Indonesia - Introduction Of Profit And Revenue Based Fines For Violation Of Competition Law.
Legal News & Analysis - Asia Pacific - Indonesia - Competition & Antitrust
17 March 2021
As part of the implementation of the reformist Job Creation Law (“JCL”) in the competition law sector, the Indonesian Government recently passed Government Regulation No. 44 of 2021 on Implementation of Prohibition of Monopolistic Practices and Unfair Business Competition (“PP 44”). This regulation has become effective on 2 February 2021.
In a quick summary, PP 44 provides guidelines on the type and criteria of administrative sanctions, calculation of administrative fines, and the timeline for an examination of objection against the Indonesia Competition Commission’s (“KPPU”) Decision.
Some notable provisions in PP 44 are an introduction to (i) a profit and revenue-based calculation method to determine the maximum amount of fines for violation of the Indonesian Competition Law (“ICL”) and (ii) factors to be considered by the KPPU for the imposition of sanctions against the guilty undertakings. These changes, especially the profit and revenue-based calculation method, are an entirely new concept to Indonesia’s competition law sector. This publication will provide a quick overview of the key items of PP 44.
Types and criteria of administrative sanctions
In line with the ICL’s provisions, PP 44 stipulates that the administrative sanctions for violation of ICL can be in the form of (a) annulment of an agreement, (b) an order to cease vertical integration, (c) an order to cease activity which has been proven to cause monopolistic practices, unfair business competition and/or losses to the public, (d) an order to cease abusing an undertaking’s dominant position, (d) cancellation of a merger, consolidation and acquisition, (f) an order to pay monetary compensation, and/or (g) the imposition of fines. The types of fines imposed will depend on the violations conducted by the undertakings and the evaluation of the KPPU.
PP 44 requires the KPPU to first evaluate the gravity or impact of the violation, ensure the continuity of business of the undertaking, ensure that the sanction is imposed based on clear reasons and grounds before imposing the sanctions to the undertakings. The sanctions will be imposed by the KPPU through its Commission Tribunal (Majelis Komisi). The Commission Tribunal is an ad hoc tribunal formed to examine and decide alleged violation of ICL.
Based on the abovementioned types of administrative sanctions, there are two types of sanctions that are interesting to be discussed, as the implementation may require further actions under Indonesian Laws, i.e.:
The annulment of an agreement
PP 44 clarifies that the KPPU may issue a sanction to annul the whole or only part of the agreements that violate the ICL provisions. PP 44 does not discuss further the formality or the technicality of the annulment. Nevertheless, one can assume that the violation of the ICL provision will be deemed as a forbidden cause. By referring to article 1320 in connection with article 1337 of the Indonesian Civil Code (“ICC”), an agreement that contains forbidden cause will be deemed as null and void as it does not fulfill the objective requirements under article 1320 of the ICC.
The cancellation of a merger, consolidation, and acquisition
PP 44 does not provide a clear guideline on the technicality of this cancellation. From the Indonesian Company Law perspective, certain follow-up actions need to be conducted to reverse a transaction that has been consummated, as the Indonesian Company Law does not provide a reversal mechanism to cancel the transaction. For a merger, consolidation and acquisition transaction which has been effective (and has obtained approval from the Minister of Law and Human Rights – “MOLHR”), the parties need to take some actions to undo the transaction, e.g., sell back the shares to the previous owner and redo all the technicalities regulated under the Indonesian Company Law for such transactions, so that the MOLHR can record this change of ownership. Aside from the above, it is also not clear how the KPPU will impose the sanction for foreign-to-foreign transactions. These issues are also uncertain in practice, given that, to the best of our knowledge, the KPPU has never imposed this type of sanction yet.
Calculation of and factors determining administrative fines
Before the enactment of the JCL, the ICL adopted a fixed scale of administrative fines ranging from IDR 1 billion (approx. USD 70,000) to IDR 25 billion (approx. USD 1,750,000). After the issuance of the JCL, the upper limit of IDR 25 billion was omitted, which left the undertakings guessing whether there is no maximum amount to the administrative fines that can be imposed by the KPPU. This confusion is later answered by PP 44. PP 44 stipulates that for legal certainty, it will regulate the maximum amount of administrative fines that can be imposed by the KPPU
Taking a different approach from the fixed scale administrative fines adopted in the ICL, PP 44 introduces a new concept of determining the maximum amount of administrative fines that can be imposed on undertakings, i.e., by using the profit and revenue-based calculation method.
Calculation of fines
According to PP 44, the maximum amount of administrative fine is calculated based on either of the following formulas:
a maximum of 50% of net profit earned by an undertaking in the relevant market during the period of the violation. Net profits are the amount earned by an undertaking after being deducted with taxes and levies as well as operating costs; or
a maximum of 10% of total revenues from the relevant market during the period of the violation. Revenues are the amount earned by an undertaking before being deducted with taxes and levies, which are directly related to sales of goods/services in the relevant market.
PP 44 stipulates that the determination of the calculation formula is at the sole discretion of the KPPU. Nevertheless, in both cases, the KPPU must consider (a) business activities of the undertaking; (b) the relevant market; and (c) the period during which the violation is committed. Regarding point (c), PP 44 sets out that the fine will be imposed based on the number of years the violation continues. If the violation lasted fewer than six (6) months, the period of violation will be rounded up to half a year. If the violation lasted more than six (6) months but less than a year, the period of violation will be rounded up to one (1) year. PP 44 also opens an opportunity for the KPPU to use certain coefficients in determining the period of the violation per month.
Factors determining the amount of fine
PP 44 stipulates that in determining the amount of the fines to be imposed on an undertaking, the KPPU must also consider the following factors:
The negative impact caused by the violation;
The duration of the violation;
Mitigating factors, which are:
The undertaking demonstrates compliance to principles of fair business competition, which include the adoption of code of conduct, training, counseling, dissemination, and the like;
The undertaking voluntarily ceased the anti-competitive behavior once the case occurs;
The undertaking has never committed the same or similar monopolistic practice or unfair business competition which constitutes as a violation under the ICL;
The undertaking did not intentionally commit the violation;
The undertaking was not the leader or initiator of the violation; and/or
The impact of the violation is not significant.
Aggravating factors, which are:
The undertaking has committed the same or similar violation under the ICL within less than eight (8) years according to a final and binding decision; and or
The undertaking was the initiator of the violation;
The ability of the undertaking to pay, meaning that the KPPU must evaluate the undertaking’s ability to continue operating after the fine is imposed against it.
The KPPU may grant certain leniency in payment of fines by taking into account the financial capacity or sustainability of the undertakings, and upon written application from the undertaking which is submitted along with supporting documents (financial statements). Lenient treatment received by an undertaking can be in form of payment of fines on a phased basis or payment within a certain period.
PP 44 regulates that to ensure payment of the imposed fines, a reported undertaking is requested to post a bank guarantee at a maximum of 20% of the total fines imposed, within 14 business days after the KPPU’s Decision is announced. Nevertheless, this obligation is not required if the undertaking voluntarily complies with and does not file any objection to the KPPU’s Decision to the Commercial Court or the Supreme Court.
Fines imposed under a final and binding KPPU’s Decision are deemed as state receivables. If the convicted undertaking fails to voluntarily pay the fines imposed under a final and binding KPPU’s Decision, the KPPU will coordinate with government agencies that handle state receivables and/or law enforcers.
Timeline for an examination of objection against KPPU’s Decision
Before the JCL was enacted, an objection against a KPPU’s Decision will be handled by district courts. The relevant district courts must start the examination within 14 days as of the filing date of the objection and the decision on the objection should be issued within 30 days as of the start of the examination. This provision is later amended by the JCL. After the issuance of the JCL, the authority to handle objections to KPPU’s Decision is transferred from the district courts to the commercial court. The transfer is effective as of 2 February 2021. Nonetheless, the JCL omits the provisions relating to the timeline for the issuance of the decision on the objection. Thus, there was uncertainty on the timeline within which a decision on the objection must be issued.
The obscurity on the timeline for the examination of objection to KPPU’s Decision is later answered by PP 44. PP 44 stipulates that the examination of objection by undertakings to the commercial court must be rendered within three (3) to twelve (12) months. Comparing to the previous timeline before the JCL era, it seems that the timeline for the examination of objection to KPPU’s Decision will take a longer time during the JCL era.
Based on the new calculation method and consideration factors in imposing fines, as introduced in PP 44, it can be seen as the government’s efforts to avoid one-size-fits-all fines for violation of the ICL. This is a good gesture from the government, considering that (i) one undertaking and another undertaking may not share the same ability to pay the fines, and (ii) there may be some mitigating and/or aggravating factors that may differentiate one undertaking from another.
For further information, please contact:
Freddy Karyadi, Partner, ABNR
+62 818 103 949
Anastasia Irawati, Senior Associate, ABNR
Carla Nathania, Associate, ABNR