While preparing for the Beneficial Ownership Global Conference that the EITI organised with the government of Indonesia in Jakarta last year, I witnessed how the discussion on ownership transparency started to gain traction. The Panama leaks had sparked a global debate on ownership transparency, Indonesia was due for its FATF evaluation which required them to develop a regulatory framework for beneficial ownership disclosure, and the EITI Board had just required countries to start disclosing beneficial owners of extractive companies by 2020. Shortly after the conference, Minister of Energy and Natural Resources, Ignasius Jonan, issued a decree requiring all license applicants for extractive projects to disclose their beneficial owners. Early this year, President Joko Widodo approved a presidential regulation requiring all companies to regularly report their beneficial owners in the company registry.
The presidential regulation and the ministerial decree  will certainly be useful in helping EITI Indonesia disclose beneficial owners in 2020. In my discussion with national stakeholders, they agree that the regulation has a number of progressive provisions:
Who can be a beneficial owner and who should report?
The scope of who should be considered as beneficial owners is comprehensive, covering elements of ownership of shares, control, and economic benefits. It applies not only to limited liability companies but also associations, foundations, partnerships and other juridical entities. This wide coverage would enable easier comparison of beneficial ownership data for companies that lists other types of juridical entities as legal owners.
How to determine who are beneficial owners
While it is typical for beneficial ownership legislations to require disclosure of additional information to verify the identity of the owners such as nationality, date of birth and ID number, the regulation goes a step further by listing sources of information that companies should refer to in ascertaining beneficial owners. Document of private entities that facilitate the transfer of funds in the sale of shares should be examined, along with corporate documents indicating ownership of company property. Beneficial ownership information can also be sourced through government audits and other entities that manage data for the company. One could argue that the obligation imposed on companies to refer to these additional sources of information means that companies are expected to exert due diligence in declaring their beneficial owners instead of merely treating it as a routine reporting requirement.
Implications on beneficial ownership transparency in extractives
While the regulation creates an enabling environment for EITI Indonesia to disclose beneficial owners by 2020 as required by the EITI Standard, the multi-stakeholder group could benefit from a few clarifications to ensure that reporting of beneficial ownership information does not stop at data collection but also makes use of the data.
The EITI requires that beneficial ownership information be made publicly available by recommending the creation of a public register and at a minimum requiring public disclosure through EITI reporting. While the regulation appears to allow public access by requesting it from the agency, it would be ideal to ensure that granting access is an unqualified right, and not subject to discretion by the agency. Moreover, requiring that a request be sent to the agency seems to imply that the company register where beneficial ownership information will be lodged shall not be readily accessible to the public. Clarifications on these issues would be helpful at this stage.
Reporting obligations of politically exposed persons
The EITI Standard also requires the identification of politically exposed persons (PEPs) to see to what extent they are involved in the extraction of the country’s natural resources. Knowing this information is useful in identifying corruption risks. In countries where PEPs are prohibited from being involved in extractive projects, disclosure of beneficial owners helps in monitoring compliance with this rule. Indonesia’s beneficial ownership regulation does not mention PEPs. The country, however, has existing asset declaration practices implemented by the Anti-Corruption Commission (KPK) which also leads the work on beneficial ownership. With the enactment of the regulation, it now behoves KPK to make the link between its asset declaration mechanisms and beneficial ownership disclosures by determining how these datasets could complement each other.
Leading the way in Southeast Asia
Among EITI countries in Southeast Asia, Indonesia is the only jurisdiction with both general and sector-specific regulations on beneficial ownership. In this sense, it has so far led the way in company ownership transparency in the region. Having engaged with some of the ministries at the forefront of this agenda, I have seen how the national dialogue has evolved from simply seeing the need to comply with international commitments to a growing appreciation for how company transparency could help address corruption and encourage investments. The speed with which Minister Jonan issued the Ministerial Decree right after the conference was encouraging and speaks to the strong political commitment behind this reform. Hopefully, the actual implementation of the regulation will continue that momentum.
2. As defined in the regulation, a beneficial owner is one who is: (a) a holder of more than 25% of the issued shares; (b) entitled to exercise more than 25% of the voting rights; (c) recipient of more than 25% of the company’s profits. Ownership is also defined in terms of control as seen from one’s authority to appoint, replace or dismiss board members and influence and control the company. Receiving company’s profits and owning a company’s capital and shares also make one a beneficial owner.