Indonesia Plays Legal Hardball
November 10, 2014 at 11:17
Chevron, Other Big Firms Feel Chill Amid Prosecutions of Employees
By BEN OTTO and I MADE SENTANA
JAKARTA, Indonesia—Indonesian prosecutors are increasingly bringing criminal charges against employees of large companies for allegedly causing losses to the state, a development that is chilling the business community in the world’s fourth-most-populous country.
The cases are being brought largely by the Attorney General’s Office, which says it is taking action to ensure businesses operate legally.
At least eight employees—most connected to operations of multinational firms—have been jailed during the past 18 months for allegedly causing state losses, which is considered a type of corruption charge in Indonesia.
Critics say the office is bringing criminal rather than civil charges against employees of companies when it believes funds are being wasted in contracts and projects approved by or affecting the government, making many companies more wary of doing business here.
“The effect has been very bad. There’s no trust,” said Kuntoro Mangkusubroto, a past energy minister. “We haven’t seen investment outflows, but [companies] are much more careful now.”
The Attorney General’s Office says it isn’t criminalizing civil matters.
“We don’t deny that” these cases could disturb business activity, spokesman Tony Spontana told The Wall Street Journal, “but our commitment is to enforce laws professionally, objectively and with conscience. We have no intention at all to tyrannically enforce the law.”
The main local unit of the U.S. energy giant Chevron Corp. has been the most prominent firm in the prosecutors’ sights. This week, the Supreme Court disclosed it had denied an appeal by a Chevron employee convicted on corruption charges related to a project in which the company received government approval to clean up an oil-drilling site in a resource-rich region of Sumatra island. The court also doubled the sentence of the defendant, Chevron general manager Bachtiar Abdul Fatah, to four years.
Chevron received government approval to begin the multiyear cleanup project more than a decade ago, and worked on it until 2011. Under a profit-sharing agreement with the government, the company was eligible to receive full or partial reimbursement for the project, a standard practice in the oil-and-gas sector here.
But the Attorney General’s Office argued the project wasn’t carried out as promised, resulting in about $20 million in losses to Indonesia. Three other employees and two contractors connected to the project are also in jail. They have pleaded innocent and have appealed their convictions.
Chevron said it never asked to be reimbursed for the expense. Furthermore, its agreement with the government, called a production-sharing contract, has “a very clear mechanism on how to resolve disputes” without resorting to criminal litigation, said Albert Simanjuntak, president director of Chevron’s main local unit. Mr. Albert said the decision was a “human tragedy for us,” and said there was no evidence of wrongdoing. Earlier in the week, Chevron said it would seek a review of the decision.
Todung Mulya Lubis, a lawyer representing employees in the cleanup cases, called the prosecutions a “bad commercial [advertisement] for Indonesia” and a “miscarriage of justice.”
“This is a bad precedent,’’ Mr. Lubis said, “if Indonesia would like to attract’’ foreign investment.
Chevron is the largest producer of crude oil in Indonesia—about 40% of the total—and has been considering undertaking the country’s first ultra-deepwater gas project.
Chevron had planned to decide this year on a major part of the $12 billion project but postponed its action, saying the decision had been “subject to the timing of approvals” and that a new “dialogue is still in early phases.” Chevron hasn’t linked the postponement to the prosecutions.
Other companies have faced similar pressures. Police sealed groundwater wells at at a plant in western Java this year, after finding that Sydney-based Coca-Cola Amatil , partly owned by the U.S. beverage giant, was using them after permits expired. The company says it’s tried for years to renew the permits, and that it has a right to use the groundwater while those renewals are in process.
Last year, a president director of a subsidiary of PT Indosat —a telecommunications company partly owned by the Indonesian government, but majority controlled by Qatar-based Ooredoo —was sentenced to four years in prison after a court found the company caused state losses of more than $100 million by allegedly dodging payment of a lease fee to the government.
This year, the former chief executive of state-owned PT Merpati Nusantara Airlines was sentenced to four years in jail after a court found the carrier caused state losses of $1 million when it failed to recover a security deposit in that amount from a U.S. company from which it had contracted to lease airplanes in 2006.
In both cases, the executives denied wrongdoing.
Foreign companies invest billions of dollars in Indonesia each year, much of it in oil, gas and mining, and more hope to tap into the escalating consumer power of the 250 million people living in Southeast Asia’s largest economy. But foreign investment growth in the nearly $900 billion economy has slipped, partly due to a slowdown but also amid legal uncertainty and political pressures that have introduced more restrictions on foreign investment.
The uncertainty partly reflects stalled reforms in the legal system. After authoritarian leader Suharto was ousted in 1998, Indonesia underwent radical changes and today is often described as the best functioning democracy in Southeast Asia. But the legal system didn’t keep up with changes at other institutions.
In 2005, the head of the Attorney General’s Office pointed to the creation of a new oversight committee for the office as a way to “restore public trust in state prosecutors.” In 2012, the nongovernmental organization Indonesian Forum for State Budget Transparency ranked the Attorney General’s Office as the worst offender among government institutions in misusing state funds.
The AGO chief at the time said, “I don’t rule out it’s vulnerable [to corruption] because it’s such a big institution.”
The agency has made some progress in shaking off that image, in part because of the popularity of its antigraft efforts.
Source: https://online.wsj.com/articles/indonesia-plays-legal-hardball-1414191906
