Indonesia

Indonesia’s position on the tectonic plates that form part of the Pacific Ring of Fire – a geographic band where significant volcanic and earthquake activity is recorded – is an apt comparison for the nation’s anti-corruption movement: dynamic, volatile and explosive. See, for instance, the risks placed on leaders of the nation’s anti-corruption body, the Corruption Eradication Commission (KPK), such as in January 2019, when a Molotov-cocktail was thrown at the home of the deputy chairman of the KPK, and a pipe bomb was left outside the house of KPK chair, Agus Rahardjo. Like the seismic activity that often affects the world’s fourth-largest country by population, these are not isolated incidents. In April 2017, an acid attack was committed on Novel Baswedan, a KPK senior investigator; and in February 2019, two KPK investigators were assaulted while investigating a tip in Jakarta. So far, limited progress has been made in bringing the perpe­trators to justice. But Indonesia’s anti-corruption efforts are not all doom and gloom; in fact, quite the contrary.

Enforcement efforts by the KPK

Within the past 12 months, Indonesia has taken steps to increase its enforcement efforts. On Wednesday 29 May 2019, the KPK indicted its first corporation for alleged money laundering; in January 2019, the Indonesian Corruption Court rendered a judgment against PT Nusa Konstruksi Enjiniring (NKE); and in 2018, the KPK began to prosecute corporate liability. These small steps are a legitimate leap in the fight against corruption, particularly when contrasted with the single successful conviction made against a corporation since the enactment of the current anti-corruption legislation in 1999.

A review of the KPK’s 2018 corruption investigations showed that around 40 per cent of cases concerned members of the Indonesian House of Representatives (DPR) or Regional Legislative Councils (DPRD); bribery is the most common type of investigated case (almost 10 times as many as goods and services procurement frauds or money laundering, which are the second and third most common); and private sector investigations are not insignificant. The KPK’s high-profile current cases include Rolls-Royce,¹ BLBI,² the Riau-1 Power plant³ and the Quay Container Crane procurement by PT Pelindo II.⁴

This article will focus on recent enforcement efforts around corporate criminal liability and the industry sectors in the spotlight by PROFIT/KPK, and will stargaze at the leadership changes expected at the end of 2019 at the KPK, which will determine the direction of enforcement through to 2023.

Corporate criminal liability – momentum building

In our last update for this publication, we highlighted important recent developments in the area of corporate criminal liability in Indonesia. By way of a recap, in 2016, the Supreme Court issued regulations setting out procedures for the prosecution of corporate offenders (SCR 13/2016) that were important in filling a procedural gap in the prosecution of corporates. Interestingly, the changes also included a UK-style ‘adequate procedures’ defence that the court may consider when imposing corporate criminal liability. These changes signalled a clear intention to bring Indonesia’s anti-bribery and corruption regime in line with international standards.

Despite a slow start, corporate criminal enforcement under SCR 13/2016 has gained momentum over the past 12 months. The KPK named its first corporate suspect in 2018, and to date has named four corporations suspected of bribery or corruption offences and one for money laundering. The most recent being charged on 29 May 2019. Of the four corporations, one is a state-owned company. Although these numbers are not significant, the number of investi­gations is expected to grow. The KPK has indicated that there are several corporations currently under investigation. The police have also named at least one other corporation suspected of bribery and corruption offences.

In January 2019, the Corruption Court finally rendered its judgment against one of those corporations. PT Nusa Konstruksi Enjiniring (NKE), a publicly traded construction company, was sentenced to a monetary penalty of approximately 85 billion rupiah, calculated by reference to the illegal profits gained; a fine of 700 million rupiah; and suspension from participating in government tender projects for six months. NKE was manipulating bidding processes in its favour regarding a number of government infrastructure projects. NKE’s former president director, Dudung Purwadi, was also found guilty of corruption and sentenced to almost five years in prison and a small fine of approximately US$17,500.

January was a significant step in the fight against corporate corruption in Indonesia. While the penalties do not seem as extreme as those proffered across the Atlantic, a bar from government tenders has led to corporates with an Indonesian presence sitting up and taking notice. The KPK has acknowledged this too, and this has prompted discussions to put a bill converting SCR 13/2016 into law, thus affording it greater force.

The May 2019 charge broadens the corporate enforcement space with the pursuit of money laundering offences committed by PT Putra Ramadhan (Putra). Putra mixed money from several government funds designed to assist specific regions, particularly funds designated for the beachy region of Kebumen, Central Java. This charge is inexorably linked to the progress made by the KPK and SCR 13/2016 in bringing corporate misconduct to account.

Focusing on the big five

In late 2016, through a new movement called Professionals with Integrity (PROFIT), the KPK identified five industry sectors to focus its bribery and corruption enforcement efforts on oil and gas, infrastructure, health, food and forestry. The choices were hardly surprising, as these sectors have historically been the most prone to bribery and corruption issues in Indonesia and are central to the country’s economic development.

Initial signs indicate that the KPK’s focus has proven positive and recent enforcement efforts have concentrated on eradicating the key sources and causes of bribery and corruption activity in each sector. In the food sector, this has meant taking steps to expose and displace corrupt public officials; in the infrastructure sector, the focus has been on exposing the corrupt awarding of government contracts and permits for infrastructure projects; forestry has seen the KPK grapple with the issuance of logging licences; efforts in the oil and gas sector have targeted downstream oil and gas, logistics and transportation; while the health sector has concentrated on bribery and corruption in the procurement of medical devices. Various events, committees and discussions groups have been held to date, encouraging a united, industry-wide effort to tackle bribery and corruption across these five sectors.

In the next section we will discuss in further detail the anti-corruption enforcement efforts in two of these sectors: food and infrastructure.

Hungry for more: the food sector

Indonesia has the fourth largest population in the world, and as a result this industry is particularly lucrative for food producers, importers and distributors. After all, feeding 264 million mouths three times (or more) a day requires a significant amount of organisation to ensure the right products and resources are accessible to the masses. Bribery and corruption in this sector is also equally well organised, and as profits in the food sector continue to grow, so does the temptation to engage in improper activity.

In 2019, the National Intelligence Agency chief inspector general, Budi Gunawan, publicly declared that food cartels, along with energy cartels, were ‘controlling’ the Indonesian economy. He noted that that the Indonesian market was being flooded with low-quality foreign food products as result of these cartels and admitted that getting rid of these cartels would be challenging. This follows comments from Novel Baswedan, a senior KPK investigator, who stated that he believed the food industry was full of ‘mafia’, and attracted corrupt public officials who were tempted by large bribes.⁵

The food sector in Indonesia is particularly ripe for bribery and corruption activity. A heavy reliance on imported salt, sugar, meat, rice and other food commodities by Indonesian consumers, combined with import licences only being available to a select few, allow cartels to effectively control supply and price in Indonesia. This creates a significant incentive for the cartels to effectively up the ante to maintain control of their market share and any import quota contracts they have been granted rights to.

In April 2019, the KPK raided the offices of the Minister of Trade, Enggartiasto Lukita, as a result of allegations that the ‘seven robbers’⁶ – as quoted by Indonesia’s former Minister of Maritime, Rizal Ramli, in reference to the seven largest private importers in Indonesia – were suspected of bribery and corruption in relation to increasing import quotas.⁷ Following this, on 2 July 2019, the KPK summoned the minister of trade in relation to allegations of the payment of bribes in the amount of 2 billion rupiah to former Indonesian congressman, Bowo Sidik Pangarso.⁸ Previously, Bowo Sidik Pangarso was arrested by the KPK and confessed that 2 billion of the 8 billion rupiah seized from him by the KPK was from the Minister of Trade.⁹ The purpose of the bribe, it was alleged, was to influence Bowo Sidik Pangarso to support the Minister of Trade in passing Regulation No. 16/M-DAG/PER/3/2017 for the trading of refined sugar – the regulation is intended to set a higher quota for the amount of imported industrial sugar allowed into Indonesia.¹⁰

As a result of this regulation – which was subsequently passed – there is now an oversupply of industrial sugar in Indonesia. The excess quantity of sugar in the marketplace will cause a steep decline in price and may cause sugar farmers to suffer losses.¹¹

However, this is not the first time bribery and corruption has been an issue for the food sector. In 2018, 32 companies were found guilty of forming a cartel to control beef prices and to limit the distribution of beef and the quantity of beef imports, at the expense of Indonesian consumers.¹² Meanwhile, the Indonesian minister of agriculture, Andi Amran Sulaiman, believed that the ‘rice mafia’ was behind price and supply fluctuations of rice in 2016 in Indonesia.¹³ Supply issues resulted in a flood of rice supplies into the Indonesian market, following an alleged scarcity by six of Indonesia’s largest suppliers, who were suspected of hiding the true amount of local rice output.¹⁴

Despite a strong desire to do so, breaking the tight reign of the food cartels – and the bribery and corruption that comes with their vast networks and influence – remains a challenge for the authorities. It is clear that there is still more to be done, and that companies operating in this sector in Indonesia must remain vigilant and proactive in managing bribery and corruption risks.

Build it and they may corrupt: the infrastructure sector

For years following the 1997 financial crisis, Indonesia’s infrastructure remained under­developed. However, this all changed with election of President Widodo in 2014 and the infrastructure boom that followed.

According to 2019 state budget figures, during his first term of office, Jokowi invested close to 1,888 trillion rupiah in infrastructure projects throughout the country, including roads, bridges and railway systems. This infrastructure splurge looks set to continue: with his recent election win, it is reported that Jokowi will spend close to 1,798 trillion rupiah on new infrastructure projects over his next five years in office.

Securing overseas funding remains critical to the president’s ambitious infrastructure agenda. As such, Jokowi has made it a top priority to attract foreign investors by improving the ease of doing business, streamlining the regulatory landscape and tackling domestic corruption. However, corruption in the public infrastructure sector has historically posed a challenge: a lack of transparency and oversight in relation to public procurement and tendering processes, collusion between domestic contractors and public officials and requests for ‘grease’ payments to approve infrastructure permits have left foreign investors cautious when approaching investment opportunities in Indonesia.

In light of these corruption concerns, the KPK, in coordination with the Attorney General’s Office, is paying closer attention to public infrastructure projects and tendering processes. Enforcement activity in the infrastructure sector has been particularly strong in the past 12 months as the KPK tries to root out corruption activities. Aside from the previously discussed corporate prosecution of PT Nusa Konstruksi Enjiniring, one of the largest construction and engineering firms in Indonesia, the KPK is currently conducting investigations into:

• Sofyan Basir, the current president director of PLN (the Indonesia state-owned electricity company), who is suspected of bribery offences related to the construction of the Riau-1 Power Plant Project. Sofyan Basir is accused of aiding Johanes Kotjo, the shareholder of the company that owns the Riau-1 power plant, in paying a bribe to an Indonesian Member of Parliament; and
• PT Nindya Karya (NK), a state-owned construction company suspected of committing bribery offences in relation to the construction of the port in Aceh, Sumatra. NK is the first state-owned company named as a suspect by the KPK.

In addition, the government recently introduced new public procurement regulations (Presidential Regulation No. 16 of 2018 for Public Procurement) that includes an e-­marketplace system for public bids through which the names and prices submitted by contractors will be publicly available. It is hoped that the system will provide greater transparency in relation to public procurement; and reduce the risk of collusion and public bribery.

It remains to be seen if the levels of corruption in public procurement infrastructure tenders will be affected by these proposed changes or recent KPK enforcement activity. Despite the efforts to root out corruption, businesses should remain cautious when interacting with government agencies and entities in relation to public sector infrastructure projects. Strong internal procedures and compliance systems remain essential for addressing the high and real risk of public bribery.

Uncertainty ahead?

The KPK’s current leadership term concludes at the end of this year. The KPK is steered by five

personnel: a chairperson with four concurrent vice chairpersons. The five leaders are state officials who hold office for five years and can only be re-elected for one term. The next cycle runs from 2019 to 2023 and mooted names include investigators and professors. Their direction at the independent KPK could dictate the emphasis placed on corporate liability, though they will also be influenced by the direction of enforcement abroad. The United Kingdom, United States and Singapore are frequently cited by the KPK elite as markers of the anti-corruption standard of enforcement.

In July of this year, the KPK – often lauded for its near impeccable record of securing convictions – lost a high-profile corruption case against the former chairman of Indonesia’s Bank Restructuring Agency, Syafruddin Arsyad Temenggung; the Supreme Court acquitted Syafruddin of all charges and ordered his immediate release. This result was highly unusual, particularly given the Supreme Court’s historically tough stance in cases involving corruption. Some observers believe this is because it was the first case decided since the Honourable Supreme Court judge Artidjo Alkostar – renowned for his tough stance in bribery and corruption cases – left the bench. It remains to be seen what impact Artidjo’s retirement will have on the direction of the Supreme Court and their attitude towards bribery and corruption cases.

Regardless of this recent judicial change – and upcoming KPK leadership changes – the KPK and other law enforcement agencies are expected to continue or step up enforcement. The recent re-election of Joko Widodo as President of Indonesia maintains political support for robust enforcement and aggressively tackling bribery and corruption. The tremors of an uptick in enforcement can be felt across Indonesia.

Notes