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Hidden ownership – a particular challenge in the oil, mining and gas sectors

Propiedad oculta: un reto particularmente importante en los sectores de petróleo, gas y minería

A little over a year ago, the release of the Panama Papers implicated dozens of high-profile individuals with links to the extractive sector. A month before that, in February 2016, Extractives Industry Transparency Initiative (EITI) member countries had adopted new beneficial ownership transparency requirements mandating the publication of data similar to the data leaked in the Panama Papers, notably the identity of the owners of the world’s oil, gas and mining companies.

Prior to this, beneficial ownership (BO) had been given relatively little attention globally. However, for the EITI, few other issues have united its three constituencies (governments, companies and civil society) like BO disclosure. That’s because hidden ownership has been a plague on all three houses.

Governments have long known that hidden ownership is the vehicle of choice for corruption, causing massive losses in state revenues. Companies face challenges when presented with local partners whose ownership remains hidden or, worse, see that newly established companies with no prior experience of extraction win the rights to a mine or oil field. Civil society aims to hold governments and companies to account and to ensure that citizens benefit from a country’s natural resources.

Fifty EITI countries have now published a ‘beneficial ownership roadmap,’ laying out the legal and other reforms needed to meet the EITI’s BO transparency requirements by 2020 – and some of the implementation has begun. Ghana, for instance, has reviewed and reformed its laws to take BO into consideration. Indonesia, and more than twenty other countries, has set the establishment of a public register as the ultimate goal of its BO roadmap. These registers will host data on oil, gas and mining companies, and in some cases be extended to other sectors. In fact, EITI data collected during a BO pilot already features on the global Open Ownership database.

Milestones on Indonesia’s roadmap to 2020

Company ownership has always been an issue in Indonesia’s extractive sector. The country’s highly decentralised and historically contentious process for issuing oil, gas and mining licenses has contributed to a lack of oversight of, and potential for conflicts of interest in, licensing. Fortuitously, the Indonesian government’s recent anti-corruption reform agenda has proven to be aligned with the principles of BO transparency that are being espoused at the global level.

Although BO is not yet included in Indonesia’s country commitments and national action plan for OGP, BO transparency fits well with Indonesia’s identified challenges around systematic corrupt practices and limited access to public information. After the Panama Papers implicated several prominent individuals from Indonesia in 2016, the government has intensified its efforts to investigate beneficial owners of companies.

The Planning Ministry (BAPPENAS), the Anti-Corruption Commission (KPK) and the Office of the President (KSP) began developing an action plan for BO disclosure under the framework of the National Strategy for Corruption Prevention and Eradication. It is therefore apparent that the EITI Standard’s requirements on BO disclosure complement the Indonesian government’s efforts to identify the individuals standing behind these companies.

As the national reforms coincided with the development of EITI Indonesia’s BO roadmap, EITI stakeholders naturally became involved in the wider dialogue on beneficial ownership, leveraging on the discussions within the global EITI community regarding an appropriate BO definition, the level of detail required, and the best way to publish data.

EITI Indonesia’s roadmap, published in January 2017, discusses the national issues that BO disclosure could address, such as improving revenue collection, eradicating corruption, and preventing money laundering. To achieve these, the roadmap identifies the following priority actions:

  1. Strengthening the legal framework for BO reporting. Although a proposed regulation for maintaining BO within the existing company register under the authority of the Ministry of Law is currently with President Jokowi for consideration, further mechanisms have to be put in place to ensure that the public has access to the BO information on oil, gas and mining companies.
  1. Embedding BO transparency in existing government databases and enabling data exchange across agencies. The existing company register only contains data on legal ownership. In general, there are inadequate systems in place for information sharing across agencies and with the public. The roadmap aims to facilitate this process and identifies ways to build the capacity of agencies that will host the data.
  1. Determining reporting obligations for politically exposed persons (PEPs). Although there are existing laws governing PEPs, their reporting obligations on BO are yet to be determined.

Indonesia’s roadmap is targeting full BO disclosure in the extractives by 2020. EITI stakeholders anticipate challenges, such as how to sustain political commitment, how the companies will respond, how efficient the regulatory mechanisms will be, and how this will link to wider discussions on data protection and privacy. It is unfortunate that the regulation currently under consideration does not provide for open access to BO information. Nonetheless, the initial steps in terms of cross-ministerial collaboration are commendable. Indonesia will host the EITI’s global BO conference in October 2017, which would be an opportunity to show further progress on data accessibility and openness.

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