I ENFORCEMENT POLICIES AND GUIDANCE

Law No. 5 of 1999 concerning the Prohibition of Monopoly and Unfair Business Competition Practices (the Indonesian Competition Law or the ICL) is the primary law regulating business competition in Indonesia. Chapters 3 and 4 of the ICL, regarding restrictive agreements and activities respectively, set out provisions prohibiting cartel conduct in relation to price, production or market, as well as bid rigging. In addition, provisions on restrictive agreements or activities are contained in other laws and regulations, such as Article 382 bis of the Indonesian Criminal Code, which prohibits unfair competition.

The competition authority responsible for the enforcement of the ICL, from the research on certain industries, investigations and, examinations to the imposition of sanctions, is the Commission for the Supervision of Business Competition (KPPU).2 The KPPU may commence investigations and examinations as well as issue decisions and impose administrative sanctions against all violations of the ICL. The KPPU has the power to summon undertakings, witnesses or experts to obtain, examine and evaluate documents or other instruments of evidence.

The prohibition of cartels under the ICL covers horizontal restricted agreements or cartels in the forms of prohibition of price-fixing, production arrangements, market allocation, group boycotts, bid rigging and other arrangements, conspiracy or concerted practices that may restrict competition in the market or may cause harm to consumers. Particularly for the bid rigging clause, the ICL does not clearly address whether it shall be understood as covering a purely horizontal or vertical arrangement. However, in its guidelines on this matter, the KPPU adopts both arrangements.

The cartel substantive test in the ICL takes either the 'per se illegal' or 'rule of reason' approach in each article. The provisions that consist of the phrase 'which may result in monopoly or unfair business practices' generally adopt the rule of reason approach. In the application, the provisions consider that an agreement or conduct violates the ICL only after the KPPU conducts an in-depth assessment to establish whether the agreement or conduct has an adverse impact on the market or on the competition. This assessment applies to certain cartel conduct, such as output restriction, market allocation and bid rigging.

The per se illegal approach refers to provisions that do not include the above-mentioned phrase. In this approach, the KPPU does not have to analyse the effect on the market of conduct or an agreement as the existence of a prohibited agreement or conduct is itself considered a sufficient violation of the provisions. This approach is similar to the application of the 'per se illegality' rule in other jurisdictions and is applicable to price-fixing and boycott provisions in the ICL. To date, the KPPU has issued several guidelines relating to cartel assessment, namely guidelines on the assessment of bid rigging, restrictions on output and marketing, and price-fixing.

II COOPERATION WITH OTHER JURISDICTIONS

The ICL does not have any specific provision for cross-border competition issues. However, the KPPU has so far officially cooperated with Japan, Korea, Mongolia, Australia, New Zealand, and last year, Singapore in its attempt to administer the cross-border aspect of competition law. Since the nature of cooperation is bilateral, the scope of cooperation with a certain competition commission from one jurisdiction might differ from another.

Cooperation with Japan is in the form of an economic relationship under the Indonesia-Japan Economic Partnership Agreement (IJEPA). This agreement was implemented in 2007 and includes a special section on competition policy, particularly concerning notification of law enforcement, information exchange and technical assistance. This partnership agreement is a means of support for the Japan Fair Trade Commission (JFTC) and the KPPU to enforce competition law in both countries.3

In 2014, the KPPU established a bilateral cooperation with the Korea Fair Trade Commission. The cooperation aims to contribute to the effective implementation of the competition laws of each party by promoting cooperation in competition law and policy between Indonesia and Korea. In 2017, the KPPU established a cooperation agreement with the Authority for Competition and Consumer Protection Mongolia, whereby they agreed to build the capacity of competition agencies through technical assistance programmes, data exchanges and sharing knowledge. Cooperation with Australia (the Australian Competition and Consumer Commission) and New Zealand (the NZ Commerce Commission) on competition policy is covered under the ASEAN-Australia-New Zealand Free Trade Agreement.4

In August 2018, the KPPU signed a memorandum of understanding (MOU) with the Competition and Consumer Commission of Singapore, the first-ever MOU between competition authorities in ASEAN Member States. This signifies the strengthening of the long-standing relationship between the two authorities. The aim of the MOU is to generate more consistent and effective competition outcomes and remedies so that business will have more regulatory certainty in a cross-border matters (particularly the Indonesian-Singapore issue) by having a cooperation framework that encourages notification of enforcement activities that potentially affect one party's interests, facilitates the exchange of information between the competition authorities, ensures the confidentiality of information and coordinates the cooperation in handling cases of mutual interest. It also addresses exchanges of employees.5

Although the cooperation between the KPPU and competition authorities in other jurisdictions covers, among other things, the exchange of information in relation to competition law enforcement, to date there has been no precedent of this cooperation, particularly regarding information exchanges with respect to the investigation or examination of cartels or any other competition cases. However, the KPPU has issued a notification of law enforcement to the JFTC concerning the KPPU's decision on a cartel on automatic scooters committed by two multinational Japan-based companies (Yamaha and Honda), and the JFTC has made a notification to the KPPU for the CTR case. These notifications were made based on the IJEPA. Another implementation of the IJEPA was in the Donggi-Senoro LNG case, in which the KPPU notified the JFTC immediately after the release of its decision due to the involvement of Mitsubishi Corporation.6

III JURISDICTIONAL LIMITATIONS, AFFIRMATIVE DEFENCES AND EXEMPTIONS

The ICL generally applies to prohibited conduct that occurs abroad only if the conduct has an adverse effect in Indonesia. The KPPU will also investigate whether a defendant is established or domiciled in Indonesia, or directly or indirectly engages in business activities in Indonesia. In one bid rigging case, the KPPU included a foreign undertaking as a defendant.

In KPPU Decision No. 3/2016 regarding the tender for jack-up drilling rig services, which was conducted by Husky-CNOOC Madura Limited (HCML), the KPPU included HCML as one of the defendants although the company is established in British Virgin Islands. Note, however, that HCML had an office and was engaged in business activities in Indonesia. HCML was accused of conspiring with PT China Oilfield Services Limited Indo (COSL), an Indonesian entity, to win COSL. HCML and COSL, both of which were deemed to be affiliates owing to their ownership of shares, were found guilty and fined by the KPPU.7 However, the decision was later overruled by the district court.

If none of the conditions above is satisfied, the KPPU may pursue a case by enforcing its decision against local subsidiaries or affiliates of the foreign companies. This extraterritorial doctrine has been applied several times by the KPPU in investigations of violations of the ICL.

In the Temasek case (KPPU Decision No. 7/2007), the KPPU accused Temasek, a Singaporean entity, of committing anticompetitive behaviour by having ownership of majority shares in both Telkomsel and Indosat, two major telecommunication providers in Indonesia. According to the KPPU, the cross-ownership had resulted in the control of more than 50 per cent of the Indonesian cellular market, which led to the lessening of competition. This situation then allowed Telkomsel to apply excessive prices for its services, which led to consumer loss. The KPPU's decision to include Temasek as a defendant created controversy about whether a foreign entity can be subject to the enforcement of the ICL. In its decision, the KPPU states that with reference to national and international law, the ICL may be enforced extraterritorially as long as the requirements regarding implementation doctrine or the single economic entity doctrine are satisfied.8

Further, the KPPU argued that it implemented the Single Economic Entity (SEE) Doctrine to the defendant. The KPPU viewed Telkomsel, Indosat and other companies within the Temasek Business Group as a single economic entity. This is based on the KPPU's conclusion that Temasek, through its subsidiaries, was able to (1) appoint its representation within the management of Telkomsel and Indosat, (2) influence the business policy of Telkomsel and Indosat, and (3) access sensitive and confidential information about Telkomsel and Indosat. The Supreme Court has upheld the Temasek case and thus the KPPU has since been consistent in applying the SEE doctrine and the extraterritorial application of the ICL in any investigation, assessment or other case involving any foreign undertaking, either cartel-related or not, for example in the Barclay Premier League case (KPPU Decision No. 03/2008, a non-cartel case) and the Amlodipine cartel (KPPU Decision No. 17/2010),

There is no industry-specific exemption applicable under the ICL. The ICL provides general exemption to certain agreements or activities, as follows:

  1. conduct (actions) or agreements for the purpose of implementing prevailing regulations;
  2. agreements relating to intellectual property rights, such as licensing, patent, trademark, copyright, industrial product design, integrated electronic circuit, and trade secrets and agreements relating to franchising;
  3. agreements on technical standardisation of goods or services that do not restrict or impede competition;
  4. agreements relating to agencies that do not contain provisions to resupply goods or services for less than the agreed price;
  5. agreements on research cooperation to increase or improve the standard of living of the society at large;
  6. international agreements that have been ratified by the government of the Republic of Indonesia;
  7. export-oriented agreements or actions that do not distract demand or supply for the domestic market;
  8. undertakings falling within the category of small-scale enterprises; or
  9. activities of cooperatives that exclusively serve the interests of their own members.

However, there are precedents in which the KPPU had a different view in interpreting the exemption on point (a), above. In the Garlic case (KPPU Decision No. 5/2013), the KPPU alleged that 19 garlic importers, as well as several government institutions, were colluding and impeding the production or distribution of imported garlic. According to the applicable regulations, importers are required to obtain certain approvals from the Ministry of Trade to import garlic. The KPPU decided to include the Minister of Trade and the Directorate General of International Trade as defendants relating to an allegation that they were colluding with the 19 importers in issuing import approval. In its decision, the KPPU found the Minister and the Directorate General guilty although they had acted within their statutory powers and did not engage in any business or commercial activities.9

There is also a case in which the actions of the defendants were based on a written and formal instruction from the Ministry of Agriculture, which in this matter should be regarded as a valid policy as there were sanctions for those who ignored the instruction; however, the KPPU had a different view on that. In the Chicken case (KPPU Decision No. 2/2016), the KPPU alleged that 12 breeders were limiting the production of broiler chickens. The allegation was based on the fact that the defendants had conducted an early culling of parent stocks and hatchery egg final stocks in 2015. The KPPU viewed such early culling as an attempt by each defendant to jointly limit their output, even though it was done according to an official instruction from the Ministry of Agriculture. The instruction itself was issued by the government as an effort to mitigate the effects of oversupply of live birds, which was detrimental to small-scale farmers. Regardless of these facts, the KPPU held the view that the defendants were limiting their output and found them guilty. The district court recently annulled the decision and the KPPU sought an appeal to the Supreme Court, but the Supreme Court upheld the district court decision.

The above precedents indicate that the KPPU will not apply the exemption set out in point (a) above as an absolute exemption. Hence, it is necessary for undertakings to be aware of their businesses even if they are based on or under the government's instruction or authority.

IV LENIENCY PROGRAMMES

The ICL does not regulate leniency. A draft amendment of the ICL is being discussed by the government and parliament. This draft amendment introduces a high-level provision on leniency whereby the KPPU may fully exonerate or reduce the sanction for an undertaking that confesses or reports any activity that allegedly violates the ICL. As yet, it is unclear how the leniency programme will be designed, for example regarding the mechanism and the benefits for applicants.

V PENALTIES

When the KPPU concludes that a violation has occurred, it has the authority to impose administrative sanctions, such as annulling the agreements or cancelling any provisions of an agreement that would violate the ICL, imposing pecuniary penalties (between a minimum of 1 billion rupiah and a maximum of 25 billion rupiah) or awarding compensation for damage incurred by companies or individuals as a result of anticompetitive conduct. In some cases, the KPPU may also order the defendants to lower the prices of their products or refrain from or commit to performing certain activities or practices (debarment).

Article 47 of the ICL reads as follows:

(1) The KPPU has the authority to impose administrative sanctions to undertakings that are proven to have violated the ICL.

(2) Administrative sanctions as referred in Paragraph (1) of this Article can be in the form of:

  1. a decision to annul agreements;
  2. an order to discontinue vertical integration;
  3. an order to discontinue practices that may cause monopolistic practices or unfair business competition;
  4. an order to discontinue the abuse of a dominant position;
  5. a decision to annul the merger or amalgamation and shares acquisition;
  6. a decision to pay compensation for damages; or
  7. a fine ranging from 1 billion to 25 billion rupiah.

The KPPU issued Regulation 4/2009, which serves as guidelines for Article 47 of the ICL on administrative measures. This regulation is used by KPPU as the basis for determining administrative fines. The KPPU will first determine the base amount of the fine, which is the sales value of an undertaking in the relevant market. In general, the sales value will be calculated based on the total sales value for the year prior to the violation.

The KPPU will use the estimate that best describes the actual sales value, and consider the following:

  1. the scale of the company;
  2. the type of violation;
  3. the combined market share of the reported parties;
  4. the geographical scope of the violation; and
  5. whether or not the violation has occurred.

The KPPU will also consider other relevant factors that might increase or decrease the amount of the fine. The factors that might result in a fine increase are (1) the defendant continuing or repeating its violation of the ICL, or (2) the defendant refusing to be examined, to render information during the investigation or examination, or obstructing the investigation or examination process. Extenuating factors include:

  1. the defendant submitting evidence that it has ceased its violation shortly after the KPPU initiates an investigation;
  2. the defendant submitting evidence that the violation was unintentional;
  3. the defendant submitting evidence that it has minimum involvement in the violation;
  4. the defendant being cooperative during the investigation or examination;
  5. the conduct being under the order of the applicable laws; and
  6. the defendant stating its willingness to change its behaviour.

Further, the KPPU will also consider the ability of the defendant to pay the fine. Pursuant to a defendant's request, the KPPU could grant an individual reduction if there is objective evidence that shows that the fine will lead to the bankruptcy of the defendant. Based on the aforementioned formula, it is possible that the amount of the fine imposed by the KPPU is below the minimum amount stipulated in Article 47, Paragraph (2)g of the ICL (see above). There have been some precedents of the KPPU imposing a fine of less than 1 billion rupiah. For instance, in the Garlic case, each defendant was fined between 11 million and 900 million rupiah. In the Beef case (KPPU Decision No. 10/KPPU-I/2015), the KPPU imposed fines of less than 1 billion rupiah on nine of the defendants found guilty, the lowest amount being 71 million rupiah. There has been no precedent, however, of the KPPU imposing a fine that exceeds the maximum amount stipulated by the ICL. The guidelines on administrative measures are also silent on this matter.

The ICL does not directly apply criminal sanctions for violation of the ICL. Criminal sanctions can be imposed only under two sets of circumstances: when the undertaking or individual is obstructing a KPPU investigation, or when the defendants do not comply with a final and binding decision. In either of these situations, a criminal investigation may be initiated, and the undertaking or individual may face criminal sanctions in the form of a fine and imprisonment. Depending on the gravity of the offence, criminal penalties vary from a fine of between 1 million and 100 billion rupiah or imprisonment for between three and six months. Additional sanctions may also be imposed in the form of revocation of business licences, prohibition of liable individuals from assuming the positions of director or commissioner for up to five years, and injunction orders.

The ICL has no option for agreeing a settlement. Once a case has been initiated, all stages of the examination must be concluded until the final judgment.

VI 'DAY ONE' RESPONSE

The KPPU does not have authority to conduct searches and seize documents. Pursuant to Article 36 of the ICL, the KPPU is authorised to investigate or examine alleged cases of monopoly or unfair business competition practices, summon undertakings, witnesses and experts, request information from the government, and impose administrative sanctions for undertakings that violate the provisions of the ICL.

Furthermore, if undertakings, witnesses, experts, or any person who is not willing to fulfil a KPPU subpoena, the KPPU may seek the assistance of law enforcers, such as police officers, prosecutors and others, to ensure the parties attend a KPPU examination (Article 36g). This is followed up by memoranda of understanding with the national police (2010) and the attorney general's office (2013). The scope of cooperation between the KPPU and the national police includes guidance, operation and exchange of information relating to competition law enforcement. The scope of cooperation between the attorney general's office and the KPPU includes data or information, studies, expert and legal aid, human resources development and socialisation of competition law enforcement.

VII PRIVATE ENFORCEMENT

In general, the ICL does not clearly regulate on undertakings that seek indemnity for alleged violations committed by certain undertakings. However, in its Regulation No. 1/2010 on case-handling procedures, the KPPU classifies two types of reporting parties: requesting indemnity and not requesting indemnity. In the case of a reporting party's request for indemnity, the alleged violation report will be moved directly to the examination stage. The reporting party requesting indemnity will be the party directly confronting the defendant at the hearing, and the Commission Council shall decide the case. This is unlike a reported case without indemnity, in which the parties at the hearing will be the KPPU's investigator, the defendant and the Commission Council.

However, since the implementation of Regulation No. 1/2010, the KPPU has not received any alleged violation reports from undertakings requesting indemnity.

VIII CURRENT DEVELOPMENTS

The ICL is undergoing a process of amendment. The stakeholders of this amendment are expecting the law to be enacted in the first quarter of 2019 at the latest. The final draft law is not available to the public but, according to the latest draft that is publicly available and media releases, the following are the changes that are expected to take place once the law is enacted.

i Leniency procedure

The draft amendment introduces provisions for a whistle-blower to be given a fine reduction by participating in a leniency programme. The draft does not elaborate about the procedures, stating that it will be further directed by government regulations. Note, however, that leniency will not apply to conspiracies during tender or bid rigging. Leniency might also be granted to a firm making a confession, which makes it easier for the antitrust enforcer to produce proof. Leniency programmes could reveal conspiracies that may otherwise not be detected by the antitrust authority and make the investigation more efficient and effective.

ii Increase in administrative fines

Under the current law, the maximum fine that can be imposed on each undertaking is 25 billion rupiahs. Parliament is proposing that the amount of the fine be increased to between 5 and 30 per cent of the sales value during the period of the infringement. However, the government opposes these figures and proposes a maximum of 25 per cent of the sales value relating to the relevant market during the period of the infringement. As yet, there has been no further discussion between the government and parliament.

Aside from the amendment, there is an Indonesia Constitutional Court (ICC) decision that affects implementation of the ICL. Through its judicial review (Decision No. 85/PUU-XIV/2016), the ICC determines that:

  1. the use of the phrase 'other party' in Articles 22, 23 and 24 of the ICL was conditionally contradictory to the 1945 Constitution of the Republic of Indonesia and is not legally binding so long as it is not understood as other than 'and/or party related to other undertakings'; and
  2. the phrase 'investigation' in Article 36(c), (d), (h) and (i), and Article 41, Paragraphs 1 and 2 of the ICL, conditionally contradicts the 1945 Constitution of the Republic of Indonesia and is not legally binding so long as it is not understood as 'collection of evidence as an examination material'.

Therefore, based on ICC Decision No. 85/PUU-VII/2016, the addition of the wording 'and/or other parties related to other undertakings', Articles 22, 23 and 24 of the ICL should be read as follows:

Article 22
Undertakings are prohibited from conspiring with other undertakings and/or other parties related to other undertakings to arrange or determine the winner of a tender resulting in the occurrence of unfair business competition.
Article 23
Undertakings are prohibited from conspiring with other undertakings and/or parties related to other undertakings to obtain information of their competitors' business activities classified as a company secret resulting in the occurrence of unfair business competition.
Article 24
Undertakings are prohibited from conspiring with other undertakings and/or parties related to other undertakings to restrict production and/or marketing of goods and/or services being offered or supplied in the relevant market for the purpose of reducing the quantity, quality or required punctuality.

All three of the above articles are conspiracy-related. Through this Decision, the ICC is of the view that in order to respond and counter-balance the complexity of conspiracy, 'other party' must not be conventionally understood as 'other undertaking' but also as 'party related to other undertaking'. This serves as a limitation to the application of 'other party' as it has been used until the issuance of ICC Decision No. 85/PUU-VII/2016, which, according to that decision, was applicable to anyone and without limit. Nevertheless, the ICC does not further classify the definition of 'related to'. Owing to the absence of a definition, there is the possibility of any party freely assuming it to be, for example, a person or individual, or a tender committee that is in relation to the other undertaking.

Furthermore, the ICC, through Decision No. 85/PUU-VII/2016, confirms that the KPPU is a state auxiliary organ having the authority to enforce competition law within the reach of state administrative law. This confirms that the KPPU can only impose administrative sanctions. The ICC further confirms that criminal sanctions can only be applicable to an undertaking for not implementing a KPPU decision, providing that the KPPU decision is final and binding. If that is the case, the KPPU decision shall be submitted to the law enforcer to be further processed, as stipulated under Articles 48 and 49 of the ICL regarding principal and additional criminal sanctions.

To date, there is neither a new regulation nor a new guideline from the KPPU regarding implementation of ICC Decision No. 85/PUU-VII/2016, specifically in relation to conspiracy and cartel cases.


Footnotes

1 Asep Ridwan and Farid Fauzi Nasution are partners, Anastasia Pritahayu RD is a senior economist and Wisnu Wardhana is an associate at Assegaf Hamzah & Partners.

2 Komisi Pengawas Persaingan Usaha, the Indonesian competition commission.

3 Intergovernmental Group of Experts on Competition Law and Policy, Agenda Item 3c. Enhancing International Cooperation in the Investigation of Cross-Border Competition Cases: Tools and Procedures, 5 July 2017.

4 ibid.

6 OECD/Korea Policy Centre Competition Programme, Asia-Pacific Competition Update Issue 11 April 2014, https://www.oecd.org/daf/competition/OECD_NEWSLETTER_2014_11_30%20April%202014.pdf.

7 See, for example, KPPU Decision No. 3/2016.

8 See, for example, KPPU Decision No. 7/2007.

9 See, for example, KPPU Decision No. 5/2013.