Corporate crime, fraud and investigations in Indonesia: overview

A Q&A guide to corporate crime, fraud and investigations in Indonesia.

The Q&A gives a high level overview of matters relating to corporate fraud, bribery and corruption, insider dealing and market abuse, money laundering and terrorist financing, financial record keeping, due diligence, corporate liability, immunity and leniency, and whistleblowing.

To compare answers across multiple jurisdictions, visit the Financial crime Country Q&A tool.

This Q&A is part of the global guide to corporate crime, fraud and investigations law. For a full list of jurisdictional Q&As visit www.practicallaw.com/corporatecrime-guide.

Firmansyah, KarimSyah Law Firm
Contents

Fraud

Regulatory provisions and authorities

1. What are the main regulatory provisions and authorities responsible for investigating corporate or business fraud?

Corporate or business fraud is not specifically regulated under the Indonesian Penal Code. General criminal fraud is governed under Article 378 of the Indonesian Penal Code (Kitab Undang-undang Hukum Pidana), which only covers fraud committed by a person, not by a corporation or legal entity. However, some regulatory provisions do extend to corporate or business fraud, such as the regulations of the Financial Services Authority (Otoritas Jasa Keuangan (OJK) (previously BAPEPAM-LK)); and some regulations impose criminal sanctions on business actors (including individuals or entities) such as:

  • Article 65 of Law No. 38/2004 on Roads.

  • Articles 107 and 115 of Law No. 7/2014 on Trading.

  • Article 61 of Law No. 8/1999 on Consumer Protection.

  • Article 116 of Law No. 32/2009 on Environmental Protection and Management.

Generally, the police are the authority responsible for investigating corporate and business fraud.

Certain civil servant officials of the Republic of Indonesia may also be specifically authorised to conduct investigations in special cases, such as frauds involving the capital markets, tax, customs, environmental issues, consumer protection and so on.

For more information on the regulatory authorities, see box: The regulatory authorities.

 

Offences

2. What are the specific offences relevant to corporate or business fraud?

The separate criminal offences of fraud, theft, misappropriation, misrepresentation and deceit may be relevant to corporate or business fraud. A preliminary investigation may be necessary to determine whether the management of the company or the company itself will be liable for the fraud. If a company is found to be liable for conducting fraud it can generally only be charged with strict liability offences, as it is hard to establish the necessary criminal intent for a legal entity such as a company and, if a strict liability is imposed, no intent need be established. For example, corporate or business fraud involving environmental damage can be charged with strict liability offences under Article 88 of Law No. 32/2009 on Environmental Protection and Management, which adopts the strict liability principle.

Under Article 53 of the Penal Code, attempts to commit a crime are punishable. However, under Article 54 of the Penal Code, attempts to conduct misdemeanours are not punishable.

 

Enforcement

3. What are the regulator's powers of investigation, enforcement and prosecution in cases of corporate or business fraud and what are the consequences of non-compliance?

Since fraud is a criminal offence, the police, as investigator may conduct a foreclosure, blocking or confiscation of all objects or documents used to commit the crime or obtained from conducting the crime. If a corporation does not comply with the investigation, the police can detain the management.

 

Penalties

4. What are the potential penalties or liabilities for participating in corporate or business fraud?

Civil/administrative proceedings or penalties

It is possible for the state or a regulator to impose penalties on a fraudulent company including:

  • Written admonitions.

  • Fines.

  • Restrictions on business activities.

  • Suspension of business activities.

  • Revocation of business licence.

  • Cancellation of approvals.

  • Cancellations of registration.

Criminal proceedings or penalties

A company can only be charged with a criminal offence if it has caused loss or harm to the state and/or the public.

Penalties may include imprisonment for the responsible person who committed the crime and fines for the corporation.

Civil suits

Civil suits and class actions against a corporation are possible. For example in cases where a corporation causes harm to the environment and the local residents suffer losses due to the waste from the company's operations, as long as the claim can be specified in details and can be proven, a class action claim can be submitted to the court. Punitive damages are not recognised in Indonesia. Only compensatory (material and immaterial) damages can be recovered in civil actions.

 

Bribery and corruption

Regulatory provisions and authorities

5. What are the main regulatory provisions and authorities responsible for investigating bribery and corruption?

The main regulations pertaining to bribery and corruption in Indonesia are:

  • Indonesian Penal Code.

  • Law No.28 of 1999 on Good Governance.

  • Law No.31 of 1999 on the Eradication of Corruption, as amended by Law No.20 of 2001 (Corruption Eradication Law).

The police, and/or certain civil servants given special authority to do so, generally conduct investigations into bribery and corruption (Article 5, Law No. 8 of 1981 on Criminal Procedure). The Attorney General also has authority under the Corruption Eradication Law. In addition, the Corruption Eradication Commission (Komisi Pemberantasan Korupsi (KPK)) also has authority to conduct investigations into corruption cases (Article 6, Law No. 20 of 2001) (see Question 10).

For more information on the regulatory authorities, see box: The regulatory authorities.

 
6. What international anti-corruption conventions apply in your jurisdiction?

Indonesia has ratified the United Nations Convention against Corruption, by Law No. 7 of 2001 on Ratification of United Nations Convention against Corruption 2003.

 

Offences

7. What are the specific bribery and corruption offences in your jurisdiction?

Foreign public officials

The Penal Code and Corruption Eradication Law do not specifically govern bribery and corruption by foreign public officials, but the language used in both also applies to foreign public officials.

Domestic public officials

The Corruption Eradication Law governs bribery and corruption by public officials. This must be read alongside the Penal Code.

Private commercial bribery

There is no criminal regulation that governs private commercial bribery.

 

Defences

8. What defences, safe harbours or exemptions are available and who can qualify?

Public officials may receive gifts and facilitations but must report those gifts and facilitations to the Corruption Eradication Commission. The Corruption Eradication Commission decides whether or not the gifts or facilitations amount to bribes under the Corruption Eradication Law. The lobby of the Corruption Eradication Commission building is lined with glass cases displaying gifts received by officials of all kinds.

 
9. Can associated persons (such as spouses) and agents be liable for these offences and in what circumstances?

The participation in or association with anyone that has intent to commit crimes or engage in other activities that are prohibited by general regulations is punishable under Article 55 of the Penal Code.

 

Enforcement

10. What are the regulator's powers of investigation, enforcement and prosecution in cases of bribery and corruption and what are the consequences of non-compliance?

The police, Attorney General, and the Corruption Eradication Commission have powers to conduct investigations under the Indonesian Criminal Procedural Law. In addition, the Corruption Eradication Commission has specific powers in the conduct of an investigation into a corruption case by Article 12(1) of Law No. 30 of 2002, including powers to:

  • Tap into communications lines and record conversations.

  • Instruct the relevant agency to ban suspects from travelling abroad.

  • Request information on suspects' financial details from banks or other financial institutions (despite strong bank secrecy laws that otherwise would apply).

  • Instruct banks or other financial institutions to block the accounts of suspects or other relevant parties.

  • Instruct a suspect's superior to temporarily suspend the suspect from his duties.

  • Request data on a suspect's wealth and tax obligations from the relevant agencies.

  • Freeze a suspect's trade and financial transactions, contract licences and concessions that are believed to have links to corruption cases, based on sufficient preliminary evidence.

  • Ask for assistance from the Indonesian Interpol or law enforcing agencies in other countries to search, detain and seize goods as evidence abroad.

  • Ask for assistance from the police or other relevant agencies to detain and seize goods linked to corruption cases.

 

Penalties

11. What are the potential penalties for participating in bribery and corruption?

Civil/administrative proceedings or penalties

There are no civil or administrative penalties for bribery and corruption since corruption and bribery fall under the scope of criminal law.

Criminal proceedings or penalties

Article 2 of Law No. 31 of 1999, as amended by Law No. 20 of 2001, states that anyone who commits acts of corruption is liable to life in prison, or a prison term of between four and 20 years, and a fine of between IDR200 million and IDR1 billion. The death penalty may be applied under certain circumstances. There is an additional penalty that can be imposed under Article 18 of Corruption Eradication Law and Article 10 of the Penal Code in the form of the revocation of political rights. The fines are separate and apart from any judgment ordering the defendant to return embezzled funds to the state.

 

Tax treatment

12. Are there any circumstances under which payments such as bribes, ransoms or other payments arising from blackmail or extortion are tax-deductible as a business expense?

Payments such bribes, ransoms or other payments arising from blackmail or extortion are not tax-deductible as a business expense.

 

Insider dealing and market abuse

Regulatory provisions and authorities

13. What are the main regulatory provisions and authorities responsible for investigating insider dealing and market abuse?

Law No. 8 of 1995 on Capital Market (Capital Market Law) is the main regulation governing insider trading and market abuse in the capital markets. Law No. 5 of 1999 on the Prohibition of Monopoly and Unfair Business Competition Practices regulates more general market abuse offences outside the capital markets. Since the enactment of Law No. 21/2011 on Financial Services Authority dated 22 November 2011, the Financial Services Authority has the authority to conduct regulation, supervision, inspections and investigations in the capital markets, banking, insurance and other financial institutions.

For more information on the regulatory authorities, see box: The regulatory authorities.

 

Offences

14. What are the specific insider dealing and market abuse offences?

Insider dealing offences

When insider dealing occurs, both the insider who provides the inside information and the recipient of the inside information are held liable. The following offences apply under Law No. 8 of 1995:

  • Article 95. An insider of an issuer or public company who is in possession of inside information is prohibited from buying or selling securities of:

    • the issuer or public company; or

    • another company engaged in transactions with the issuer or public company.

  • Article 96. Such an insider is prohibited from:

    • influencing a person to buy or sell the securities in question; or

    • providing inside information to a person he has reason to believe may use such information to buy or sell the securities in question.

  • Article 97. A person who tries to obtain inside information from an insider in violation of the law, and who obtains such information, is subject to the same prohibitions as the insider.

Market abuse offences

Market abuse can include defrauding or deceiving another person, conducting a fraud, or providing false or misleading information. The following offences apply:

  • Article 90. When buying and selling securities, it is prohibited to directly or indirectly:

    • defraud or deceive another person, by any means or method;

    • participate in a fraud or deception against another person; or

    • falsely state material information or fail to disclose material information so that statements are misleading with respect to conditions at the time, either with the intention of obtaining a benefit or avoiding a loss, either for himself or for another person, or with the intention of influencing another person to buy or sell securities.

  • Article 91. It is prohibited to take any action, directly or indirectly, that has the purpose of creating a false or misleading appearance of trading activity, market conditions or the price of securities on a securities exchange.

  • Article 92. It is prohibited to make, with intention of influencing others to buy, sell or hold securities, either alone or with others, two or more securities transactions, that directly or indirectly cause the price of securities on the securities exchange to rise, fall or remain steady.

 

Defences

15. What defences, safe harbours or exemptions are available and who can qualify?

Under article 97(2) of the Capital Market Law, a person who obtains inside information without violating the law is not subject to the prohibitions applicable to insiders, as long as such information is made available without restriction by the issuer or public company.

 

Enforcement

16. What are the regulator's powers of investigation, enforcement and prosecution and what are the consequences of non-compliance?

The Financial Services Authority (OJK) has authority to conduct an investigation for cases involving the capital markets, such as insider dealing and market abuse; and if necessary, the OJK can co-ordinate with other authorities such as the police, Attorney General, or Directorate General of Immigration. The investigation file will be subsequently delivered to the Attorney General for the purposes of prosecution. The OJK has powers to confiscate or freeze assets, or perform interrogations.

 

Penalties

17. What are the potential penalties for participating in insider dealing and market abuse?

Civil/administrative proceedings or penalties

Under Article 102(2) of the Capital Market Law, the Financial Services Authority can impose administrative sanctions in cases of violation of the Capital Market Law, including:

  • Written admonitions.

  • Fines.

  • Restrictions on business activity.

  • Suspensions of business activity.

  • Revocations of business licences.

  • Cancellations of approvals.

  • Cancellations of registrations.

Criminal proceedings or penalties

Criminal Proceedings on Insider Dealing and Market Abuse are governed under Article 104 of the Capital Market Law which states that any person who violates the provision of the articles on insider dealing and market abuse will be subject to imprisonment for a maximum of ten years and a maximum fine of IDR15 billion.

Civil suits

Article 111 of the Capital Market Law allows any person who suffers losses arising from violations of the Capital Market Law and/or its implementing regulations to sue for compensation either jointly or severally with other persons with similar claims, against the person or persons responsible for the violations.

Punitive damages are not recognised in Indonesia. Only compensatory damages (for material and immaterial) can be recovered in civil actions.

 

Money laundering, terrorist financing and financial/trade sanctions

Regulatory provisions and authorities

18. What are the main regulatory provisions and authorities responsible for investigating money laundering, terrorist financing and/or breach of financial/trade sanctions?

Money laundering

The main legislation covering money laundering is Law No. 8 of 2010 on Prevention and Eradication of Money Laundering (Money Laundering Law). In addition, there is Law No. 3 of 2011 on Fund Transfer (Fund Transfer Law), which also relates to the Money Laundering Law.

The Financial Transaction Reports and Analysis Centre (Pusat Pelaporan dan Analisis Transaksi Keuangan) (PPATK) receives reports on money laundering and investigates money laundering cases. PPATK is also responsible for the prevention and eradication of money laundering. After conducting an investigation, the PPATK subsequently conveys its findings to the police or Corruption Eradication Commission.

Terrorist financing

Terrorist financing is regulated by:

  • Law No. 9 of 2013 on the Prevention and eradication of Terrorism Financing Crimes (Terrorism Financing Law).

  • Law No.15 of 2003 on Stipulation of Government Regulation in lieu of Law No. 1 of 2002 on Elimination of Criminal Acts of Terrorism (Terrorism Law).

  • The Money Laundering Law.

  • Bank of Indonesia Regulation No.14/27/PBI/2012 on implementation of Anti Money Laundering and Combating the Financing of Terrorism Programmes for Commercial Banks.

The police are responsible for investigating terrorism financing cases.

Financial/trade sanctions

Article 29 of the Terrorism Law stipulates that investigators, public prosecutors or judges can order banks and other financial institutions to freeze the assets of any individual whose assets are known or reasonably suspected to be the proceeds of a criminal act connected to terrorism.

For more information on the regulatory authorities, see box: The regulatory authorities.

 

Offences

19. What are the specific offences relating to money laundering, terrorist financing and breach of financial/trade sanctions?

Money laundering

Under the Money Laundering Law there are four offences regarding to money laundering. Articles 3 and 4 deal with crimes by individuals, and Articles 6 and 7 deal with crimes by corporations.

Under article 3 of the Money Laundering Law, anyone who places, transfers, forwards, spends, pays, grants, deposits, takes abroad or changes currency, securities or other deeds towards assets that are recognised or reasonably alleged to be the result of criminal action with the purpose of hiding or disguising the assets' origin is guilty of money laundering and subject to imprisonment for up to 20 years and a fine of up to IDR10 billion.

The listed criminal actions include corruption, bribery, smuggling psychotropics, narcotics or individuals, criminal actions in relation to banking, capital markets, insurance, taxation, customs or excise, human trafficking, trading in illegal firearms, terrorism, kidnapping, burglary, embezzlement, fraud, money counterfeiting, gambling, prostitution, criminal actions in relation to forestry, the environment, marine environment and fisheries, or other criminal actions subject to imprisonment of four years or more,

Under Article 4, anyone who hides or disguises the origin, source, location, purpose or transfer of right or ownership of assets that are known by him, or which are reasonably alleged, to be the result of criminal action, is guilty of money laundering and subject to imprisonment for up to 20 years and a fine of up to IDR500 billion.

If corporation commits money laundering, the sentence may be applied to both the corporation and/or corporation control personnel, under Article 6 of the Money Laundering Law. Under Article 7, the primary sentence applied to the corporation is fine of up to IDR100 billion.

Terrorist financing

Any person who intentionally provides or collects, gives, or lends funds directly or indirectly with the objective that they be used partly or wholly for criminal acts of terorrism is subject to a maximum of 15 years of imprisonment and maximum fine of IDR1 billion (Article 4, Terorrism Financing Law).

Financial/trade sanctions

If a corporation is involved in any act of terrorism, its licence to operate will be revoked and it will be declared as a banned corporation (Article 8(5) ,Terrorism Financing Law).

Commercial banks must implement anti-money laundering and anti-terrorist financing programmes under Article 2 of PBI No.14/27/PBI/2012 on Implementation of Anti-Money Laundering and Combating the Financing of Terrorism Programmes for Commercial Banks. Banks which do not implement such programmes may be subject to:

  • Written notices.

  • Downgrading of the bank's soundness rating.

  • A cease-and-desist order on specified business activities.

  • The termination of bank management and subsequently designation and appointment of temporary replacements until the general meeting of shareholders (RUPS) or co-operative member meeting (RAK) appoints permanent replacements with the approval of the Bank of Indonesia.

  • The inclusion of the members of board of directors and board of commissioners, bank employees and shareholders on the banking blacklist.

 

Defences

20. What defences, safe harbours or exemptions are available and who can qualify?

There are no safe harbours or exemptions available for money laundering and terrorist financing.

 

Enforcement

21. What are the regulator's powers of investigation, enforcement and prosecution and what are the consequences of non-compliance?

Money laundering

In addition to the powers to arrest and detain, the authorities have powers under Articles 70(1) and 71(1) of the Money Laundering Law to:

  • Cancel any transaction suspected of being money laundering.

  • Block any asset/wealth suspected to be the result of money laundering.

  • Summon any whistleblower to provide details of the suspects reported by the whistleblower.

Terrorist financing

In addition to the powers to arrest and detain, Article 22 of the Terrorism Financing Law empowers the relevant authority (see Question 18) to block funds that are suspected to be directly or indirectly used for terrorist acts. The authority also has the power to summon financial service providers to obtain details of the suspected funds.

 

Penalties

22. What are the penalties for participating in money laundering, terrorist financing offences and/or for breaches of financial/trade sanctions?

Money laundering

The penalties for money laundering by an individual include imprisonment for up to 20 years of and fines of up to a maximum of IDR10 billion. The principal sanction for a corporation is a fine up to maximum IDR100 billion.

Terrorist financing

The maximum criminal sanctions for an individual for participating in terrorist financing are 15 years of imprisonment and fines of up to IDR1 billion. Where applied to a corporation, a fine may be imposed of up to a maximum of IDR100 billion.

Financial/trade sanctions

Trade sanctions may also be imposed on corporate institutions, including the:

  • Freezing of corporate business activities, either partly or wholly.

  • Revocation of business licence.

  • Dissolution of the corporation.

  • Seizure of the corporation's assets.

  • Acquisition of the corporation by the state.

 

Financial record keeping

23. What are the general requirements for financial record keeping and disclosure?

A company must make and keep financial records for at least ten years (Article 8, Law No. 8 of 1997 on Company Documents). In addition, Article 66 of Law No. 40 of 2007 on Limited Liability Companies (Company Law) requires a company to make annual financial statements that include, at a minimum:

  • A current balance sheet of the latest accounting year in comparison with the previous accounting year.

  • A profit and loss statement from the relevant accounting year.

  • Cash flows.

  • A report on any changes in equity.

Such reports and financial statements must be prepared according to the accepted accounting standards. If an authority needs the documents in the course of an investigation on the basis of the Corruption Eradication Law, Money Laundering Law or similar provision, the company must disclose its financial documents or any documents the authority requires.

 
24. What are the penalties for failure to keep or disclose accurate financial records?

Under Law No. 8 of 1997 on Company Documents, there are no sanctions if a company fails to maintain proper financial records. However, disclosing inaccurate financial records could fall under Article 263 of Indonesian Penal Code.

 
25. Are the financial record keeping rules used to prosecute white-collar crimes?

There are no restrictions on which documents can be used as evidence. Article 29 of the Anti-Corruption Law allows the relevant investigating authority to requisition documents from the Bank of Indonesia on the suspect's financial condition in order to prosecute white-collar crime.

 

Due diligence

26. What are the general due diligence requirements and procedures in relation to corruption, fraud or money laundering when contracting with external parties?

In general, it is not common practice to include anti-corruption clause in a business contract. However, all transactions conducted through the banking services that is valued above IDR100 million must obtain written confirmation that the funds are not derived from a crime.

 

Corporate liability

27. Under what circumstances can a corporate body itself be subject to criminal liability?

A corporation can be subject to criminal liability where the relevant law specifically states that corporations are included as its subject. The Anti-Corruption Law and Money Laundering Law, for example, both state that they apply to both individuals and corporations.

 

Cartels

28. Are cartels prohibited in your jurisdiction? How are cartel offences defined? Under what circumstances can a corporate body be subject to criminal liability for cartel offences?

This question was added in the 2015/16 edition of the guide.

 

Immunity and leniency

29. In what circumstances is it possible to obtain immunity/leniency for co-operation with the authorities?

According to Supreme Court Circular Letter Number 4 of 2011, for certain criminal offences such as corruption, money laundering, terrorism and so on, a party that voluntarily co-operates with the authorities may be granted leniency, as co-operator or whistle-blower.

 

Cross-border co-operation

30. What international agreements and legal instruments are available for local authorities?

Obtaining evidence, seizing assets, sharing information

Indonesia has ratified several Mutual Legal Assistance treaties with some countries such as Malaysia, Singapore, Vietnam, Brunei Darussalam, Cambodia, Lao, Philipines, Australia, India, and China.

 
31. In what circumstance will domestic criminal courts assert extra-territorial jurisdiction?

Indonesia embraces the active personality principle under Article 5 of the Penal Code, which allows, in certain circumstances for the prosecution of an Indonesian citizen who commits offence outside the territory of Indonesia.

 
32. Does your jurisdiction have any statutes aimed at blocking the assertion of foreign jurisdictions within your territory?

Article 2 of the Penal Code states that the Indonesian statutory penal provisions are applicable to any person who is guilty of a punishable act within Indonesia's jurisdiction. Therefore, only Indonesian courts have the authority to examine such cases.

 

Whistleblowing

33. Are whistleblowers given statutory protection?

Whistleblowers are given statutory protection under the Article 2 of Law No. 13 of 2006, which states that the law provides protection to witnesses and victims in all stages of the criminal judiciary process.

 

Reform, trends and developments

34. Are there any impending developments or proposals for reform?

The government is currently undergoing radical change after the recent election, so it is too early to predict what reforms will be undertaken in the next few years.

 

Market practice

35. What are the main steps foreign and local companies are taking to manage their exposure to corruption/corporate crime?

Both foreign and local companies are increasingly looking to conduct good corporate governance, with foreign law such as the US Foreign Corrupt Practices Act and Indonesian prevailing laws on anti-corruption and money laundering acting as guidance.

 

The regulatory authorities

Corruption Eradication Commission (Komisi Pemberantasan Korupsi) (KPK)

W www.kpk.go.id

Status. Governmental organisation.

Principal responsibilities. Investigates and prosecutes corruption crimes.

Financial Transaction Reports and Analysis Centre (Pusat Pelaporan dan Analisis Transaksi Keuangan) (PPATK)

W www.ppatk.go.id

Status. Governmental organisation

Principal responsibilities. Receives reports on money laundering and investigates money laundering cases, and is responsible for the prevention and eradication of money laundering.

The Police of the Republic of Indonesia

W www.polri.go.id

Status. Governmental organisation

Principal responsibilities. Responsible for investigating crimes.

The Attorney General of the Republic of Indonesia

W www.kejaksaan.go.id

Status. Governmental organisation

Principal responsibilities. Prosecutes crimes.

Financial Services Authority (Otoritas Jasa Keuangan) (OJK)

W www.ojk.go.id

Status. Governmental organisation with authority to investigate cases involving the capital markets, such as insider dealing and market abuse.



Online resources

W www.hukumonline.com

Description. Hukumonline is a law consultation, journals, and regulations website. The website is maintained by Hukumonline itself and the status of the information contained in the website is unofficial.



Contributor profiles

Firmansyah

KarimSyah Law Firm

T +62 21 2966 0001
F +62 21 2966 0007
E info@karimsyah.com
W www.karimsyah.com

Professional qualifications. Indonesia, solicitor

Areas of practice. Banking and finance; capital markets; commercial litigation; general corporate; mergers and acquisitions


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