Disclosing “Silent Operation” of PPATK in Saving the State Money

From corruption practice, crimes of money laundering, tax avoidance to terrorism, they’re becoming a  specter that haunts many countries, including Indonesia. Along with the current development and technology, the modus of the white collars to take and hide money of their illegal practice is more various. 

Thus, the existence of Financial Transactions Reporting and Analysis Center (PPATK) is very important to support the work of other legal enforcement institutions in Indonesia, including assist Directorate General of Taxes (DGT) and Directorate General of Customs and Excise in rescuing the state money.

To know how PPATK’s “silent operation” reveals suspicious financial transactions and what kind of challenges encountered in the political year, MUC Tax Guide had an opportunity to directly delve into it with its top management. The following is an extract from our dialogue with Head of PPATK Ki Agus Badaruddin in his office recently:

Before becoming the Head of PPATK, you worked for Ministry of Finance. How do you respond to different job and function from the previous duty?

All jobs have their own characteristic. It depends on how we deal with it. Ministry of Finance has been very long here, and everything has been established. The decision making and such have been complete. My last position (in Ministry of Finance), Secretary General, concerned more about internal matters, excluding legal matters that are frequently interconnected outside. 

Meanwhile, here (in PPATK as) financial intelligence unit. The main functions are collecting data, analyzing data, and then proceeding the results of audit analysis to the law enforcers. In PPATK, it is more dynamic and deals with problem. So, which one is more difficult (between PPATK and Ministry of Finance), everything is the same. It means that there are parts making us excited, there are other parts making us exhausted.

What was the President’s mandate in the inauguration of Head of PPATK?

As far as I remembered, the President instructed that, besides to prevent and take down the crimes of money laundering and terrorism, I am also assigned to participate in creating a financial system with higher integrity and support to boost the state revenue especially for taxes.

Have the assignments been achieved?

Admittedly, what we have done have not been optimum. However, one of achievements is that we have successfully initiated the Presidential Instruction Number 2 Year 2017 (on Optimization of Utilization of Analysis Results Report and Audit Report of Financial Transactions Reporting and Analysis Center). The instruction is intended for Chief of the Police Force of the Republic of Indonesia, Minister of Finance, Attorney General, and National Anti-Narcotics Agency to maximally use the PPATK’s analysis and audit findings.

If such analysis and audit findings cannot be processed because of the lack of evidence, it should be immediately reported to PPATK to be reviewed whether there is any tax potential that will be given to Minister of Finance to be investigated. In other words, if it is difficult to be proven by general crime perspective, we will consider it from its tax aspect.

How to analyze whether a financial transaction is suspicious or not?

According to Law Number 8 Year 2010, a transaction is considered suspicious if it doesn’t match the profile of the individual or institution making the transaction. For instance, for a state official having fixed income and not allowed to work in another place and running a side business, their monthly income profile can be checked from time to time. If it (the transaction) does not match the profile, it is classified as suspicious transaction.

Second, the transaction is suspected, or the transacted money can be suspected as the crime proceeds. For example, we have known someone reported on TV involved in corruption, then there are transactions carried out by them or the persons corresponding with them. It can be presumed as the transaction of corruption results, which has been recently discussed.

Third, in case there are attempts to split a transaction or avoid reporting. For instance, there is someone (when they will conduct transaction) being enquired about their identities, but they refuse and cancel the transaction, it may be an indication (as suspicious transaction). It is categorized as an attempt to avoid reporting, so that it is hard to investigate or trace.

Fourth, it is related to the transaction required by PPATK. Even though the transaction is normal, if PPATK requests it, it can be deemed a sign of suspicious transaction.

So, there should be a coordination with banking institutions?

Yes, since we receive the report from them. And, pursuant to Law Number 8 Year 2010, banks are indeed obliged to give report to PPATK. Even it is further stipulated that banks or any party providing such report is exempted from any claim, including excepted from the provision on bank confidentiality or code of ethics, as long as it is conducted in terms of the implementation of such regulation. 

Is it similar to tax given access to banks?

Yes, but the law is different. Tax is triggered by international obligation of Automatic Exchange of Information (AEoI). 

What will PPATK do to the incoming report?

We will conduct scoring using several parameters. There are approximately 15 indicators, among others, such as how many times they enter into such thing (the suspicious financial transaction), what is the profile. If it is governmental official, it is a high risk.

If it is stated as high, we will prioritize it. For the others, we will input it to our database first, except if in the future, the name reappears. So, it can change, from high to medium, or even from low to high.

Does PPATK always conduct analysis based on report or request only?

PPATK works based on own initiative, we call it as proactive. And, also by request. For example, following recent national news, we heard the existence of football mafia. Based on the news, I, as the Head of PPATK, can instruct the analysts to dig into it, whether it really exist or not. If so, without any order from police, we can report it.

What is the limitation of PPATK? Does it only give recommendation?

PPATK’s duty is to analyze. It portrays a financial transaction then analyzes it. After that, we will provide the results to the law enforcers, and they will find out about it. So, PPATK is not involved in audit, etc.

How about the Beneficial Ownership (BO)? 

Regulation on BO, President Regulation Number 13 Year 2018, which was issued in March 2018 is still required to be informed. This regulation is the result of PPATK as an initiator institution of this policy together with related institutions.

This rule has not been understood by many parties. In fact, there are many companies in Indonesia having such interest, and they should anticipate it because company/corporation is obliged to report the actual regulatory.

The corporation consists of Limited Liability Company (LLC), foundation, CV, cooperative, etc. In reality, LLC is riskier. Many of them are not open about their BOs. Even when the BOs are abroad, it becomes an obstacle for us to track who their BOs are.

One of the issues arising is that an approach is necessary to make these companies open to tell about their BOs. As declared in this regulation, the companies are obliged to report it. If they fail to do it, there will be sanction, as determined by their supervisory agency. However, the vocal point of this BO is the Ministry of Law and Human Rights. Since the reporting will be sent online, currently its IT (system) is being built.

Nonetheless, the reporting can be performed from now. For instance, in mining sector, the company that wants to get Production Business License for mining shall submit an attachment containing information about its BO. 

What is the exact definition of BO as each country has different definition about it?

In general, BO is each person who can appoint and dismiss directors and board of commissioners as well as appoint and dismiss the management of the foundation or cooperative, and who has an ability to control the company. Furthermore, they are entitled to receive benefits from the company, and they are the actual owner of the fund. Similar to shares, although it is recorded (under someone’s ownership), it does not guarantee that they own such shares since they may only be a nominee.

Meanwhile, based on the specific definition explicitly stated in President Regulation Number 13 Year 2018 for company, (BO) is an individual possessing shares of more than 25%, having voting right of more than 25%, and owning profit of more than 25%. In addition, they also have ability to control the company and affect the operation of such company.  

What do we do to disclose a BO whose scope is global?

For international sphere, we also play a role as we join the world PPATK association. As an illustration, PPATK needs the data of BO of an overseas company, we can communicate it in the system connected with other countries. For instance, we require the data of company A, and other members will give response.

So far, is there any result from this regulation in terms of rescue of the state money?

Since it is new, it has not been seen. Yet, in mining sector, we have a global institution related to BO, EITI (Extractive Industries Transparency Initiative). The extractive industry like mining is very sensitive and involves large fund, as well as relates to natural resource of a country so that it shall be rescued. 

In Ministry of Energy and Mineral Resources, the application for Business Permit extension shall attach the data of BO. Else, it will be rejected.

The definition of BO as per this rule is personal/individual, while in OECD it can be corporation/entity or institution, how about this difference?

Well, we also apply the same. It is not only individual but also includes legal entity. The previous is a global and general definition, while the specific definition also comprises individuals and legal entities.

In regard to PPATK’s evaluation in 2018, what kind of evaluation on the search of financial transaction?

For us, the follow-up of the legal enforcers is supposed to be better, at least not just disappearing. In other words, it has been responded by them (the legal enforcers). Nevertheless, their response to this investigation as I said before, for the incoming data we expect that the money laundering is also processed, not only the original crimes. In fact, this kind of follow-up (money laundering) is still low around 10%.

What is the connection with saving state finance?

Talking about such issue, money laundering saves the state money as well, as an instance in corruption case, when the person pay the fine, they return the money to the state. However, in the money laundering we can dig more. For example, in customs crime case, if arrested in the port, the fictitious export case is discovered. This case frequently occurs.

Therefore, if it is only subject to customs crime, it is only related to goods in the container. But, if we use money laundering, we can track down further. Perhaps, they have conducted similar thing in the past.

Other than the fictitious export, what are other modus discovered by PPATK?

The most familiar is corruption. The corrupted money will be transferred to their in-laws, their driver’s wife, or using other nominees to hide the money. The point is that any activity defined as manipulating assets that are suspected from criminal acts is categorized as money laundering.

Speaking of the government’s attempt to increase the taxation base of Indonesia, what is the role of PPATK?

We can assist DGT. For example, when they intend to conduct an audit, they will ask PPATK regarding the total accounts owned and how the transactions are. Because if they request it to the bank through information exchange, they only obtain the latest balance. Meanwhile, in PPATK we can know the transaction history.

PPATK can know what kind of transaction made by the taxpayers, and we can provide the information to DGT. If there is a routine transaction, the business partner will be known, and from the information, the bookkeeping will be re-checked and then compared to the tax return. 

In addition, PPATK also performs research to a business group regarding how they run their businesses, and we submit the results to DGT. So, we really need trust between DGT and PPATK. 

Last one, in terms of obstacles encountered in 2019, does political year affect PPATK in making policy?

I personally do not think that political year is a heavy burden for us because we do not see someone or company from their political view. So, we will process anyone violating such policy. Also, the most important thing is that we keep the information and data from leaking. Thus, I rarely talk to the media. But for me, I protect my subordinates.

Furthermore, we are not allowed to give our data to the media since it can create enemy so that it hampers our analyst in the process. If only talking about general things, I still can do it. But, if it is case per case, I can’t.