR. This includes information such as the identity, tax information and residential address of the listed beneficial owner. DG Tax, for example, has direct and instant access to the ditjen AHU registry and uses this to access information about legal owners of companies, their board of commissioners and board of directors, as well as other beneficial ownership information. In 2021-2022, DG Tax obtained information from the registry 116 times mostly for inspections but also for billings and supervision.
Aside from taxation, there is no data regarding how often this resource is accessed by LEAs. There would be benefits to have in place an audit mechanism to track LEA’s access to resource and use this to build on its efficacy and accuracy.
469. MLHR informed that for security reasons, only certain personnel from LEAs located at headquarters have direct access to its database, and personnel outside the headquarters (e.g., in the provinces) would have to liaise with headquarters in order to obtain direct access to information in its registry. Competent authorities that do not have direct access to its registry can make a manual request to MLHR for beneficial ownership information in its database that is not in the public domain. This would take an average of three to four days.
470. LEAs are also able to obtain BO information of legal persons through the use of their investigative powers (e.g., using court orders) to obtain the information from FIs and DNFBPs (where available), as well as from legal persons themselves. LEAs also obtain such information in cooperation with PPATK. Depending on the type and complexity of the information sought, this could take between one day and one month. During the on-site, LEAs demonstrated to the AT that they have internal procedures in place to guide their investigators in the process of obtaining BO information required for their investigations.
Table 7.2. PPATK disseminations on beneficial ownership information
Type 2017 2018 2019 2020 2021 2022 (to March) Total Proactive disseminations with BO information 45 48 59 89 121 25 387 Reactive disseminations with BO information 144 206 260 198 198 48 1054
Total 189 254 319 287 319 73 1 441
471. Various competent authorities have noted that BO information obtained in the registry managed by ditjen AHU has been useful in their ML/TF investigations (see case studies). However, as a result of gaps in the verification processes as highlighted above, it is unclear as to the extent to which the beneficial ownership information available on AHU system is accurate and up to date. MLHR indicated that should any competent authority, including the PPATK or LEAs identify any inaccuracies in the BO information stored in its database, it would be able to update the information. There was no instance of such a correction having been conducted.
Box 7.1. Jiwasraya (2020) (see IO.7 and IO.8)
Investigators from AGO tracked criminal assets to a company and obtained the BO information of the company through data held in the registry by ditjen AHU through a manual request. The investigators obtained detailed and useful information, including the deed of establishment, management assets, changes made to the deed, data on the Board of Directors, Board of Commissioners etc, within three days.
Box 7.2. Elena (2020)
BNN obtained BO information on 14 corporations controlled by the suspect from the registry by ditjen AHU within three days. The information revealed the suspect’s network which included her relatives and subordinates as well as the fact that the corporations were not conducting any activity. Based on their investigations, BNN found that the corporations were in fact being used to disguise money received from narcotic activities.
Box 7.3. Altea (2020) (see IO.6)
During the investigation process, investigators learned that there was a flow of transactions into the corporate account. Within three days of a manual request, INP received corporate data from ditjen AHU through which they obtained the identities and addresses of the directors and management of the corporation through the deed of incorporation which led to INP investigators arresting the suspects and tracking the proceed of crime.
Box 7.4. La Hardik (2022)
In conducting investigations relating to luxury cars, DGCE accessed BO information directly from the ditjen AHU’s database on two companies found to be shell companies and the beneficial ownership information that the companies were run by two others who were registered as the directors and commissioners of the companies. This led the investigators to the real owner, La Hardie who held 90% of the shares, as well as that the company was being used for ML.