Strengthen and open access to beneficial ownership data (ID0127)

What is the public problem that the commitment will address? During the Covid-19 Pandemic, the Indonesian government attempted to recover the economy by issuing various policy stimuli. One of them is by increasing tax revenue from various sectors, including the extractive industry. However, several challenges, such as corruption and a limited data collection system, have prevented state revenue from running optimally. Therefore, data transparency in the extractive sector needs to be accelerated. In this regard, the government is known to have taken some reasonable steps, especially since the issuance of Presidential Regulation Number 13/2018 concerning Application of Principles Regarding Beneficial Owners (BO) and Presidential Regulation Number 54/2018 concerning the National Strategy for Prevention of Corruption. In the last two years, the two bases of this policy have been followed up with several implementing regulations, a Memorandum of Understanding (MoU) and a Cooperation Agreement between related 64 Ministries/Agencies. These may form a corporate administrative service system to prevent money laundering abuse, terrorism financing, and tax abuse. However, efforts to strengthen and utilise BO database in the extractive sector still need to be improved. Collaborative work (co-creation) is required to develop integrated data by encouraging BO utilisation by each Ministry / Institution. This is important to ensure a democratic and accountable development planning system, especially in the context of national economic recovery. Therefore, this program is a joint follow-up program between Ministries/Agencies and related parties based on the implementation evaluation of the 2018-2020 Action Plan which has so far progressed with the BO database's use as a condition for applying for permits in the extractive and palm oil sector. Besides, efforts to strengthen and utilise BO data disclosure are also aligned with the development agenda as stated in the 2020-2024 Medium-Term National Development Plan (RPJMN) and SDGs. What is the commitment? Accelerate BO data transparency to strengthen and utilise BO database through data integration. How will the commitment contribute to solving the public problem? BO data can be used to prevent conflicts of interest between the Ministry / Agency as the licensor and the company as the permit applicant. Through this data, the Ministry / Agency will be able to identify the affiliation relationship between the licensor and the applicant more accurately. Utilisation of BO data in preventing conflicts of interest can also overcome regulatory weaknesses in handling conflicts of interest that rely heavily on self-declaration from parties who feel they have a conflict of interest. This commitment will provide two significant benefits: (1) Optimising tax revenues and (2) Reducing the use of taxes. Also, the public is increasingly aware of the importance of having access to information. Why is this commitment relevant to OGP values? This commitment will support the Open Government values, namely transparency and participation. Until now, the public cannot access beneficial ownership data. However, with 65 beneficial ownership data disclosure, the public can be involved in the data verification process. Why is this commitment relevant to Indonesian Medium-Term National Development Plan (RPJMN) and SDGs? This commitment is in line with the 2020-2024 RPJMN, namely the General Law Administration Program, especially the supporting policies for preparing the academic manuscript for Business Entities Bill. In addition, this commitment is related to the target of Goal 17 SDGs: "Strengthen implementation and revitalize global partnerships for sustainable development", especially on target 17.1: "Strengthen domestic resource mobilization, including through international support to developing countries, to increase domestic capacity for tax and other revenue collection”. Additional information. - Milestone Activity with a verifiable deliverable Start Date End Date 1. Availability of BO database that have been integrated with related Ministries / Agencies January 2021 December 2022 2. Open public access to BO database January 2021 December 2022 3. Utilisation of BO data in accordance with the needs of law enforcement officials, licensing, and procurement of goods / services. January 2021 December 2022

Action Plan Review

Commitment 17: Utilization of Beneficial Ownership Data

For a complete description of the commitment, see Commitment 17 in Indonesia’s 2020-2022 action plan.

Context and objectives:

Under the previous action plan, Indonesia launched a beneficial ownership database in 2019. This commitment in the current action plan will introduce public access to the database, integrate data from relevant ministries and agencies, and encourage utilization for law enforcement, licensing, and procurement. By providing public access to beneficial ownership data, this commitment will combat money laundering, terrorist financing, and tax abuse.

This commitment is relevant to the OGP value of transparency, as it opens public access to the beneficial ownership database. Publish What You Pay proposed this commitment, which builds upon work by the Extractive Industries Transparency Initiative (EITI), the Financial Action Task Force (FATF), and the G20 Anti-Corruption Working Group (ACWG). [35]

Potential for results: Substantial

According to the United Nations Office on Drugs and Crime, in recent years, Indonesia has made significant progress in disclosing information on beneficial ownership. [36] However, Indonesia is still ranked 79^th out 133 by the 2020 Financial Secrecy Index, falling well behind the Philippines, Malaysia, and Thailand on financial transparency. The Index reveals a lack of transparency on recorded company ownership, other wealth ownership, limited partnerships, and legal entities. [37]

Since 2018, Presidential Regulation 13/2018 and Ministry of Energy and Mineral Resources Decree 1796 K / 30 / MEM / 2018 have required companies to report their beneficial owners to the Ministry of Law and Human Rights. To facilitate this, in 2019, the ministry revised its Legal Entity Administration System to include beneficial ownership information, provided by companies in connection with their license application. The Ministry of Agriculture also required companies to disclose beneficial ownership information as a prerequisite to licensing. [38] However, by 2020, only 15% of corporations (318,061 of 2,053,844 corporations) had disclosed beneficial ownership, [39] and there was no process to verify this disclosed data. [40] Meanwhile, the beneficial ownership database includes certain restrictions on public access. When launched, it was only accessible to law enforcement agencies and certain government institutions. Public access required filing an information request with the Public Law Administration Directorate General at a cost of Rp 500,000 ($35). According to the Extractive Industries Transparency Initiative (EITI), it is crucial that beneficial ownership information be made publicly accessible. [41]

This commitment’s effort to open public access to the beneficial ownership database represents substantial progress, according to Publish What You Pay. [42] Making the database publicly accessible ensures that civil society, corporate due diligence officers, and procurement officers can more readily expose corrupt practices, as well as enabling improved corporate transparency norms. [43] However, according to Open Government Indonesia, part of beneficial ownership data may not be made publicly available, depending on an upcoming regulation. [44] The commitment also includes efforts to increase the percentage of corporations that disclose beneficial ownership information, such as public outreach by the Ministry of Law and Human Rights and public monitoring and evaluation reports on the level of disclosure conducted by the Corruption Eradication Commission (KPK). [45]

Opportunities, challenges, and recommendations during implementation:

Implementation of this commitment needs to prioritize the beneficial ownership database’s usability, allowing the public to easily access beneficial ownership information, and increasing the number of companies disclosing beneficial ownership. Potential challenges include private sector compliance with disclosure requirements, verification of disclosed beneficial ownership information, and public uptake of the newly available beneficial ownership information. Publish What You Pay also anticipates challenges in coordinating data collection and platform management across relevant ministries. [46] Encouraging the media’s use of the database could lead to more coverage of which companies have complied and which have not. To that end, civil society and government could host workshops to engage with media organizations and investigative journalists on using beneficial ownership data. The following recommendations could enhance this commitment:

Results Report

Commitment 17. Utilization of Beneficial Ownership Data

● Verifiable: Yes

● Does it have an open government lens? Yes

● Potential for results: Substantial

● Completion: Substantial

● Did it open government? Marginal

Commitment 17. Utilization of Beneficial Ownership Data

Context and Objectives:

This commitment aimed to improve utilization of beneficial ownership data for anti-corruption efforts by opening free access to the beneficial ownership database ^[142] launched by the Ministry of Law and Human Rights in 2019 under the previous action plan. Initially, the beneficial ownership database was only accessible to law enforcement agencies and certain government institutions. Public access required filing an information request with the Public Law Administration Directorate General at a cost of Rp500 thousand ($35). By 2020, only 15 percent of corporations (318,061 of 2,053,844 corporations) had disclosed their beneficial ownership, ^[143] and there was no process to verify this data. ^[144] Despite these shortcomings, according to the United Nations Office on Drugs and Crime, the registry’s introduction represented significant progress toward providing public access to information on beneficial ownership in Indonesia. ^[145] The registry built on Presidential Regulations No. 13/2018 on the application of beneficial ownership principles and No. 54/2018 on the National Strategy for Corruption Prevention (Stranas PK).

Did It Open Government? Marginal:

In July 2022, the Ministry of Law and Human Rights opened free public access to a subset of the beneficial ownership data for anyone who registered with the portal. This provided information on beneficial owners’ names, correspondence addresses, and nature of beneficial interests. Open Ownership considers this to have been a notable advance. ^[146] By mid-2022, approximately one-third of corporations had disclosed their beneficial ownership information. ^[147] This reflected an increase in database coverage, although it still did not include information on most Indonesian corporations. There also remained no process to verify the data by, for instance, linking to financial transaction data. Public notaries are required to incorporate companies but are not required to update beneficial ownership information in the database. ^[148] In terms of utilization, records were not searchable by name of beneficial owner, and could only be accessed by looking up full company names. According to Publish What You Pay, while free public access represented positive progress, limited disclosure means that the database has not yet been extensively used by civil society for anti-corruption efforts. ^[149]

In parallel, several other ministries and agencies continued to separately identify and collect beneficial ownership information. For the Ministry of Energy and Mineral Resources (ESDM), this process was conducted through the Extractive Industries Transparency Initiative (EITI). In 2019, it signed an agreement with the Ministry of Law and Human Rights to integrate their databases; this process was still in progress at the end of the implementation period. By mid-2022, the public registry was able to draw on data from the ESDM database. The Ministry of Cooperatives and Small and Medium Enterprises, Ministry of Finance, Ministry of Agrarian Affairs and Spatial Planning, as well as Ministry of Agriculture also signed memoranda of understanding with the Ministry of Law and Human Rights, whereas the Ministry of Energy and Mineral Resources made the most progress on data exchange and interoperability. According to Open Ownership and the Asian Development Bank, cooperative data integration and interoperability are critical for enhancing quality, and will assist efforts to verify disclosed data. ^[150]

Overall, as the Ministry of Law and Human Rights public beneficial ownership registry improves its coverage in the long term, public accountability can begin to play a role in preventing conflicts of interest between companies and government officials in licensing and encourage better oversight of illicit business practices.

Looking Ahead:

This commitment continued a positive national trajectory toward beneficial ownership transparency. As early as 2005, Indonesia implemented beneficial ownership disclosure for tax treaties. ^[151] Since then, reformers have tied beneficial ownership transparency to other domestic and international strategies and standards. Indonesia committed to implementing the High-Level Principles on Beneficial Ownership and Transparency in the G20 Anti-Corruption Working Group in 2014, ^[152] published a beneficial ownership transparency roadmap in 2016 to meet EITI requirements, ^[153] and hosted the EITI Beneficial Ownership Global Conference in 2017. To build momentum, OGP aligned commitments with Stranas PK, recommendations from the Financial Action Task Force, and relevant legislation. The next action plan carries this effort forward and can incorporate policy learning by implementing the following actions: ^[154]

• Build collaboration between government bodies on establishing an integrated beneficial ownership data management system for a robust verification mechanism. Include all bodies that identify and collect beneficial ownership information.
• Ensure that regulations on beneficial ownership define and regulate all types of beneficial owners, including ultimate beneficial owners, foreign-owned companies, foreign natural persons, and non-residents.
• Develop a verification system to conduct enhanced manual checks of higher-risk submissions. Work toward automated checks of the register against other state registers. This system can draw on guidance from Open Ownership. [155]
• Improve data coverage by developing effective sanctions for companies that do not disclose beneficial ownership information, through agencies such as the Financial Services Authority (OJK), the Financial Transaction Reports and Analysis Centre (PPATK), and KPK. It would also be valuable to conduct awareness-raising and capacity-building activities to provide companies guidance on beneficial ownership data disclosure. ^[156]
• Open access to further elements of beneficial ownershipinformation, such as company identifiers, dates the beneficial interest began, and beneficial owners’ month and year of birth.
• Focus targeted monitoring efforts on beneficial owners related to politically exposed persons. The Ministry of Law and Human Rights can formulate an engagement strategy to improve data use and uptake.