Panama Papers: Is it really an Issue for [Indonesian] Government Officials to own Offshore Companies?

By Dioputra Ilham | 13 Jun 2016
Issue of the Month | 4 Participant(s) | 5 Response(s) | 2942 Views


by Atila Agusallam, GGI Content Officer: The Panama Papers


Introduction to Topic

The international community recently had just been shocked by the phenomenon of Panama Papers leakage by the German newspaper Süddeutsche Zeitung and the International Consortium of Investigative Journalists (ICIJ). Approximately 11,5m files were leaked from a Panama-based law firm, Mossack Fonseca, which then referred as Panama Papers. The Panama papers reveal the secretive assets owned by millionaires in the tax havens state. Over 200,000 companies are established and agented by the Mossack Fonseca –under the commands of expert lawyers and bank accountants, to hold secretive assets of those avoiding taxation. Although the secretive assets are revealed, the owners still remain a mystery. This is due to the fact that the real owners of the assets appoint nominees, a person who simply has no real control of the assets to lend their signatures and pretend to be the owner. However, several suspected owners of secretive assets in the Panama Papers had been revealed. The list of suspected owners includes 143 politicians and important figures. The shockwave doesn’t stop there. World leaders and their associates such as Russian President, Vladimir Putin, are included in the list. A $2 billion trail on the document, coming from Russian state banks allegedly leads all the way to Vladimir Putin. It is suspected that Putin had worked with his close associate, Sergei Roldugin to hide the money offshore.


Timeline of Events


1.     2015

In 2015, an anonymous source contacted German Newspaper, Süddeutsche Zeitung and gave 2.6 terabytes of encrypted data –which later be called ”Panama Papers”, which contains information about Mossack Fonseca, Panamian law firm that sells companies offshores. The companies are more familiar to be called with “Shell Companies”, as they are made to cover up the owner’s shady business and secretive assets around the world. Süddeutsche Zeitung then cooperated with International Consortium of Investigative Journalists (ICIJ) and 100 other media companies, such as The Guardian and BBC to conduct investigation regarding the encrypted data about the “shell companies” made by Mossack Fonseca.


2.     April 3, 2016

After a year of investigation and information gathering, the media companies involved in the investigation of “Panama Papers” released the investigation results into the media. The release of the investigation results reveals the names of world’s important figures such as Prime Minister of Iceland, Sigurdur Ingi Johannsson and the father of Prime UK’s Prime Minister, David Cameron.


3.     April 5, 2016

The finding of Panama Papers has triggered public outrage, including in Iceland, where the people demanded their Prime Minister, Sigurdur Ingi Johannsson to step down. After confirming his possession of a “shell company” in British Virgin Islands, The Prime Minister of Iceland steps down from his position and ask his deputy to take over his duty. On the same day, officials in France, Germany, Austria and South Korea began investigations into possible malfeasance, from money laundering to tax evasion. France’s finance minister, Michel Sapin, told Parliament the government was putting Panama back on a blacklist of havens for tax evaders.


4.     April, 6 2016

The Swiss officials raided UEFA over its allegations in Panama Papers, relating to the FIFA bribery case it is accused with. UEFA and its Champions League marketing agency – TEAM Marketing based in Lucerne, Switzerland – made an $111,000 deal with Cross Trading in 2006 for three seasons of broadcasting in Ecuador. The 2006 contract, co-signed by current FIFA President Gianni Infantino when he was UEFA legal director, was leaked from the database of Panama-based law firm Mossack Fonseca.


On the same day, Panama denies accusations towards it as a haven for money laundering. Panama’s Foreign Relations Ministry has sent a letter to the Organization for Economic Cooperation and Development to declare that any suggestion that the country is a haven for shady financial activities is a false accusation.


5.     April 7, 2016

Responding to what the President of Panama, Juan Carlos Varela called as “media attack”, Panama officials established an international body consists of experts to improve transparency within the Central America’s financial activities. The officials said that the findings of the committee would be shared worldwide to prove that stigmas to Panama’s financial industry wrong.


6.     April 12, 2016

On April 12, 2016 The Panamian police officers began investigating Mossack Fonseca’s office to find more evidences of its involvement in the transfer of secretive assets into “shell companies”. Responding to the investigation, Mossack Fonseca has denied any wrongdoing, since it is legal to conduct such financial activities.



7.     April 15, 2016

The head of Indonesian Financial Audit Body (BPK), Harry Azhar Azis, as one of Indonesian citizens listed in Panama Papers confirmed his possession of a company located in the tax haven state. He stated that the company has no transaction records nor it has assets, because it fails to be maintained by his family members. The company was established for his family members to start a business, but failed in the way. After confirming the possession of the company, he said that he will report the assets –although there is none, to the tax authorities for further inspections.




When people save money in their own countries, they have more transparency with the government regarding their account balances. When people save money in other countries, they have more privacy regarding these balances. Having more privacy can be utilised to do things people are not supposed to. They can avoid tax, which is generally paid more by the rich to reduce income gap with the poor, as Stiglitz has elaborated this in his progressive taxation theory. The rich may prefer to have their justice and avoid paying tax that much. They can create a “shell company” — a company that seem legitimate, completed with required documents, when cash flow may exist without any actual business process — to allocate money. Another thing that they can do is “money laundering” — putting their money from illegal businesses into their accounts, and later withdraw the “laundered” money. As some assume these are true, when one day the owners of accounts in Panama are revealed, it arises curiosity whether these rich people are avoiding tax liabilities, making illegal businesses, doing money laundering, or any other negative possibilities.

Directorate General of Taxation Confirms Almost 80% Data in Panama Papers are the Same with Their Data, Consisting of SPVs

In Panama Papers, there are 800 Indonesian citizens plus 1,700 from ICIC data. In the data reported to Directorate General of Taxation, there are 2,580 Indonesian citizens. However it should be noted that the data in Panama Papers only consists of Special Purpose Vehicles; entities used by firms to allocate, separate, and secure certain assets/debts. These entities are legitimate to diversify firm’s risks, including to allocate taxes to have lower total tax for the whole company, but also may be used to illegally hide several aspects enhance performance in financial reports; act of which had led to the infamous Enron Scandal in 2001. Legally, the financial reports of SPV and parent company are consolidated, resulting in SPV reports presented to Directorate General of Taxation. SPVs can be formed as fast as 2-3 days. Other supporting financial data, such as account numbers, bank names, and account owners are difficult to obtain due to privacy given by foreign banks.

Directorate General of Taxation Has Obtained Panama Papers Data Since 2015 from G-20 Tax Authorities

Panama Papers data has been received since October 2015. One of the Indonesian citizens’ names listed in Panama Papers had been processed by Directorate General of Taxation in December 2015 and already paid for the taxes unpaid previously. More people on the list can be processed with deeper investigations regarding their compliance to tax payment in Indonesia.

Solving Panama Papers, or Equivalents, by Tax Amnesty

As Panama Papers only reveal SPVs and not further data about who actually own them, it will be costly — in terms of currency and time — to investigate and track. This does not mean the case should not be solved, but the solving itself should be more effective and efficient. Tax Amnesty — a certain amount paid, lower than the forgone taxes, to the government in return for amnesty of unreported assets in a certain period of time — is a good solution for the problem, supported by a tax analyst, Darussalam. Unreported assets mentioned can be previously put overseas instead of in the owners’ own country, in this case Indonesia. This does not mean that tax amnesty is only for corruptors and selfish conglomerates who commit tax evasion. Minister of Finance Brodjonegoro has confirmed that “In the context of tax policy, there is no prohibition for people to put funds abroad. It is a choice for any entrepreneur.”Furthermore, Commission XI of the Indonesian House of Representatives member Misbakhun explained "In order to avoid taxation and taxation rules with high rates, they (entrepreneurs, conglomerates) are looking for low tax rates, and it is permissible. Avoidance (to putting funds in their own country) only violates the ethical side,”



HARRY AZHAR AZIS (Head of National Financial Inspection Body)


a.     Background Information

Harry Azhar Azis is one of Indonesia’s most prominent experts on the field of economics. He was born in Tanjung Pinang, April 25 1956. His political career began when he became the head of 9th Committee of Indonesian Parliament, which mandated to be in charge of the affairs regarding National Monetary, Banking, Development Planning and Non-Banking Financial bodies. After completing his period in the parliament, Azis continues his career by becoming the head of National Supreme Audit Agency (BPK) in the cabinet of President Joko Widodo.


Recently, he becomes one of the most talked about politician, due to his alleged possession –which he later confirmed, of a “shell company”, which is revealed in the Panama Papers.


b.     Motives and Responds to Allegations

After being alleged of the possession of a “shell company”, Sheng Yue International Limited, Harry Azhar Azis was summoned by The President of Indonesia, Joko Widodo. In the meeting, Azis confirmed his possession of the company. However, he argued that he did no wrongdoing, as he resigned from his position as director of the company once he became the leader of The Supreme Audit Agency (BPK). He also mentioned that his intention to build the company was for his family members to start up a business, yet it failed in the way. In the meeting, he also promised the Tax Authority to include the company in his annual assets report.


Due to his confirmation, many politicians criticize Azis for not being transparent about his financial assets. One of them was the Parliament member, Ruhut Sitompul. Sitompul believes that the head of BPK should step down from his position, as hiding his assets in tax haven was a wrongdoing. Another politician who criticizes Azis is The Minister of National Planning and Development, Sofyan Djalil. According to Djalil, the motive behind the establishment of the “shell company” was to avoid taxation, which can result into the loss of tax revenue.


It is suspected that Sheng Yue was built on a tax haven country for tax evasion purpose. However, Azis has denied the statement and said that the company was formed due to the request from his first child, Mina Azhar, who was studying abroad and looking for a business opportunity—she would activate the company when she finds a suitable business opportunity, but throughout Azis’ ownership of Sheng Yue, the company remained inactive.

“Ini anak saya kan sekolah di luar negeri. Dia kawin dengan orang Chili. Dan apa namanya, dia meminta saya, ‘Ayah, bagaimana kalo kita membuat perusahaaan?’ Dan saya mengapakan, (mendaftarkan di mossack fonseca itu), ya, dan sampai sekarang tidak ada transaksi.

A Kaskuser commented on this denial statement, assuming that Azis was saying the company was made for the marriage of Mina Azhar and her Chilian spouse. As the company was formed in 2010, Mina Azhar actually got married in 2014. Moreover, in 2010 Mina Azhar and her spouse-to-be were in South Korea, focusing on researches instead of entrepreneurship.

In formation of Sheng Yue, Azis was assisted by and therefore became the client of Panama law firm Mossack Fonseca. Azis, who was chairman of the House Representative’s Budgetary Board (Badan Anggaran DPR), listed his office at the Parliament for his address as the of Sheng Yue owner and director. He said the Parliament’s address was the one registered for his passport. He admitted not handling any correspondence for Sheng Yue since it was only a paper (blank) company; there were neither assets nor business activities. Filling the position of BPK chairman, Azis decided to sell the company since December 1, 2014. According to him, the process took so long that he just transferred ownership of the company a year later on December 1, 2015. He did not provide any information about the current owner of Sheng Yue. 

The ownership of Sheng Yue was not included in Azis’ State Official Wealth Report (LHKPN) both at the periods when he was a member of DPR and chairman of BPK. Azis argued that he did not report the company because he was very busy that he did not think about it. On April 2016 after the Panama Papers has been leaked, Azis admitted that until then he had not submitted the report to Corruption Eradication Commission (KPK), saying he would include information about Sheng Yue International Company in it.

Azis has clarified to Presiden Jokowi and Directorate General of Taxation regarding his name being listed on Panama Papers, saying he had made it clear to both parties—therefore nothing had to be discussed further—and that he wanted to focus on BPK instead of this issue. After meeting Jokowi, Azis stated that the President did not perceive this issue as a problem as long as no loss was incurred for Indonesia.On the other hand, Cabinet Secretary Pramono Agung commented that Jokowi did not give any comment and only listened as Azis explained the background of why he was listed as a client of the law firm Mossack Fonseca, since at that time Jokowi had not known Azis’s involvement in Panama Papers issue in details.

Currently there are demands from several parties for Azis to step down from his position as the chairman of BPK. Politician from PPP, Syaifullah Tamliha, suggested that Azis should step down if his name was on Panama Papers. Tamliha added that if his name was on the leaked document, he would also step down. People from Universitas Gadjah Mada, Universitas Atmajaya Yogyakarta, and International NGO for Indonesia Development encouraged the government to investigate the issue and if proven wrong, Azis should step down from his position and be punished. An online petition titled “Miliki Perusahaan Offshore di Panama, Ketua BPK Harus Mundur!” on by A. Setiawan Abadi has been made with 29.964 petitions up until April 21, 2016[18]. Responding to this, Azis said he had not committed anything wrong or illegal as he did not use Sheng Yue for tax evasion—he challenged proving this statement by further investigation. Anyhow, owning an offshore company does not violate the law9 10.

An Economic Perspective

 The former Finance Minister of Indonesia who is now the Managing Director (COO) at The World Bank, Sri Mulyani Indrawati, commented on Panama Papers issue,

“The public trust is breached when companies, the rich and the powerful can hide their money without breaking the law. If this breach is left unaddressed, those who aren’t rich enough to hide money will be less willing to pay and contribute to the social contract in which taxes are exchanged for quality services.”

Tax is critical in facing poverty. Therefore, it is suggested governments to improve tax systems, ensuring it would be harder to hide wealth. Quoted from Sri Mulyani Indrawati comments,

“We may not make people and companies enjoy paying taxes, but we should create systems that make it a lot harder to hide wealth and avoid paying their dues. It is a critical part of the fight against poverty.”



It is known to us that for businessmen, who are inactive in government, it is completely legal to own offshore investments/companies. Now the debate whould concern itself around the legality of [Indonesian] Government Officials owning offshore companies in respect to conflicts of interests. Debaters are advised to quote the law or public interest in their arguments whenever possible.