AML/CTF Risk Assessment on Legal Person and Gap Analysis on Ultimate Beneficial Ownership Rigime

AML/CTF Risk Assessment on Legal Person and Gap Analysis on

Ultimate Beneficial Ownership Regime

Laode M Syarif, Ph.DCommissioner

Corruption Eradication Commission (KPK)

• Established in December 29th, 2003

• Independent from the Executive, Legislative, Judiciary and other powers (Auxiliary Body)

• Responsible to the Public

• Financially, KPK is audited by the Indonesian Supreme Audit Board

• Lead by 5 commissioners (Collective Collegial)

• +/- 1500 officers

• 250 investigators-prosecutors only

KPK in a Nutshell

KPK’s Strategic Plan 2015-2019

Focus on strategic sector

and national interest:1) Law enforcement

2) Bureaucratic Reform

3) Energy & Natural Resources (energy, oil & gas, mining, forestry)

4) Food Sovereignty (plantation, fishery, agriculture)

5) Education & Health

6) State income (tax, customs, non-tax revenue)

7) Major Infrastructure

KPK Duties/

Functions

Co-ordination

(Art 7)

Supervision

(Art 8)

Prevention

(Art 13)

Monitoring

(Art 14)

Pre-

Investigation

Investigation

Prosecution

(Art 11)

What Makes KPK interested on Beneficial Owner ?

GAP between Rich & Poor:

1% control 50,3 % of the Economy

-World Bank, Indonesia’s Rising Divide, Des 2015-

Web of the Chief Justice Corruption

►He received bribes from: Parliamentarian, Governor, mayors/head of District

candidates, lawyers, political

parties.

► He established several companies to laundered his bribes.

►Some of them used the name of his Driver, etc

►KPK send him to jail for life and confiscated his ‘known’ assets

M. Nazarudin Case

► He was a treasury of Political Party

► He established at least 38 companies to

laundered his corruption.

► We haven’t finish in investigating his cases.

► He is now in Jail for 7 years, but he will face

another trial for his remaining cases.

► KPK has confiscated his known assets(factory-plantation-buildings-land, etc)

e-KTP Case

► Created more than USD 200 Million

State Lost.

► Involving “High Ranking Official”

(Speaker + Members of Parliament,

Minister, Private Sectors)

► Involving multi jurisdictions (Indonesia-

Singapore-USA-India-Mauritius, etc)

► We have sent TWO persons to Jail,

but the REAL Master Mind still ‘free’

► The “REAL Test” of KPK Existence

Mining and KPK Study► 4,276 licenses (40 % ) of 10,432 Mining Licenses

(IUP) are NOT Clear and Clean (Non CnC)

► 1.850 (24%) of IUP have No TAX FILE NUMBER

► Some IUP are INSIDE Conservation Areas (1.37 Million Ha) and INSIDE Protected Forest (4.93 Million Ha)

► 90% of IUP are not paying Rehabilitation + Post Mining Fund

► Various Mining Companies OWE the State around IDR 23 T (USD 1.8 Billion).

► We DON’T KNOW the REAL Owner of these Companies

Transparency in Industries

91%of business leaders believe it is important to know the Beneficial Ownership of the entities with which they do business

- EY’s 14th Global Fraud Survey 2016 -

The “Big Three” Credit Rating Agencies (Standard & Poor’s, Moody’s, and Fitch) use transparency as a marker in the rating methodologies.

•FitchRatifies country’s investment grade based on stability and transparency measures.

• S&PRecognizes transparency of Beneficial Ownership as one of several steps to improve market.

Beneficial Owner Global RequirementsGlobal Requirements

G20FATFRecommendations

G20 High Level Principles

Recommendation 24

Transparency & Beneficial Ownership of

Legal Persons

Recommendation 25

Transparency & Beneficial Ownership of

Legal Arrangements

BO Transparency

The 10 high level principles

on BO Transparency

Indonesia Actions to Implement the G20 High Level Principles

1. Indonesia National Risk Assessment of money laundering and terrorist financing is close to

completion.

2. Currently, undertaking study on beneficial ownership legislation in Indonesia.

3. Legislation:

Work towards a comprehensive legislation on beneficial ownership that includes the following:

a. Definition of beneficial owners;

b. Beneficial ownership information management (i.e. company registry);

c. Accessibility of beneficial ownership information;

d. Liabilities: penalties for providing false information;

4. Compliance

Enhance the implementation of Customer Due Diligence Measures, as well as Know-Your-Customer

principle for every financial transaction done through financial institutions, non-financial institutions.

5. Data collection and information sharing Work towards an efficient and centralized data collection:

(LEA-FIU-Financial Institution).

6. International cooperation

Enhance & strengthen international cooperation in beneficial ownership information.

Reference Countries

Italy

Spain

United Kingdom

Singapore

Civil Law Countries

Common Law Countries

Largely Comply

FATF Rec 24 &25

Best System (Transparency International)

Partially Comply

FATF Rec 24 &25

Risk AssessmentOn Legal Person

ML/TF detection for legal persons may require enhancement

► STRs on legal person accounts for 3% of the total STR population, while customers from the business sector transacts more in terms of value and complexity.

► Detection scenarios used to detect suspicious activities by legal person are not as productive as those used on natural person customers.

► The low STR rate for legal persons may contribute to the low rate of money laundering investigations in legal person.

► LEAs perceive that in 50% of ML cases involve legal person as vehicle. However, the number of STRs for legal person only comprises of 3% of total STRs population.

STR Population by Customers

Background

Types and risk of corporations in Indonesia on Money Laundering

[CELLRANGE], 64.2

[CELLRANGE], 6.6

[CELLRANGE], 4.3

[CELLRANGE], 5.0

[CELLRANGE], 14.4

[CELLRANGE], 5.2

[CELLRANGE], 6.1

[CELLRANGE], 4.2

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

- 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0

LIK

EL

IHO

OD

CONSEQUENCES

AML | Types of Business[CELLRANGE], 16.4

[CELLRANGE], 3.6

[CELLRANGE], 1.6

[CELLRANGE], 8.9

[CELLRANGE], 5.7

[CELLRANGE], 1.7

[CELLRANGE], 20.3

[CELLRANGE], 3.4

[CELLRANGE], 8.8

[CELLRANGE], 3.3

[CELLRANGE], 14.2 [CELLRANGE], 14.4

[CELLRANGE], 20.9

[CELLRANGE], 29.9

[CELLRANGE], 2.6

[CELLRANGE], 13.2

[CELLRANGE], 8.0

[CELLRANGE], 5.0

[CELLRANGE], 1.4

[CELLRANGE], 16.8

[CELLRANGE], 10.6

[CELLRANGE], 4.5

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

- 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0

LIK

EL

IHO

OD

CONSEQUENCES

Gap Analysis on Beneficial

Ownership

Finding: Major Gaps01

BO Framework (establishment,

definition, mechanism, record,

periodic update)

02

Appointment of designated party to

cooperate with authorities and onshoring of information

03

“Single door”registration system

for all types of corporation

04

Timely access of basic and BO information for

authorities

05

Proportionate and dissuasive sanctions

06

Document retention and service level agreement

07

Targeted & Random sampling by

independent party to ensure basic and BO

accuracy

08

Definition, type, and scope of legal arrangements

We DO HOPE the PRESIDENT will be willing to issue PRESIDENTIAL REGULATION to AMEND these Gaps

Recommendations

Establishment of regulatory

framework and dissuasive sanctions

Creation of Centralized database infrastructureCreation of access and distribution of BO informaton

• Improvement on asset tracing

• Improvement on tax compliance

• Improvement on money laundering prevention

• Better governance and transparency

Information Collection

ACCESS PROVISION

ENTITY REGISTRATION

DATABASE

ENTITY ESTABLISHMENT

RECORD KEEPING

Lack of support from political parties/parliament

…Real Challenges…

FORTUNATELY: People are united behind KPK

…and the politicians KNOW it…

Thank You