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Legal Updates | The Cost of Corruption For Corporations in Indonesia

Recent Update

Almost immediately following the issuance of Supreme Court Regulation No. 13 of 2016 on Case Handling Procedures for Corporate Crimes ("Perma 13") in December 2016, the Corruption Eradication Commission ("KPK") named PT Nusa Konstruksi Enjiniring, Tbk ("NKE", formerly PT Duta Graha Indah, Tbk), a publicly traded construction company, as a suspect in the corruption of a number of government construction projects.

Before the trial of NKE, the Corruption Court put NKE's former president director, Mr Dudung Purwadi, on trial for taking part in corruption in two government construction projects in which the bidding processes were engineered to ensure NKE won the projects. The scheme involved payment of success fees to a public official who acted as an intermediary between NKE and the project owners. On 27th November 2017, the court found Purwadi guilty of corruption and sentenced him to four years and eight months of imprisonment and to pay a fine in the amount of 250 million IDR. In the same decision, the court also ordered NKE to pay restitution in the amount of 14.48 billion IDR and 33.42 billion IDR for the corruption in the two projects (the Jakarta High Court later on changed the latter to IDR 36.87 billion in its decision dated 12th February 2018).

On 3rd January 2019, the Corruption Court declared NKE guilty of corruption in a total of eight government construction projects, including the two projects examined under the Purwadi case.

Penalizing Corporations

The Anti-Corruption Law stipulates that the principal penalty to be imposed on corporations that are proven to be guilty of corruption is a fine. Additional penalties include confiscation of assets, obligation to pay restitution, full or partial closure of business or revocation of rights. In the NKE case, the Corruption Court imposed a fine of 700 million IDR, restitution of 85.49 billion IDR and revocation of the right to participate in tenders held by the government for six months.

You Gain You Lose

In determining the amount of restitution imposed on NKE in the Purwadi case, the court seems to have taken the approach that the amount of restitution to be paid to the state should be equal to the amount of profits gained by NKE from the two projects, as can be seen from the way the court calculated the amount of restitution.

The court found that NKE had gained  24.77 billion IDR and 42.71 billion IDRin profits from the projects. The court then deducted from these amounts the success fees paid to the public official which resulted in the amounts of 14.48 billion IDR and 36.87 billion IDR for restitution owed to the state.

In NKE's own trial, the court adopted the same approach of appropriating NKE's profits as restitution to the state, this time by making clear reference to Article 18 (1)  (b) of the Anti-Corruption Law and Supreme Court Regulation No. 5 of 2014 on Additional Penalty of Compensation in Corruption Crimes. These provisions stipulate that the maximum amount of compensation that can be imposed as an additional penalty is equal to the total amount of assets gained from the corruption.

The court found that NKE had gained profits in the amount of IDR 240 billion from the eight government construction projects (including the two projects examined in the Purwadi case) won by NKE as a result of the corruption scheme. The court then deducted from this amount (i) the amount already deposited by NKE to KPK at the early stages of the investigation of the case; (ii) the success fees paid to the public official to win the projects; and (iii) the amount of restitution paid by NKE to the state as enforcement of the verdict against NKE in the Purwadi case. This left a total of 85.49 billion IDR as the amount of restitution owed by NKE.

The court further stated that the appropriation of all of NKE's profit is intended to have a deterrent effect on the company. The court also implied that it is sending a message that corruption can leave companies penniless.

What's Next

The successful implementation of corporate criminal liability in the NKE case paves the way for subsequent indictments and sentencing of corporations for criminal actions. In 2018 alone, KPK named four corporations as suspects in a number of corruption cases, which include a state-owned entity.

The indictment of NKE also indicates that Perma 13 will be consistently enforced in future investigations of corporations in criminal matters. One of the criteria against which the court can assess the liability of a corporation under Perma 13 is whether the corporation takes the necessary steps to prevent or mitigate adverse effects and ensure compliance with the law to prevent a crime. The NKE indictment makes it all the more important for corporations in Indonesia to have rigid and strict internal compliance policies and ensure the enforcement of these policies. 

Hadiputranto, Hadinoto & Partners, Member of Baker & McKenzie International - 22nd January 2019

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)