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Preliminary communication

CORPORATE CRIME AND STATE-OWNED ENTERPRISES

Hidayatulloh1
1*
Ph.D. Candidate, Department of Financial Law, Faculty of Law, University of Miskolc, Hungary
*
Corresponding Author: e-mail: [email protected]

Abstract

Corporate crime is a legal issue concerning many countries, including Indonesia, which regulates it in the New
Criminal Code Number 1 of 2023. However, corporate crime regulations experience challenges in their
application in State-Owned Enterprises. This paper aims to examine how Indonesian law, especially the New
Criminal Code, accommodates corporate criminal provisions for state-owned enterprises. Using a juridical
normative approach, it analyzes several criminal law instruments related to corporate crime in Indonesia. In
conclusion, Criminal Code Number 1 of 2023 has regulated corporate crime and criminal sanctions. However,
written law experiences obstacles and dilemmas when imposing corporate criminal sanctions on State-Owned
Enterprises because the company's financial status is part of the state financial regime from the perspective of
Indonesian law. Imposing fines for violations of State-Owned Enterprises could harm the state that fully or
controls most of the company's shares.

Keywords: corporate crime, state-owned enterprises, Indonesian law, state finance

1. Introduction

Corporate criminal liability is a legal issue that has developed in the modern era. This basic and
main argument arises with separating corporate legal entities from human legal subjects for
several purposes. Corporations can enter into agreements, sue or be sued in court, and own
property in the corporation's name (Fischel & Sykes, 1996, p. 319-350). As an independent and
separate legal subject, companies can commit criminal acts detrimental to the state and other
parties.
In Indonesia's criminal law history, the old Criminal Code Number 1 of 1946 did not include
rules regarding criminal acts committed by corporations. This regulation first appeared in Law
Number 31 of 1999 concerning the Eradication of Corruption Crimes. To fill the existing legal
vacuum regarding criminal liability committed by Corporations prior to the issuance of the
Criminal Code Number 1 of 2023, the Supreme Court of the Republic of Indonesia has issued
Supreme Court Regulation Number 13 of 2016 concerning Procedures for Handling Criminal
Cases by Corporations as a guideline for law enforcement officials in handling criminal cases
committed by Corporations.
The provisions on corporate crime in the Criminal Code Number 1 of 2023 and Anti-Corruption
Law do not only target private companies but also state companies. As legal entities that carry
out business activities to achieve profits, state companies also have the potential to commit
corporate crimes that violate the provisions of laws and regulations in Indonesia.
This paper analyzes the theory of corporate crime from the perspective of Indonesian law and
the challenges of its implementation in State-Owned Enterprises. The first part of this paper

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explains what and how the corporate crime rules are. The second part presents a study of State-
Owned Enterprises in Indonesia. The third part elaborates on the challenges of implementing
corporate crime rules in State-Owned Enterprises. Lastly is the conclusion.

2. Corporate Crime in Indonesian Legal Perspective

Before discussing corporate crime, this section begins with the definition of a corporation.
Explanation of definitions is crucial in understanding legal aspects, including criminal law
related to crimes and violations. Article 146 of the Indonesian Criminal Code states that the
meaning of a corporation is “an organized group of people and or wealth, whether it is a legal
entity in the form of a limited liability company, foundation, association, cooperative, state-
owned enterprise, regionally-owned enterprise, village-owned enterprise, or the equivalent, as
well as associations not incorporated as a legal entity or business entity in the form of a firm,
limited partnership, or the equivalent.”
The definition of a corporation in the Criminal Code is more detailed than that of the Supreme
Court Regulation Number 13 of 2016 in Article 1 point 1, which states that “a corporation is an
organized group of people and or wealth, whether it is a legal entity or not a legal entity.” The
main difference is that this definition does not mention the types of business entities divided into
legal entities and non-legal entities.
In the Black’s Law Dictionary, the definition of a corporation is "an entity (usually a business)
having authority under law to act as a single person distinct from the shareholders who own it
and having rights to issue stock and exist indefinitely, a group or succession of persons
established in accordance with legal rules into a legal or juristic person that has legal personality
distinct from the natural persons who make it up, exists indefinitely apart from them, and has the
legal powers that is constitution gives it” (Garner, 1999, p. 341).
In understanding theoretically, a corporation has five structural characteristics, including (1)
legal personality; (2) limited liability; (3) transferrable shares; (4) centralized management under
a board structure; and (5) shared ownership by contributors of equity capital. These five
characteristics explain that a corporation is a legal subject or entity that can be equated with
human legal subjects. It can transact business with other parties. However, it has separation from
the wealth of a person who is the owner or shareholder. It also includes the separation of rights
and obligations in responsibility or action (Kraakman & Armour, 2017, p. 5-15).
As a legal entity, a corporation is the subject of a crime (Indonesian Criminal Code, article 45).
Criminal acts by corporations are criminal acts committed by management individually or
jointly. The administrators in question are divided into two types. The first is management which
has an available position in the corporate organizational structure. A second is a person based on
a working relationship or other relationship acting for and on behalf of the corporation or acting
in the interests of the corporation (Indonesian Criminal Code, article 46). In addition, criminal
acts by corporations can be committed by givers of orders, control holders, or beneficial
corporate owners outside the corporate structure but can control the corporation (Indonesian
Criminal Code, article 47).
In a simple definition, Braithwaite states that corporate crime is "the conduct of corporation or of
employees acting on behalf of a corporation, which is proscribed and punishable by law"
(Braithwaite, 1984, p. 6). Moreover, corporate crime is not only related to criminal acts in
criminal law but also includes administrative and civil violations. Corporations and parties
representing them are subject to sanctions following the level of violations proven in court

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(Simpson, 2002, p. 6-8).
In determining a corporate crime, the violation or offence is committed by an individual or group
that is a legitimate organization member in the context of carrying out organizational tasks.
Therefore, the perpetrator commits a crime on behalf of and in the interests of his corporation
(van de Bunt, 1994, p. 11-23). The Indonesian Criminal Code stipulates that corporate crime can
be held accountable if: (Indonesian Criminal Code, article 48)
a. included in the scope of business or activity as specified in the articles of association or
other provisions applicable to the corporation.
b. benefits the corporation unlawfully.
c. accepted as corporate policy.
d. the corporation does not take the necessary steps to take precautions, prevent a bigger
impact and ensure compliance with applicable legal provisions to prevent a crime.
e. the corporation allows crime to occur.
In the Corruption Crime Act Number 31 of 1999, corporate criminal responsibility is regulated in
Article 20 Paragraph (1), which states: "In the event that a criminal act of corruption is
committed by or on behalf of a corporation, criminal charges and impositions can be made
against the corporation. and/or management". In the case of a corporation bribing state
administrators, in addition to the corporation being punished, its management can also be
prosecuted and punished based on this provision.
Furthermore, Article 20 Paragraph (2) explains that a corporation is considered to have
committed a crime if the crime is committed by people based on work relations or other
relationships, acting within the corporate environment alone or together. The phrase "both alone
and together" emphasizes that the person doing it can be one standing alone or several people
together. The condition is that the perpetrator has a working or other relationship with the
corporation.

3. Overview of Indonesian State-Owned Enterprises

Several international organizations define State-Owned Enterprises (SOEs) differently. For

example, Asian Development Bank defines SOE as “a legal entity established to undertake
commercial activities and owned fully or largely by the sovereign” (ADB, 2018, p. 3). Besides,
the Organization for Economic Co-operation and Development (OECD) Guidelines defines SOE
as “any corporate entity recognized by national law as an enterprise, and in which the state
exercises ownership. It includes joint stock companies, limited liability companies, and
partnership limited by shares. Moreover, statutory corporations, with their legal personality
established through specific legislation, should be considered as SOEs if their purpose and
activities, or parts of their activities, are of a largely economic nature” (OECD, 2015, p. 32).
Another definition introduces SOE by dividing it based on the number of shares owned by the
state. European Commission for Economic and Financial Affairs explains that SOE can include
the following categories: (EU, 2016, p. 6-7)
(1). Companies fully owned by public authorities.
(2). Companies where public authorities have a majority share.
(3). Companies where public authorities retain a minority share but have special statutory
powers.
(4). Companies where public authorities have a minority share and no special powers.
These are generally not considered as SOEs however they may be of relevance to

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 obtain a fuller picture of governments’ stake in the economy.
Indonesia, in article 1 point 1-4 of the Law Number 19 of 2003 on SOE, mentions that SOE is an
enterprise which equity owned by the state either majority or entirely through direct equity
participation deriving from the restricted state assets. Moreover, SOE is divided into three:
1) State-Owned Limited Liability Company (Perusahaan Perseroan) means a SOE in the
form of limited liability company which equity is divided into shares which entirely or at
least 51% (fifty one percent) of the shares are owned by the State of the Republic of
Indonesia with main objective is to gain profits.
2) State-Owned Listed/Registered Company (Persero) means a SOE in which equity and
number of shareholders has fulfilled specific criteria or Persero which has conducted
public offering in accordance with the legislation in the sector of capital market.
3) Public Corporation (Perusahaan Umum/Perum) means a SOE which capital entirely
owned by the state and not divided into shares, which objective is for public service in
the form of high-quality goods and/or service provision and at the same time to gain
profits under the principles of corporate governance.
In establishing a state company, Indonesia has general aims and objectives such as contributing
to developing the national economy and increasing state revenues from company business
profits. In addition to financial benefits to increase the state treasury, state companies are
assigned to organize public benefits by providing high-quality goods and services, especially
those related to the main needs of the community. However, state companies are often obligated
to pioneer business activities not carried out by private companies and help small and medium
business groups (Article 2 of Law Number 19 of 2003).
Indonesia's aims and objectives are similar to those generally experienced by many countries.
The OECD notes that many countries own and control SOEs to support their economic and
national strategic interests. In addition, SOE provides goods and services that cannot be supplied
by the private sector, such as energy, public transportation, defense, and security. More
importantly, state ownership of SOEs maintains a "natural" monopoly over some of the nation's
major assets (OECD, 2018, p. 23).
Indonesian SOE continues to experience structural reforms and performance improvements in
their journey. The Ministry of State-Owned Enterprise, as the state representative in managing
SOEs, continues to streamline and improve the portfolio of the number of SOEs through
corporate restructuring (holding, mergers, acquisitions). The development focus for restructuring
will be carried out starting in 2020, which in the next 5 years will make the number of SOE more
efficient, with fewer than 70 SOEs. Under the long-term strategy of the Ministry of SOE, SOE
are grouped according to the value chain and business ecosystem to increase business
sustainability. In its management, currently, 12 clusters have been formed as follows:

Table 1. List of Indonesian State-Owned Enterprises based on the Value Chain

and Business Ecosystem
No Cluster Company Main Business
1 Energy, Oil and Gas PT Perusahaan Listrik Electricity
Industry Negara (Persero)
PT Pertamina (Persero) Oil and energy
2 Health Industry PT Bio Farma (Persero) Pharmacy and vaccine manufacturer
3 Manufacturing PT Biro Klasifikasi Indonesian-flagged merchant ships.
Industry Indonesia (Persero)
PT Len Industri (Persero) Electronic equipment
4 Mineral and Coal PT Krakatau Steel Steel maker

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 Industry (Persero) Tbk
PT Indonesia Asahan Aluminum smelting and mining
Alumunium industry
5 Food and Fertilizer Perum BULOG Food logistics
Industry PT Rajawali Nusantara Agriculture, animal husbandry,
Indonesia (Persero) fisheries, trade, and logistics
PT Pupuk Indonesia Fertilizers and chemicals
(Persero)
6 Plantation and PT Perkebunan Nusantara Plantation commodity products
Forestry Industry III (Persero)
Perum Perhutani Management of state forest
resources
7 Insurance Services PT Reasuransi Indonesia Reinsurance for general insurance
and Pension Funds Utama (Persero) companies and life insurance
companies
PT Asuransi Jiwasraya Insurance
(Persero)
PT Bahana Pembinaan Financial services for micro, small,
Usaha Indonesia (Persero) and medium enterprises
PT ASABRI (Persero) The social insurance company for all
soldiers of the Indonesian National
Armed Forces, members of the
Indonesian National Police, and civil
servants at the Ministry of Defense and
the Indonesian National Police
PT TASPEN (Persero) Insurance companies, retirement
savings and pension funds for civil
servants
8 Infrastructure Perum Perumnas Providing decent housing for the
Services lower middle class.
PT Adhi Karya (Persero) Construction, engineering-
Tbk procurement-construction, property,
real estate, infrastructure investment,
railway infrastructure and facilities
implementation, procurement of goods
and hotel services.
PT Hutama Karya Construction services, development,
(Persero) and toll road service providers
PT Semen Indonesia Cement
(Persero) Tbk
PT Wijaya Karya Building construction
(Persero) Tbk
PT Jasa Marga (Persero) Toll road developer and operator
Tbk
9 Financial Services PT Bank Negara Banking and other financial services
Indonesia (Persero) Tbk
PT Bank Rakyat Banking and other financial services
Indonesia (Persero) Tbk with specialization in small-scale
and microfinance
PT Bank Mandiri Banking and other financial services
(Persero) Tbk
PT Bank Tabungan Banking and other financial services
Negara (Persero) Tbk
10 Logistics Services Perum Damri Intercity, airport, tourism, logistics
transport, and transport to isolated

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 areas and inter-country transport
PT Kereta Api Indonesia Sole operator of public railways
(Persero)
PT ASDP Indonesia Passenger ferry operator
Ferry (Persero)
PT Pelabuhan Indonesia Management and development of
(Persero) ports
PT Pos Indonesia Postal Service
(Persero)
PT Pelayaran Nasional Cargo and passenger shipping
Indonesia (Persero)
11 Tourism and Support PT Aviasi Pariwisata Aviation and tourism industry
Services Indonesia (Persero)
Perum Lembaga Air traffic control, air traffic
Penyelenggara Pelayanan services, aeronautical information,
Navigasi Penerbangan aviation telecommunication, aviation
Indonesia meteorological information, and SAR
information
12 Telecommunications PT Telekomunikasi Telecommunications in fixed-line
and Media Services Indonesia (Persero) Tbk telephony, internet, and data
communications
Perum Produksi Film Film industry.
Negara
Perum Percetakan Uang Printing rupiah currency and other
Republik Indonesia important state-owned documents and
providing digital security services
Source: Summary results from the official website of the Ministry of State-Owned Enterprises of the Republic of Indonesia

4. Law Enforcement of Corporate Crime in State-Owned Enterprises

This paper section analyzes how corporate criminal law enforcement is implemented in SOEs.
The discussion focuses on the Indonesian legal framework, stipulating that SOEs finance is state
finance. Even though the source of funds for the establishment of SOEs from the State Budget
has been separated, the financial status of SOEs remains part of the state financial regime
(Hidayatulloh & Erdős, 2023, p. 105-120).
Article 2 point g of the State Finance Law Number 17 of 2003 states that one of the scopes of
state finance is state/regional assets that are managed by themselves or by other parties in the
form of money, securities, receivables, goods, and other rights can be valued in money, including
separated assets in state/regional companies. Based on this rule, government-owned SOE shares
are part of state finances.
The financial status of SOEs as part of the state financial regime is strengthened by Law Number
15 of 2004 on the Audit Board of the Republic of Indonesia. Article 3, paragraph (1) of this law
regulates that an audit by the Audit Board covers all elements of state finance, not only the State
Budget but also SOEs finances. Oversight of SOEs by the Audit Board is the embodiment of the
function of state control over state finances managed by state companies, both state companies
which the government wholly or mostly owns (Hidayatulloh & Erdős, 2023, p. 152).
The state's financial status in SOEs assets causes a dilemma in enforcing corporate criminal law.
A corporation found guilty of a corporate crime will receive fines from the company's assets. If a
state company is sanctioned with a fine, it will pay the state itself. These conditions can cause
corporate losses, which mean losses to the country's wealth (Kharisma, Putra, & Hidayah, 2021,
p. 1039-1064). Moreover, law enforcers have different views on implementing corporate crimes

147
against state companies. The Corruption Eradication Commission and the Supreme Court
support the existence of fines for SOEs who are proven guilty. At the same time, the Police
refuse to prosecute SOEs because fines will harm state companies and indirectly harm the state
(Rifai, 2019, p. 263).

5. Conclusion

Indonesia has adopted rules regarding corporate crimes in the New Criminal Code Number 1 of
2023, which previously had been specifically regulated in the Corruption Crime Act Number 31
of 1999. However, corporate crimes experience legal obstacles when applied to SOEs. The
financial status of SOEs, which are part of the state financial regime, causes law enforcement
officials to differ in their views on whether SOEs should be given corporate criminal sanctions
like private companies. Fine criminal sanctions for corporate crimes applied to SOEs can pose a
dilemma because they are detrimental to the state as the company's owner.
Under the new criminal law, a State-Owned Enterprise as a legal entity can be subject to criminal
sanctions for criminal offenses or crimes. Criminal sanctions in the form of fines and
compensation can be imposed on State-Owned Enterprises. This rule encourages the directors
and management of state companies to always comply with the law and prevent company losses
that harm state finances. In addition, the Government of Indonesia needs to reconstruct state
corporate governance to avoid criminal sanctions against State-Owned Enterprises.

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