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Implementation of Know Your Beneficial Owner Principle for Limited Liability Company (June 2020)

By : Arie Armand, Benny Handoko, Alisya Anindita Febriani

26-Jun-2020

Introduction

Directorate General of General Law Administration (Direktorat Jenderal Administrasi Hukum Umum) of the Minister of Law and Human Rights (the “MoLHR”), the governmental agency which has the authority to administer the registration of legal entity in Indonesia, has taken a policy that starting from 30 January 2020, all corporations, including companies, foundations, cooperatives, firms (firma), associations, and commanditaire vennootschap shall report its Beneficial Owner (as defined below) to the MoLHR through the legal entity administration system (sistem administrasi badan hukum ­– the “Administration System”) of the MoLHR.

The MoLHR adopts such policy to follow the provisions in Presidential Regulation Nr. 13 of 2018 regarding the Implementation of Know-Your-Beneficial Owner Principles by Corporations for the Prevention and Eradication of the Criminal Acts of Money Laundering and Terrorism Funding ("PR Nr. 13/2018") in conjunction with Minister of Law and Human Rights Regulation Nr. 15 of 2019 on Implementing Procedures for the Application of Know-Your-Beneficial-Owner Principles by Corporations (“MoLHR Regulation Nr. 15/2019”) and Minister of Law and Human Rights Regulation Nr. 21 of 2019 on Surveillance Guidance on Implementation of Know-Your-Beneficial-Owner Principles by Corporations (“MoLHR Regulation Nr. 21/2019”) (PR Nr. 13/2018, MoLRH Regulation Nr. 15/2019, and MoLHR Regulation Nr. 21/2019 shall collectively be referred to as the “Beneficial Owner Regulations”).

The enactment of the Beneficial Owner Regulations is a follow-up action to Indonesia’s plan to join Financial Action Task Force (“FATF”), an independent inter-governmental body that develops as well as promotes policies to protect global financial system against money laundering, terrorist funding and funding of proliferation of weapons of mass destruction. Currently, Indonesia is still an observer to the FATF. In order to join this body, Indonesia has to implement and adapt FATF's recommendations, one of which is the transparency and beneficial ownership of legal persons which stands as FATF Recommendation No. 24 before it can be admitted to become the member of FATF.

Pursuant to the Beneficial Owner Regulations, individual who (i) has the authority to appoint and dismiss members of the board of directors, board of commissioners, management, or supervisors in corporation, (ii) possesses the ability to control corporation, (iii) is entitled to, directly or indirectly, receives benefits from corporation, (iv) is the actual owner of funds or shares in corporation, and/or (v) fulfils the criteria set out in PR Nr. 13/2018 is the beneficial owner of a corporation (“Beneficial Owner”).

Corporation shall determine at least 1 individual as its Beneficial Owner and shall submit correct information regarding its Beneficial Owner to the MoLHR. We will highlight the implementation of know-your-beneficial owner principle for limited liability company (“Company”) pursuant to the Beneficial Owner Regulations.

 

Criteria of Beneficial Owner for a Company

PR Nr. 13/2018 stipulates Beneficial Owner of a Company is an individual who:

1. holds more than 25% shares in Company as reflected in the articles of association[1];
2. has more than 25% of voting rights in Company as reflected in the articles of association[2];
3. receives more than 25% of the annual income or profit earned by Company[3];
4. has the authority to appoint, replace or dismiss members of directors and board of commissioners[4];
5. has the authority or power to influence or to control[5] Company without authorization from any other party;
6. receives benefits from Company; and/or
7. is the actual fund owner of with regards to the shares in Company.

PR Nr. 13/2018 further refers individual who meets criteria referred to in points (1) – (4) as legal owner (direct shareholder) and individual who meets criteria in points (5) – (7) as ultimate beneficial owner (indirect shareholder).

It is clear that the criteria in point (7), together with criteria in points (5) and (6) above, captures ultimate beneficial owner only. Minister Regulation Nr. 15/2019 further sets out that the testing of criteria in point (7) will not consider the amount of money or the shares percentage being subscribed by using the third party’s fund. Whenever a direct holder of shares uses money from third party to subscribe to the Company’s shares, even for a nominal amount and/or for 1 share only, such third party will be regarded as Beneficial Owner.

Beside assessing information as reflected in its articles of association, the Company could also determine its Beneficial Owner based on information it collects and assesses from other sources, among others: (i) shareholders agreement, (ii) documents issued by governmental agency, (iii) private institution (such as bank) which receives / transfers the fund for shares subscription in the Company, (iv) private institution which receives or distributes benefits from the Company to the Beneficial Owner, (v) statement of directors and board of commissioners, and (vi) other internal documents of the Company. The onus is on the Company to report who is its Beneficial Owner to MoLHR based on the available information mentioned above.

The MoLHR can also determine other Beneficial Owner in the Company (if any) from information it collects from independent audit towards the Company, from other government agencies and private institutions which administer data regarding Beneficial Owner and/or receives reporting on Beneficial Owner from particular professions, and/or information from other credible sources.

 

Reporting Procedure

The Company shall submit the information of its Beneficial Owner, including the supporting documents, to the MoLHR at the same time with the submission of deed of establishment (for the newly established Company) or the submission of deed on the amendment of articles of association or corporate data (such as information of shareholders, members of directors and board of commissioners), which at least covers the following data: (i) full name, (ii) personal identification number, (iii) place and date of birth, (iv) nationality, (v) address as set out in the personal identity document / in origin country (for foreigner only), (vii) taxpayer identification number, and (viii) relationship between the Company and the Beneficial Owner.

The Company must report any changes to the identity of its Beneficial Owner at the latest within 3 business days after the occurrence of such change. In addition, the Company shall update its Beneficial Owner information on annual basis.

Although the obligation to report information regarding Beneficial Owner rest with the Company, the Company may authorize third party (e.g. notary or legal counsel) to submit the required report to the MoLHR through https://bo.ahu.go.id/site/login. The step-by-step guide for the reporting of Beneficial Owner (in bahasa Indonesia only) can be found at https://panduan.ahu.go.id/doku.php?id=permohonan_-_notaris (for the submission of report by notary) or at https://panduan.ahu.go.id/doku.php?id=permohonan_-_umum (for the submission of report by the Company or other third party).

 

Sanctions

The Beneficial Owner Regulations stipulate that the MoLHR, through the Director General of General Law Administration (“Director General”), may impose sanction under prevailing laws for any non-compliance with the Beneficial Owner Regulations. However, we understand that up to the date of this Client Alert the MoLHR and/or the Director General have not issued regulation which specifically sets out form of sanction for non-compliance with the Beneficial Owner Regulations.

Notwithstanding to the above, the Company which has not reported its Beneficial Owner to the MoLHR will not be able to utilize the services in the Administration System, including to obtain approval and/or receipt of notification from the MoLHR for any amendment to its articles of association or corporate data.

  

This summary only highlights certain issues under the Beneficial Owner Regulations and may not be complete and comprehensive.

For more specific inquiry regarding the Beneficial Owner Regulations or other emerging legal issues in Indonesia, please contact the following lawyers:

 - Arie Armand (arie@aymp.law)

- Benny Handoko (benny@aymp.law)

- Alisya Anindita Febriani (alisya@aymp.law)

 

[1] Pursuant to Minister Regulation No. 15/2019, the assessment of this requirement applies to both direct and indirect shareholder

[2] Pursuant to Minister Regulation No. 15/2019, the assessment of this requirement applies to direct shareholder only

[3] Pursuant to Minister Regulation No. 15/2019, the assessment of this requirement applies to both direct and indirect shareholder

[4] Pursuant to Minister Regulation No. 15/2019, the assessment of this requirement applies to direct shareholder only

[5] “Control” may be reflected inter alia from the ability to (i) adopt / amend business plan, (ii) change business nature, (iii) amend dividend or management / employee benefits policy, (iv) amend articles of association, (v) dilute, redeem, set stock option / other share-based incentive policy, (vi) procure the Company to receive additional loan exceeding the previously agreed threshold, and (vii) dissolve the Company

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