Indonesia: Anti-Bribery and Corruption Trends
This is an Insight article, written by a selected partner as part of GIR's co-published content. Read more on Insight
Four years ago, Indonesia was declared 'open for business'. A newly elected Joko Widodo promised reform and a revitalised campaign against corruption in Indonesia. New elections will take place in 2019, and the fight against corruption is likely to once again take centre stage as a key platform issue.
But how much has really changed since President Widodo took the reins, and what is on the horizon?
The money continues to flow
Since being elected in 2014, President Joko Widodo has made it a top priority to attract foreign investment into Indonesia, by removing foreign restrictions, simplifying the regulatory landscape and aggressively targeting bribery and corruption.
These reforms seem to have paid dividends. Money continues to pour into ASEAN's biggest economy by GDP – the country recorded a year-on-year increase in foreign direct investment of 11.8 per cent in Q1 20181 – as Indonesia continues to deregulate its economy and make it easier for foreign investors to do business. According to the World Bank's 2018 ease of doing business report, Indonesia ranked 72,2 jumping 19 places from 2017,3 and an impressive 50 spots from 1224 in 2014, the year Joko Widodo was appointed President.
Tackling domestic corruption has been a significant part of President Joko Widodo's foreign investment agenda. Since his appointment, Indonesia has taken a more international approach to addressing bribery and corruption.
The introduction of corporate liability, together with greater international cooperation with foreign regulators and strong backing of Indonesia's primary anti-bribery and corruption body, the Corruption Eradication Commission (KPK), has signalled a clear intention to bring Indonesia in line with international standards and improve its overall bribery and corruption rankings. This is in contrast to the traditional, less sophisticated, approach of targeting 'tall poppies' and hoping for a trickle-down effect.
Since President Joko Widodo's appointment, the country has climbed almost 18 places in the Transparency International Corruption Perceptions Index (CPI) (114th in 2013 to 96th in 2017). There is a feeling that things are getting better and that the country is making positive strides in its fight against bribery and corruption.
While overall the results have been encouraging, recent data suggests that Indonesia's corruption efforts may be losing momentum. In the past two years, Indonesia's CPI has slipped (90th in 2016 and 96th in 2017). Similarly, a recent survey by the Indonesian Survey Organisation (Lembaga Survey Indonesia) found that despite serious effort on the part of the government to root out corruption, the majority of Indonesian citizens surveyed believed that corruption was actually on the rise over the last two years. This shows that there is still more to be done, and that multinationals operating in Indonesia still need to be extremely vigilant and proactive in managing bribery and corruption risks.
In this article, we will examine in detail the latest developments in anti-corruption enforcement, as well as some of the recent legislative changes in Indonesia.
Enforcement trends and efforts by the KPK
Enforcement activity in Indonesia remained strong in the past year. The KPK led the charge, investigating a record number of bribery and corruption cases, while maintaining its almost impeccable conviction rate.5 This was coupled with greater domestic cooperation among administrators and law enforcement bodies, along with increasing cooperation with international regulators.
Untouchable no longer
Allegations of corruption were never far from the headlines in the past 12 months, and with this, the KPK secured a number of high-profile convictions. Of particular significance was the ongoing high-profile investigation into procurement arrangements for the national electronic identity card (e-KTP) project and prized prosecution of the former speaker of the House of Representatives. At one stage considered 'untouchable', Setya Novanto was recently sentenced to 15 years' imprisonment, fined and ordered to pay US$7.3 million in restitution for his role in the e-KTP scandal.67 This follows earlier convictions that the KPK secured against former officials of the Ministry of Home Affairs and businessman Andi Agustinus (also known as Andi Narogong).8 The investigation doesn't look to be ending any time soon, as further details emerge highlighting the scope and breadth of Indonesia's largest-ever corruption investigation. New suspects have been unearthed and the KPK has recently identified new corrupt payment flows possibly linked to other Indonesian government officials connected with e-KTP.9
Is the battle over?
In an important development in Indonesia's fight against corruption, the long-standing and bitter political battle between the KPK and Indonesia's police force seems to have finally abated. There now seems to be greater cooperation between the two law enforcement bodies. In April 2018, a task force was established between the KPK and the police, which was designed to safeguard the recently held regional elections.10 Earlier in 2017, the police proposed to establish a special task force for corruption crime, which was publicly endorsed by the KPK.11 Encouragingly, there have also been some preliminary discussions on how the KPK and police will split their authority to provide a more focused approach to anti-corruption enforcement. Initial talks have been encouraging and contemplate the KPK going after the 'big fish' in the central government while the police would focus on the 'smaller fish' in the regional governments. However, while these meetings are a positive first step, it is very much a 'wait and see' approach, with talks currently on hold in light of the upcoming 2019 elections.12
International cooperation with foreign regulators
Increasing cooperation among regulators continues to be a key theme in bribery and corruption enforcement both internationally and across ASEAN, with Indonesia being no exception. In the past year we have seen several examples of the KPK engaging with overseas agencies such as Singapore's CPIB, the UK's SFO and the US's FBI.
The KPK continues to work with the SFO and CPIB on ongoing investigations into Rolls-Royce, which include investigations into:
• the ex-president director of Garuda Indonesia, who allegedly accepted monetary bribes from Rolls-Royce and Airbus in return for awarding lucrative aircraft contracts; and
• the alleged high-value bribery by Rolls-Royce intermediaries to PLN, an Indonesian state-owned corporation, in relation to power projects in Tanjung Batu, East Kalimantan.
The KPK is also working with Singapore's CPIB to summons Sjamsul Nursalim – the owner of Bank Dagang Negara Indonesia (BDNI) and now a resident of Singapore – to Indonesia for questioning. This follows the reopening of an investigation into suspected anomalies in relation to liquidity support provided by Bank Indonesia (Indonesia's central bank) to Sjamsul Nursalim, and the subsequent prosecution of Syafruddin Tumenggung, the former chairman of the Indonesian Banking Restructuring Agency.
Across the Atlantic, the KPK cooperated with the FBI in relation to the landmark e-KTP corruption case and successful prosecution of Setya Novanto (discussed earlier). Johannes Marliem, a US citizen residing in the US and a key witness in the e-KTP case, provided crucial evidence to the FBI, which was later shared with and relied on by the KPK to prosecute Setya Novanto.13
This is a very encouraging trend given that not too long ago offshore investigators were greeted (at best) with indifference.
'Profit' for everyone
In late 2016, the KPK launched a new initiative called the Professional with Integrity Movement (Profit Movement), which was designed to improve corporate compliance systems and actively encourage businesses to root out corrupt practices. In line with recent legislative changes (discussed further below), the movement focuses on private sector bribery, which is thought to account for the majority (80 per cent) of corruption cases investigated by the KPK.14
The Profit Movement brings together the private sector, government agencies, non-governmental organisations, academics and business associations with a view to openly discussing bribery and corruption issues in Indonesia. This includes common situations where corporates face bribery and corruptions issues in Indonesia, such as licences, permits and demands for facilitation or 'grease payments'. It is hoped that these forums will provide key learnings and guidance on best practices, which could then be used by corporates to strengthen their existing compliance programmes. The KPK has identified five priority industry sectors for the movement – oil and gas, infrastructure, health, food and forestry. The selection of these sectors is hardly surprising given that they have traditionally been the most susceptible to bribery and corruption issues in Indonesia.
While still in its infancy, the response to the Profit Movement has been encouraging. To date, the KPK has held various conferences, focus group discussions and workshops that have been well attended by legal and compliance officers from local and multinational corporations. Working groups have been established for each of the five priority industry sectors, and regional advocacy committees have been established in, among others, the Central Java, East Kalimantan, East Nusa Tenggara and North Sumatera areas.
In another important development, the KPK is also planning to introduce and recognise a certified integrity officer (CIO) role within organisations. Similar to the role of compliance officers, the role would be to monitor and enforce a company's anti-bribery and corruption compliance programme. To be appointed as CIO, certain minimum qualifications and capabilities would be required, and the individual would need to undertake specific training to ensure that he or she is properly accredited.
Changing the law
Making companies responsible
The traditional focus in Indonesia, and indeed across South East Asia, has been on the prosecution of individuals – not corporates. Although there are a number of corporate offences on record (for example, in relation to anti-bribery and corruption, and anti-money laundering offences), these have seldom been relied on to secure corporate prosecutions in Indonesia. It follows, at least on a purely domestic front, that there has been little legislative incentive for businesses to bolster their corporate compliance programmes in Indonesia. The risk of international enforcement, while well publicised, has often been perceived as 'too far away to worry about' and a historical lack of cross-border cooperation bred complacency.
Regulation No. 13 of 2016 – a potential game changer?
In 2016, Supreme Court Regulation No. 13 of 2016 (SCR 13/2016) was introduced. It filled an important procedural gap in the prosecution of corporates. These changes were also significant as they introduced a list of factors for a court to consider in deciding whether to impose corporate criminal liability. Article 4 paragraph (2) sets these out and includes whether the corporate has:
• profited from the relevant offence;
• allowed the relevant offence; or
• taken any precautionary steps to prevent the relevant criminal act from occurring.
The third clause is perhaps the most intriguing, and it will be interesting to see whether this will be interpreted in the same light as the 'adequate procedures' defence under the UK Bribery Act.
The effectiveness of SCR 13/2016 will soon be tested as the KPK concludes its investigations into two corporates reportedly suspected of committing corporate criminal offences. The KPK is purportedly currently conducting investigations into:
- PT Nusa Konstruksi Engineering: a publicly listed company with a long-standing reputation as one of the biggest private construction and engineering firms in Indonesia that is suspected of committing bribery and corruption; and
- PT Putra Ramadhan: a company owned by a former head of the Kebumen region, Yahya Fuad, that is suspected of committing money laundering offences.
These cases will also be important in seeing whether the clauses under article 4 paragraph (2) of SCR 13/2016 will be applied aggressively, which may in turn be a 'wake-up call' for corporates.
Aside from the above measures to bolster the KPK's ability to prosecute corporate corruption offences, there are also a number of other important pieces of legislation currently in the works in Indonesia.
Of particular significance, a proposed new Indonesian Criminal Code is currently being considered by the Indonesian parliament. The new law would replace the current patchwork approach taken under Indonesian law, where corporate liability is attributed based on a number of different laws and regulations, and provide a more consolidated legal basis to hold corporates criminally liable. Other proposed features include the codification of a number of criminal offences including: document counterfeiting, forgery, unfair practices, embezzlement, abuse of trust-in-doing-business and corruption. Further, the proposed code would codify penalties for corporate liability, including introducing:
- six types of fines based on the seriousness of the offence – proposed to be as high as 100 billion rupiah for the most serious of offences; and
- enforcement measures such as seizure of assets, revocation of permits, public notice of court decisions and permanent forced closures of businesses.
There is also ongoing discussion as to the merits of introducing provisions to ban private bribery and corruption in Indonesia. These changes would be another important deterrent for corporates and employees, and if enacted would bring Indonesia into line with international standards such as the United Nations Convention against Corruption.
With the upcoming elections, discussions in relation to the above proposed legislative reforms have been put on hold for now. It therefore remains to be seen if the proposed reforms will be enacted, and if so, whether they will be passed in their current guise.
When it comes to compliance in Indonesia, timing is everything.
Relaxed approaches were a consequence of the environment. However, the introduction of a corporate liability is a potential game changer, and with it an increasing need for strong internal procedures and compliance systems. By reacting early to this change, and developing a compliance framework that suits the nuances and the particularities of the local Indonesian market, corporates can make sure that they avoid serious breaches in the future.