It is common that a lot of foreign investors in conducting their investment make some arrangement to ensure their dominance and certainty of ownership in their investment.
This is can happen due several factors, one of them is due the Negative Investment List, where their desired business sectors were closed or open with conditions for foreign investment. While other factor, can be in Financial matter, where creating local company (PT) is much more pocket friendly than PT PMA company.
Thus, some investors is being advised or have an idea to make a Nominee arrangement based on an Agreement. And, voila! they have their own company, under other people’s name, conducting business, and live happily ever after.
Well. Unfortunately that is rarely true.
Problems With Nominee Arrangements
Nominee Arrangement can take in many forms, some in Agreement, some in loan form, some in time deduction of ownership, and many others.
The common and most traditional one is by Agreement.
The Nominee Agreement was born from the agreement of the parties, arising from the significance of contractual freedom. Due to arising from the agreement, in order to obtain legal protection, it must fulfill the legal requirements of the agreement.
As set forth in the Article 1320 of the Indonesian Civil Code: agreement, proficiency, particular case and allowable cause.
The non-fulfillment of this element resulted in the cancellation of the agreement.
Since 2007, Law No. 40 of 2007 concerning and Law No. 25 of 2007 concerning Investment, it is clearly stated that Domestic and foreign investors who make investments in the form of limited liability companies are prohibited from making agreements and / or statements that affirm that share ownership in limited liability companies is for and under
the name of someone else. And if its exist, then by law, the agreement is null and void.
Thus, based on that, the method of nominee arrangement and proxies is evolved in many ways. Certainty of ownership and benefits is the whole point of the Nominee Arrangements.
However, these other forms of Nominee Arrangements, now have bigger risks, not just by a simple regulation, but by major Sanction of a regulation under the name of Anti-Money Laundering Acts.
In accordance with the Financial Action Task Force Recommendations, Indonesia publised a new Law, compacted in a Presidential Regulation No. 13 of 2018, concerning IMPLEMENTATION OF PRINCIPLES RECOGNIZING OWNERS OF THE BENEFITS OF CORPORATION IN THE FRAMEWORK OF PREVENTION AND ERADICATION OF CRIMINAL ACTION OF MONEY LAUNDERING AND CRIMINAL FUNDING TERRORISM.
with the new regulation in place, then all forms of other Nominee Arrangements is a Legal Risks – higher than before.
So, based on the Presidential Regulation, a Corporations are organized groups of people and/or assets, both legal entities and non-legal entities.
While Beneficial Ownership, defined as Individuals who can appoint
or dismiss directors, board of commissioners, administrators, supervisors or supervisors at the Corporation, have the ability to control the Corporation, have the right to and/or receive benefits from the Corporation either directly or indirectly, are the real owners of Corporate funds or shares and/or meet the criteria.
Hence, with that definition, whatever the forms of Nominee Arrangement, it still can fall under that kind of definition.
But the most interesting part is not just that broad definition of beneficial ownership, but the other implication of the Regulations, none other than the SANCTIONS.
Sanctions and Anti-Money Laundering Act
The discovery of a corporation with such a structure and not reporting it to the relevant agencies is subject to sanctions in accordance with the provisions of the legislation.
Article 24 of the Presidential Regulation 13/2018 states: “Corporations that does not implement the provisions referred to in Article 3 (stipulation of beneficial owners), Article 14 (application of the principle of recognizing Beneficiaries), and Article 18 to Article 22 (obligation to convey subject to sanctions in accordance with the provisions of laws and legislations “.
The editorial “is given sanctions in accordance with the laws and regulations”, has a very fluid interpretation. Corporations and related parties who violate these articles can not only be charged with the Money Laundering Law and the Terrorism Funding Law – as the main headline of this Presidential Regulation.
furthermore, based on that word, than the sanctions can be withdrawn into a whole wide indonesian legistation, including Indonesian Criminal Code.
To understand more about the sanctions, we need to understand first about Money Laundering and its regulations.
Anti-Money Laundering Acts clearly stipulated the proceeds of crime are Wealth that obtained from a crime:
e. labor smuggling;
f. migrant smuggling;
g. in banking;
h. in the field of capital markets;
i. in the insurance sector;
l. human trafficking;
m. illegal arms trade;
s. forgery of money;
v. in the field of taxation;
w. in the field of forestry;
x. in the field of environment;
y. in the field of marine and fisheries; or
z. other crimes that are threatened with imprisonment of 4 (four) years or more, carried out in the territory of the State of the Republic of Indonesia or outside the territory of the State of the Republic of Indonesia and the crime is also a criminal offense under Indonesian law.
Thus, with that description, the most important point is on point Z.
Indonesian Criminal Code
As we discuss before, Other crimes that threatened with imprisonment of 4 (four) years or more, carried out in the territory of the State of the Republic of Indonesia or outside the territory of the State of the Republic of Indonesia and the crime is also a criminal offense under Indonesian law is subject of Anti-Money Laundering Acts and can receive sanction based on that regulations.
In making a Company or Invest in Indonesia, based on the Law concerning Investment, an authentic deeds must be created.
Thus, this is where Indonesian Criminal Code come in.
Based on Article 266 Point (1) of Indonesian Criminal Code: “Any person who enters false evidence into an authentic Deed on something that the truth must be stated by the Deed, with the intent to use or order others to use the Deed as if its description is in accordance with the truth, is threatened, if the use can cause loss, imprisonment of no more than seven years.”
And Article 266 Point (2) of Indonesian Criminal Code also states that: “With the same crime threatened, any person who knowingly applies the act as if its contents were in accordance with the truth, if such use could cause harm.”
Please note here, that loss and harm can be in terms of material and immaterial.
With that, the Anti-Money Laundering Acs, is in force, as the sanction are more than four years.
based on that, Article 3, 4, 5, and 7 of Law No. 8 of 2010 concerning Prevention and Eradication of Money Laundering Criminal Actions, states:
Everyone who places, transfers, diverts, spends, pays, grants, entrusts, brings abroad, changes form, exchanges with currency or securities or other acts of assets that he knows or is reasonably expected to be the result of criminal acts referred to in Article 2 paragraph (1) with the aim of hiding or disguising the origin of Assets is punished for criminal acts of Money Laundering with a maximum imprisonment of 20 (twenty) years and a maximum fine of Rp.10,000,000,000.00 (ten billion rupiahs).
Anyone who hides or disguises the origin, source, location, designation, transfer of rights, or actual ownership of the assets he knows or is reasonably expected to be the proceeds of crime as referred to in Article 2 paragraph (1) is convicted of a criminal offense. Money with a maximum imprisonment of 20 (twenty) years and a maximum fine of Rp.5,000,000,000.00 (five billion rupiah).
(Anyone who receives or controls the placement, transfer, payment, grant, donation, safekeeping, exchange, or use of assets he knows or should be expected to be the proceeds of crime shall be punished with the longest imprisonment 5 ( five) years and a maximum fine of Rp1,000,000,000.00 (one billion rupiah).
(1) The principal penalty imposed on the Corporation is a penalty of a maximum of Rp. 100,000,000,000.00 (one hundred billion rupiah).
(2) In addition to criminal penalties as referred to in paragraph (1), additional penalties may also be imposed on the Corporation in the form of:
a. announcement of the judge’s decision;
b. suspension of part or all of the business activities of the corporation;
c. revocation of business licenses;
d. dissolution and / or prohibition of corporations;
e. expropriation of Corporate assets for the state; and / or
f. Corporate takeover by the state.
The collection of people and / or wealth that do business using the Nominee arrangement structure, allegedly hiding something. It could be related to money laundering or terrorism funding, as the main topic of the Presidential Regulation No. 13/2018.
Based on the Regulation, Officials can audit existing corporations, and identify new corporations that in process, then take action in accordance with the provisions of existing legislation, not limited to the Anti-Money Laundering Act.
Furthermore, based on above informations, a company and legal compliance is a must, to make necessary changes in accordance with the current laws and regulations.
For further information and any compliance issues, do not hesitate to contact us at firstname.lastname@example.org for consultations and arrangements.