Corporate Compliance Key to Eradicate Corruption

Written by: Bayu Perdana, LL. M Candidate at Georgetown Law (USA) and an associate at Maqdir Ismail & Partners.

The  Corruption Eradication Commission (KPK) in 2018 started prosecuting a company named Nusa Konstruksi Enjiniring (KNE) for corruption. This is the first time the KPK prosecuted a private corporation, and it indicted KNE with revocation of the corporation’s right to take part in government project bidding. In contrast, the U.S. has prioritized prosecuting corporations for Foreign Corrupt Practice Act (FCPA) violations since 1977.

This article describes other options to decrease corruption by arguing that the KPK should be more focused on targeting companies because a more systemic approach could prevent crime from occurring; moreover, the private sector is involved in 80 percent of corruption cases.

Focusing on the accountability of companies is one of the most successful options to battle corporate crime because accountability has the ability to deter future misconduct. Law enforcement encourages corporations to cooperate when they are charged with FCPA violations. They give an incentive to corporations that voluntarily self-disclose misconduct and assist with law enforcement. There will be a presumption of declination if a company self-discloses misconduct, fully cooperates and conducts timely and appropriate remedial actions. They will accord to a sentencing court, a 50 percent reduction off the low end of the US Sentencing Guidelines fine range, except in the case of a recidivist. Further, U.S. law enforcement will supervise the company that engaged in criminal activities for a certain period.

U.S. law enforcement also weighs in on the implementation of compliance programs. Indonesian laws have not accommodated any rules about the benefits of a compliance program for corporations, but in the U.S., guidance on compliance programs for corporations is regulated, as in the US Attorneys’ Manual. The corporate compliance program does not grant immunity to corporations, but the existence and effectiveness of a compliance program are one of the elements prosecutors consider during the investigation, whether to charge a corporation or negotiate a plea or out-of-court settlement.

Compliance programs in the US are a part of remedial actions that may be required by a prosecutor. Indonesian law enforcement should realize that by having a decent compliance program, corporations may detect suspicious criminal conduct and be able to report it to law enforcement. In the KNE case, the KPK and the Court could have induced KNE to have an effective compliance program.

Besides compliance programs, the FCPA imposes recordkeeping and internal accounting requirements upon US companies, which are crucial for corporate compliance. Under this provision, a false record or deficient control that is linked to an improper payment is not prerequisite. Prosecutors and regulators are able to charge corporations based on mistaken recording or an internal controls deficiency. Corporate compliance with the requirement to make accurate financial statements here could prevent improper payments to or bribery of public officials.

On the other hand, Indonesian laws have not provided specific rules for corporate crime, except the Supreme Court Regulation in 2016. This is a significant problem because the methods to handle corporate crime is different from charging individuals in courts. Many factors should be considered when charging corporations, such as corporate compliance and the objective of charging corporations for corruption. The law enforcement has to compel corporations to have an effective compliance program to prevent corruption occurring, and the objective of charging corporations is to give fines, not a jail sentence like a punishment for individuals.

In practice, a further policy for handling corporate crime is a necessity in Indonesia because corporations need to know what their obligations are to overcome corruption problems in their companies. For instance, recordkeeping and internal controls provisions under the FCPA provide clear guidance for corporations to eschew corrupt behavior.

Thus, Indonesian law enforcement should start inducing corporations to have effective compliance policies which are capable of deterring companies from engaging in corrupt behavior. This allows law enforcement to easily detect any violations with the aim of overcoming the never-ending problem of corruption in Indonesia.

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