Jurisdiction - Indonesia
Reports and Analysis
Indonesia – Recent Anti-Corruption Developments.

30 July, 2012

 

Legal News & Analysis – Asia Pacific – Indonesia – Regulatory & Compliance

 

Overview
 
Indonesia is the fourth largest country in the world (by population), one of the largest national economies, and the dominant market in Southeast Asia with a workforce of over 125 million people. Foreign direct investment in Indonesia increased over 40% in 2011. American businesses have been looking closely at the region since President Obama of the US and President Yudyohono of Indonesia signed a cooperation agreement to improve economic ties in November 2011. Japanese companies have also been actively investing in recent times.
 
However, Indonesia still has major issues with graft. While there have been improvements over the past few years, obtaining licenses and doing business in Indonesia often means encountering demands for facilitation payments and other bribes.
 
During a recent speech on International Anti-Corruption Day, President Suslio Bambang Yudhoyono said that the government would engage more with anti-corruption activists to combat corruption in Indonesia. The President claimed that there had been a steadily improving record in fighting corruption in Indonesia since 2004, when he issued instructions to accelerate the eradication of corruption. He claimed that since 2005, the National Police has handled 1,961 corruption cases, saving the country more than 965 billion rupiah. It is generally accepted, however, that there is still a long way to go in Indonesia’s fight against graft.
 
Recent international corruption cases
 
Alliance One International Inc
 
In August 2010, Alliance One International Inc (“Alliance One”), a leading dealer in tobacco, agreed to pay a total of US$9.45 million in criminal fines and to disgorge US$10 million in profits to resolve civil and criminal charges brought by the SEC and DOJ.
 
According to the complaint filed by the SEC, these penalties resulted from a failure to implement sufficient internal controls. The complaint went on to allege that between 2000 and 2004, Dimon Inc. and Standard Commercial, the predecessor entities to Alliance One, as well as a number of their subsidiaries, paid bribes of more than US$1.2 million to government officials in South East Asia. These bribes included a US$44,000 cash payment to an Indonesian tax official in exchange for a tax refund.
 
Innospec Inc
 
In March 2010, Innospec Inc agreed to disgorge US$11.2 million in profits and pay a criminal fine of US$14.1 million to settle charges brought by the DOJ. Innospec is a manufacturer and distributer of fuel additives and other specialty chemicals. From 2000 to 2007, the company allegedly paid multiple bribes in order to sell Tetra Ethyl Lead, a fuel additive, to government owned refineries and oil companies in Iraq and Indonesia.
 
Innospec was also subject to a civil action brought by the SEC. The SEC’s complaint alleged that Innospec’s management was not only aware of the bribery in Indonesia, but also authorised and encouraged it. In addition, the SEC criticised Innospec’s internal controls for failing to detect and prevent the illegal conduct.
 
More recently, on 11 June 2012, Paul Jennings, a former CEO of Innospec pleaded guilty to charges in the UK of conspiracy to make corrupt payments to public agencies in Indonesia and Iraq. Other former officers were charged but pleaded not guilty. The case is a good example of recent enhanced cooperation between enforcement authorities in the US and UK.
 
Recent domestic corruption cases
 
Nunun Nurbaeti
 
In February 2012, the Jakarta Corruption Court indicted Nunun Nurbaeti for her 2004 participation as a “go-between” in a vote-buying scheme. Nurbaeti is the wife of former deputy police chief Adang Dorodjatun. In May 2012, the court found Nunan guilty of bribery charges and sentenced her to more than 2.5 years in prison.
 
The vote-buying case was first investigated in 2009 when Agus Condro Prayitno, a lawmaker in the House of Representatives, revealed that he and many others in the House of Representatives had accepted travellers’ cheques to vote for Miranda Swaray Goeltom to be central bank senior deputy governor.
 
Muhammad Nazaruddin
 
Muhammad Nazaruddin, a former treasurer of President Susilo Bambang Yudhoyono’s Democrat Party, fled Indonesia in May 2011 after bribery allegations were made against him. He was arrested in Colombia in August 2011. He has been accused of bribery in relation to the construction of an athletes’ village in the city of Palembang for the Southeast Asia Games in 2011. In turn, while in exile, he has accused many other members of the Democrat Party, including the party chairman, Anas Urbaningrum, of corruption. The investigation is ongoing.
 
Rail procurement case
 
In November 2011, a former Indonesian Director-General of railways was sentenced to three years imprisonment and fined US$11,000 for overcharging the Indonesian government US$2.26 million by failing to put a contract for the purchase of railway cars to an open tender. The court found the former Director-General had benefited by agreeing to a contract with a Japanese company.
 
In 2010, the Indonesian press reported that the Corruption Eradication Commission (“KPK”) had raided the Jakarta office of the Japanese company. In November 2011, the Japanese press reported that Japanese police were cooperating with Indonesian authorities in relation to the matter.
 
Recent developments in domestic anti-corruption legislation
 
In February 2012, Indonesia and Hong Kong ratified their Agreement Concerning Mutual Legal Assistance in Criminal Matters. The agreement provides for a wide range of measures of mutual assistance for investigating and prosecuting criminal cases. Specifically, these measures include mutual assistance in serving documents, taking evidence, and executing requests for search and seizure.

 

 

For further information, please contact:

 

Mark Johnson, Partner, Herbert Smith

mark.johnson@herbertsmith.com 

 

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