Potential risks: Anti-corruption measures may affect private business decisions

People say that all is fair in love and war, and based on recent examples, it would appear that this true of business in Indonesia as well. There are currently criminal proceedings against at least three big corporations in Indonesia, including Chevron Pacific Indonesia – relating to an allegation of corruption in the firm’s bioremediation projects (“Chevron bioremediation case”); Indosat Mega Media – relating to an allegation of corruption in the cooperation on broadband internet access 3G/HSDPA network with its holding company (“IM2 case”); and Merpati Nusantara Airlines, relating to an allegation of corruption in the lease of aircrafts from its business partner (“Merpati case”). These cases have redefined the way businesses see the application of criminal law in Indonesia and gives rise to potential business criminalisation practices. Companies are becoming concerned since the parameters they previously believed to safeguard their operations against criminal law are being reinterpreted.

Misapplication

These concerns largely stem from the inconsistencies in applying the anti-corruption regulations that redefine what has long been understood as the boundary between private and/or commercial matters and what amounts to criminal conduct. Additionally, the issue of criminal law has escalated due to recent practices of anti-corruption regulations being applied simply because the transactions in question are connected with the state, despite the performers being private entities. In the Chevron bioremediation and IM2 cases, the Anti-Corruption Law has been enforced only with regard to the private sector defendants. There have also been inconsistencies among the legislative, executive and judicial authorities interpreting the law in these cases. Thus, even government support on the lawfulness of a project or activity does not necessarily protect the project from application of criminal law.

Overlap

The new trend of business criminalisation in Indonesia started with the wide interpretation of Article 2 and 3 of Law No. 31 of 1999 on Eradication of Corruption, last amended with Law No. 20 of 2001 (“Anti-Corruption Law”) by the law enforcement institutions, particularly the Attorney General’s Office, which is one of the institutions with the authority to conduct inquiry and investigation at the initial stage of criminal proceedings and to prosecute the accused in trial. Precedents show that the implementation of Article 2 and 3 have been expanded, overlapping private law, especially business transactions, by including loss caused by business risks as corruption crime, despite the fact that such risks are existent in commercial endeavours.

In the abovementioned cases, the corruption crime charges were based on two main elements: (i) an unlawful act; and (ii) that such act caused state loss. The Attorney General’s Office established grounds to qualify an action or a business decision as unlawful by accusing that the action infringed upon a law or regulation, associating the materialised or potentially materialised business risks with state loss. The arbitrary interpretation of the law or regulation governing such business, and disregarding the official interpretation of the ministry having the authority over the sector, contributes to the growing anxiety of the business community.

Getting It Right

The fight against corruption has always been part of Indonesia’s legal agenda. Therefore, its application must avoid capricious interpretation of the Anti-Corruption Law, which threatens the credibility of its enforcements and, at the same time, becomes a hindering factor for business activities and investment. In light of this development, the business world must learn the new rules of the game: always take into consideration the reality of the Anti-Corruption Law enforcement practices when calculating the risks in making a business decision. It is important to realise any business decision may have a risk of severe criminal sanction (corruption crime is a serious crime) imposed against the head of the company and/or the employees related to the business transactions.