Cartels

Cartels in Indonesia are mainly regulated by the Law No. 5 of 1999 on Prohibition of Monopolistic Practices and Unfair Business Competition (the ‘Competition Law’). Chapters 3 and 4 of the Competition Law set out the provisions on restrictive agreements and restrictive conducts, which effectively prohibit collusion irrespective of whether it relates to the price, production or market, or whether it relates to competition in the market or competition for the market (bid rigging).

Other laws and regulations may also apply in regard to restrictive agreements and conduct, as follows:

• Article 382-bis of the Criminal Code, which subject unfair competition to criminal penalties in the form of imprisonment and fine; and
• Article 1365 of the Civil Code, which requires a person to compensate damages that was caused by their unlawful act (tort).

The Competition Law applies to all sectors. However, Article 50 exempts the following:

• actions and/or agreements intended to implement applicable laws and regulations;
• agreements related to IP rights, such as licences, patents, trademarks, industrial product designs, integrated electronic circuits, trade secrets and franchise agreements;
• agreements that stipulate technical standards of goods or services that do not inhibit or impede competition;
• agency agreements that do not stipulate any resale price maintenance;
• cooperation agreements for research to improve the living standards of society at large;
• international agreements that have been ratified by the Indonesian government;
• agreements relating to exports of goods or services that do not disrupt domestic needs or supply;
• agreements made by and between small business undertakings; and
• agreements made by and between cooperatives aimed specifically at serving their members.

The Indonesia Competition Commission (‘KPPU’) has issued several guidelines on the exemptions for actions and/or agreements intended to implement laws and regulations, and those relating to IP rights, franchising, and agency. These guidelines elaborate on the basic understanding and the scope of exemption, as well as setting out examples of their application.

The KPPU was established in 2000 as the main institution responsible for enforcing the Competition Law. In September 2017 the Indonesian Constitutional Court affirmed that the KPPU is a state auxiliary organ that carries out administrative law enforcement. As an independent institution, the KPPU has judicial authority to:

• conduct investigations and examinations;
• evaluate alleged violations;
• hear and decide cases;
• impose administrative sanctions; and
• provide advice and opinions to inform government policy relating to monopolistic practices and unfair business competition.

Further, in examining a case, the KPPU has the authority to summon undertakings, witnesses and experts, and to obtain, examine and evaluate documents or other instruments of evidence.

Since its establishment, the KPPU has decided over 260 cases on cartels, including those relating to bid rigging. Among those cases, in the past three years the KPPU has been actively investigating cartels in the imported cattle, poultry, automotive, logistics and salt industries. At the time of writing, the KPPU is investigating cartel allegations in several industries, such as price fixing in the domestic airline passenger market, and bid-rigging cases in infrastructure ranging from construction to maintenance projects.

One of the key tools adopted by the KPPU – particularly in price-fixing, quota, customer and market allocation cases – is the use of indirect or circumstantial evidence in determining the existence of a cartel either as an addition to the hard evidence gathered by the KPPU or as the ultimate evidence if there is no available hard evidence of a cartel. Undertakings were found guilty in several cartel cases based on indirect or circumstantial evidence. For instance, in Skutik (2016), the KPPU established cartel infringement by using communication and economic evidence. Similarly, in Shipping Liners (2018), the KPPU used communication evidence to determine the existence of a cartel between four shipping companies. Despite some controversy on the use of such evidence, the Supreme Court decision in Tyres (2014) affirmed the use of indirect or circumstantial evidence. The KPPU has further formally adopted the use of indirect evidence in its new case proceeding (see question 3.1).

In the recent bid-rigging case on road reconstructions and bridge maintenance in Central Kalimantan (2018), the KPPU established horizontal collusion by looking at:

• similarities between the parties’ implementation method documents;
• the order of the serial numbers on the bank’s supporting letters;
• similarities in the metadata;
• similarities in the IP addresses; and
• the companies’ borrowing conduct.

There is no clear definition of a ‘cartel’ under the Competition Law. However, in implementing the Competition Law, the KPPU has issued several guidelines based on which, along with other factors, the existence of a cartel is determined:

• KPPU Regulation 2/2010 on Bid Rigging (‘Article 22 Guideline’);
• KPPU Regulation 4/2010 on Restrictions on Output and Marketing (‘Article 11 Guideline’); and
• KPPU Regulation 4/2011 on Price Fixing (‘Article 5 Guideline’).

Based on the Article 11 Guideline, the KPPU defines cartel behaviour as an agreement entered into or conduct undertaken by competitors that may restrict competition on the market or cause inefficiencies in resource allocation resulting in deadweight loss that harms consumers. In addition, under the Article 11 Guideline, an agreement between competitors to coordinate their activities in order to control the quantity and price of goods and services to earn profits above the reasonable level is also considered to be a cartel. Thus, Article 11 and its guideline adopt the rule of reason approach.

This approach is also adopted in Article 7 on predatory pricing, Article 9 on market allocation, Article 10 on boycotts and Article 22 on bid rigging. A distinct feature of Article 22 of the Competition Law is that it captures not only horizontal collusion, but also the vertical aspect of bid rigging. Meanwhile, unlike the other cartel-related provisions that adopt the rule of reason approach, Article 5 – which regulates price fixing – is a per se provision.

The cartel offences cover horizontal restrictive agreements – that is, agreements relating to:

• price fixing;
• production arrangements;
• market allocation;
• group boycotts;
• bid rigging; and
• other arrangements, conspiracies or concerted practices that may restrict competition on the market or cause harm to consumers.

With reference to the applicable regulations and types of sanctions that can be imposed, the liability arising from cartel offences may take the form of administrative, civil or criminal liabilities (for civil and criminal liability, see questions 1.1, 6.1 and 6.2).

The Competition Law provides the KPPU with administrative power only in adjudicating a competition case, empowering the KPPU to:

• annul an agreement, whether completely or partially;
• impose a fine of between IDR 1 billion and IDR 25 billion on each undertaking; and
• order an undertaking to compensate for damages arising from its anti-competitive or unfair practices.

Even though it is not explicitly stipulated in the ICL, in practice, KPPU has also imposed the following sanctions in bid-rigging cases:

• prohibition for undertaking or individual from participating in public procurements for a period of time, which usually ranges from 1 to 2 years (debarment);
• annulment of the result of a tender process;
• inclusion of undertaking into KPPU’s publicly available blacklist.

Under Article 1(5) of the Competition Law, an ‘undertaking’ is defined as any individual or business enterprise, incorporated or otherwise, that is established and domiciled or conducts activity within the territory of Indonesia, whether individually or jointly through an agreement, in the form of various operations in the relevant economic sector. Therefore, the enforcement of cartels under the Competition Law relates to both individuals and companies.

The Competition Law applies to undertakings, which is defined under Article 1(5) as any individual or business enterprise that is established and domiciled or conducts activity within the territory of Indonesia (see question 2.4). Referring to such definition, the KPPU is of the view that the Competition Law generally applies to any conduct that occurs outside Indonesia if it has a detrimental impact on the Indonesian market. The KPPU may prosecute a foreign company if such foreign company has a presence, whether direct or indirect, in the Indonesian market by enforcing its decision against the local subsidiary or affiliate.

There is no precedent on the extraterritorial application of the current Competition Law in relation to cartel cases. However, the KPPU is of the view that the Competition Law generally applies to any conduct occurring outside Indonesia if the reported party is established and domiciled or has a direct or indirect subsidiary in Indonesia (see question 2.5).

The Competition Law does not prescribe any statute of limitations to prosecute cartel offences.

Based on KPPU Regulation 1/2019 on the Procedure to Handle Monopolistic Practices and Unfair Competition Cases (the ‘Case Handling Regulation’), the pre-investigation stage may be commenced by an assigned investigator of the KPPU based on:

• the KPPU’s own initiative; or
• a complaint filed by an undertaking, consumer, other entity or other government agency.

If in the pre-investigation stage KPPU found at least 1 evidence of an alleged violation, a formal investigation can be initiated.

The Case Handling Regulation was issued by the KPPU in February 2019 and supersedes the previous case handling procedure regulation. The most notable feature of the new regulation is the introduction of behavioural remedies at the preliminary examination stage, which allows a reported party to plead guilty at the beginning of a hearing and agree to change its behaviour in order to end the examination process. Another new provision deals with the recognition of indirect evidence and expansion of the measures that the KPPU can take against reported parties that do not comply with its final and binding decision.

Article 36 of the Competition Law provides that the KPPU has the authority to:

• receive complaints;
• investigate cartel allegations;
• investigate the summoning parties, witnesses and experts;
• reach conclusions from its investigation;
• request statements or clarification from relevant government institutions;
• determine and stipulate the existence of losses of an undertaking or society; and
• impose administrative sanctions.

Cooperation between the KPPU and competition authorities in other jurisdictions can be conducted officially, usually based on a memorandum of understanding or on an ad hoc basis.

Based on public sources, the KPPU has signed memoranda of understanding with:

• the Competition and Consumer Commission of Singapore;
• the Japan Fair Trade Commission;
• the Korean Fair Trade Commission; and
• United States Federal Trade Commission.

The cooperation between the KPPU and these foreign competition authorities covers, among others, the exchange of information in relation to competition law enforcement. However, as yet there is no precedent of such cooperation, in particular regarding information exchange with respect to the investigation or examination of competition cases.

No. Under the Case Handling Regulation, an investigation can be conducted only by the assigned investigator, who must be an employee of the KPPU.

Under Article 36 of the Competition Law, the KPPU is authorised to summon:

• the undertakings (as the alleged perpetrators);
• factual witnesses and experts; and
• other related parties that are considered to have knowledge of the violation.

The Case Handling Regulation further elaborates on the tasks and authorities of the KPPU. Based on the Case Handling Regulation, the KPPU has a different function for each stage in the proceedings, as follows:

• In the pre-investigation and investigation stages, the KPPU’s examining investigators are authorised to:
• • summon the reporting party, reported parties, witnesses and experts;
  • perform on-site investigations;
  • obtain letters and/or documents relating to the case;
  • gather data and information relating to assets and sales values of the reported parties; and
  • conduct assessments of statements, letters and/or documents and on-site investigations.
• In the filing, preliminary and further examination stages, the KPPU prosecuting investigators are authorised to:
• • review the investigation results report drafted by the KPPU’s examining investigators, to be further reflected in an allegation report;
  • read the allegation report;
  • propose any evidence, witnesses or experts for the hearing;
  • examine the authenticity of letters and/or documents in the hearing;
  • prove the allegations in a hearing, which may involve summoning factual witnesses and experts and other related parties that are considered to have knowledge of the violation, and receive evidence; and
  • submit a conclusion on the examination process.

In addition, besides the two types of KPPU investigators mentioned above, the Commission Assembly has the following powers in the preliminary and further examination stages:

• to determine the preliminary examination schedule;
• to open and lead the hearing;
• to provide the opportunity for the reported parties to propose behavioural remedies during the preliminary examination stage;
• to prepare the preliminary examination result report;
• to summon the reported parties, factual witnesses and experts, and other related parties that are considered to have knowledge of the violation;
• to submit evidence and conclusions;
• to perform on-site examinations;
• to decide the case; and
• to impose sanctions against undertakings.

A registrar, which is usually comprised of a few individuals, and a secretary will assist the Commission Assembly in dealing with administrative matters for the hearing.

Under Article 19 of the Case Handling Regulation, a reported party – whether a company or an individual – has the obligation to attend upon being summoned by the KPPU and to provide any information requested by the KPPU. If the reported party declines such summons or request, Article 20 of the Case Handling Regulation allows a KPPU investigator to report the rejection as a violation of Article 41(3) of the Competition Law.

Nonetheless, under Article 75 of the Case Handling Regulation, the reported party has the right to be accompanied by counsel or a lawyer during the investigation. In several recent cases, to ensure the legal standing of the external counsel, the KPPU investigator requested that the advocates show their certification during the investigation and examination stages.

Under the Law No. 18 of 2003 on Advocates, any information that is known and/or obtained by an advocate from a client based on an attorney-client relationship must be kept confidential. Moreover, an advocate is also obliged to safeguard the confidentiality of his or her relationship with the client, including protecting files and documents from seizure or inspection and protecting electronic communications from copying. Therefore, attorney-client privilege applies to all information and/or communications between advocates and their clients during all stages of the investigation by the KPPU.

The KPPU, according to the Competition Law, must maintain the confidentiality of any information declared to be confidential by the undertaking. However, the Competition Law and the Case Handling Regulation are silent in terms of whether an ongoing pre-investigation or investigation will be communicated to the public. Nevertheless, to comply with the standard procedure in other legal cases in Indonesia, it is expected that the KPPU will not announce the details of an ongoing pre-investigation or investigation to the public. On the other hand, it is expected that the KPPU will inform the public of the industry, the allegations, the undertakings involved and an indicative timeline for the proceedings through its website or social media.

At the examination stage, the KPPU hearing is open to the public. The hearing schedule will be set out on the KPPU’s website. In addition, the KPPU’s decision will be available to the public. The decision will usually contain information about the reported parties, a case summary, the KPPU’s consideration and assessment, and any injunction imposed. However, if any information is categorised as confidential, it will not be included in the public version of the KPPU’s decision.

According to the Case Handling Regulation, the steps taken by the KPPU before proceeding to the formal hearing are as follows:

• Pre-investigation stage: As outlined in question 3.1, the pre-investigation stage may be commenced based on a report from a complaining party or on the KPPU’s own initiative. The KPPU’s examining investigators will assess whether the complaint report is complete and clear, and falls within the KPPU’s jurisdiction.
• Investigation stage: As outlined in question 3.1, a formal investigation can be initiated if the KPPU found at least 1 evidence of the alleged violation in the pre-investigation stage. The investigation is conducted to gather at least 2 evidence of the alleged violation and determine whether the investigation can progress to the examination stage, during which the hearing will take place.

Under the current Competition Law, the KPPU has no authority to conduct a surprise visit or dawn raid. In addition, the KPPU cannot access company computers or emails or seize any documents from an undertaking without consent.

Not applicable.

Not applicable.

Not applicable.

Not applicable.

Not applicable.

According to the Article 5 Guideline, it is crucial that the KPPU proves the existence of an agreement between competing companies to demonstrate a price-fixing violation. In attempting to prove this, the KPPU will use both:

• direct evidence (hard evidence); and
• indirect evidence (circumstantial evidence). In particular as regards indirect evidence, an additional assessment (plus factors) is required to distinguish parallel conduct from an illegal agreement. The additional assessment (plus factors) are as follows:
• • the rationality of the price fixing;
  • a market structure analysis, which will include product homogeneity, absence of close substitutes, readily observed price adjustments, standardised prices, excess capacity, few sellers and high barriers to entry, among other things;
  • performance data analysis; and
  • facilitating devices.

Meanwhile, based on the Article 11 Guideline, a cartel is proven by considering the following factors:

• structural factors, such as:
• • concentration level and number of companies in the market;
  • company size;
  • product homogeneity;
  • multi-market contact;
  • production inventory and capacity;
  • ownership linkages;
  • low entry barriers;
  • characteristics of demand – regularity, elasticity and changes; and
  • buyer power; and
• behavioural factors, such as:
• • transparency and information exchange; and
  • price and contract policy.

For bid-rigging cases, based on the Article 22 Guideline, the KPPU will initially consider indicators of bid-rigging that may take place in various stages of a tender process, spanning from the planning of the tender, formation of the tender committee, up to contract awarding and the execution of the contract. However, such indicators does not necessarily confirm alleged violation of Article 22 of the Competition Law. The KPPU is still required to prove the alleged bid-rigging practice through further investigation and examination.

The Competition Law does not allow for the possibility to settle or enter into a plea bargain. However, as mentioned in questions 3.1 and 4.1, under the Case Handling Regulation, the concept of behavioural remedies allows a reported party to plead guilty at the beginning of a hearing and agree to change its behaviour in order to end the examination process.

There is no leniency programme under the current Competition Law.

Not applicable.

Not applicable.

Not applicable.

Not applicable.

Not applicable.

The Competition Law does not directly apply criminal sanctions for violations of its provisions. Criminal sanctions can be imposed only under two conditions:

• where an undertaking or individual obstructs procedures under the Case Handling Regulation, the steps taken by the KPPU investigation or examination; and
• where a reported party does not comply with a final and binding decision.

In either case, a criminal investigation may be initiated and the undertaking or individual may be subject to fines and imprisonment. In the case of a criminal investigation, the Criminal Procedural Law will apply, and the investigation will be conducted by a police investigator and the prosecution by the state prosecutor. Further, the hearing will be held before a criminal judge at the authorised district court (in that the KPPU has no jurisdiction in criminal proceedings – see question 2.3).

Under Article 48 of the Competition Law, the penalties that may be imposed on a company or individual in criminal proceedings are as follows:

• for market allocation and cartel activity, a fine of between IDR 25 billion and IDR 100 billion, or up to six months’ imprisonment;
• for price fixing, a fine of between IDR 5 billion and IDR 25 billion, or up to five months’ imprisonment; and
• for obstruction of an investigation, a fine of between IDR 1 billion and IDR 5 billion, or up to three months’ imprisonment.

Both companies and individuals can be subject to the same types of penalties in civil proceedings.

Under Article 1365 of the Civil Code, a party that commits an illegal act which causes damages to another party (tort) must provide compensation accordingly. However, as damages must be proven, a civil lawsuit can be filed only after the KPPU decision establishing a breach of the Competition Law has become final and binding.

The types of damages that may be subject to indemnity are limited to material and immaterial losses. The indemnity for material losses includes money, while the indemnities for immaterial losses vary from restitution to the stipulation of the illegal act.

For administrative sanctions and penalties, please see question 2.3.

In determining the penalties, the KPPU will base its consideration on KPPU Regulation 4/2009 on the Guideline to Implement Article 47 of Law 5/1999. As such, the KPPU does not consider penalties from other jurisdictions.

Under this regulation, the penalty will be determined based on the proportion of sales. The exact proportion will be determined by the KPPU by considering the following factors:

• the size of the companies;
• the type of violation;
• the combined market shares of the reported parties;
• the geographical scope of the violation; and
• whether an anti-competitive agreement has been executed or implemented.

There is no provision under the Competition Law that would prevent a company from paying the legal costs and/or penalties imposed on its employees.

Yes, a company may appeal the KPPU’s decision to the district court within 14 business days as of:

1. the date of the decision hearing, if such hearing was attended by the company; or
2. the date of the notification of the KPPU’s decision if the company did not attend the decision hearing.

The district court then has 30 business days to examine and render a decision on the appeal.

Both the KPPU and the reported parties can appeal the district court’s decision to the Supreme Court within 14 days of the date on which the decision is notified to the KPPU or the reported parties. Leave to appeal to the Supreme Court must first be sought from the district court that adjudicated the appeal. Under Article 45(4) of the Competition Law, the Supreme Court must issue a decision on the appeal no later than 30 days following receipt of the appeal.

No. Only the reported party may submit an appeal against the KPPU’s decision to the district court. While the appeal against the district court’s decision can be submitted to the Supreme Court both by the reported party and the KPPU, but not by any third party.

The current Competition Law does not recognise private enforcement, since enforcement against cartels must first be brought before the KPPU (see question 1.3).

Not applicable.

In general, the Competition Law does not regulate class actions. However, a consumer association or public interest group can file a class action lawsuit with the district court in order to obtain an indemnity for an alleged violation by a certain undertaking if there has been a final and binding decision against the reported party by the KPPU.

Not applicable.

Not applicable.

Not applicable.

The KPPU has been quite active in initiating investigations of non-bid-rigging cartels in the past five years. Some of those investigations have included Tyres (2014), Liquefied Petroleum Gas (2014), Cattle Imports (2015), Chicken (2016), Skutik (2016), Handling Tariffs (2016), Shipping Liners (2018), and Salt Industry (2019).

From its establishment, the KPPU has decided on 339 cases, and 260 of those cases, or 76.7%, are related to cartel practices (i.e. price fixing, output fixing, and bid-rigging).

At the time of writing, the Competition Law is in the process of being amended. However, the amendment has now been suspended due to the changes within the House of Representatives as the legislature, following the general election held in April 2019. Based on the latest draft, two new issues will be governed under the new law relating to cartel issues:

• Leniency procedure: As mentioned in question 5.1, the current Competition Law does not provide for a leniency programme. However, according to the latest draft of the amended Competition Law, a whistle-blower may receive a reduction in fines under a new leniency programme. Leniency may also be granted to an undertaking that provides a confession.
• Increase in administrative sanctions: The current Competition Law provides that the maximum penalty that can be imposed on each undertaking is IDR 25 billion. According to the latest draft of the amended law, the maximum penalty has been increased to 25% of the sales value during the period of infringement.

An allegation of cartel violation under the Competition Law is serious. Therefore, if a company is involved in a cartel investigation, it should make certain preparations in respect of the investigation, including:

• identifying or verifying the capacity of the summons by the KPPU (i.e. whether the company has been summoned as a witness or a reported party);
• consulting with the company’s legal division with respect to the KPPU’s summons;
• conducting internal investigations relating to the alleged violation;
• preparing relevant evidence related to the cartel investigation; and
• attending to the summons, accompanied by the legal division or an external legal adviser.

In addition, there are several steps that a company can take in order to avoid the legal risks that may arise from Competition Law violations:

• developing a competition compliance programme;
• developing competition guidelines that contain dos and don’ts for company employees in carrying out their duties; and
• conducting regular compliance trainings and audits in terms of competition law for all business activities that have been or will be carried out by the company.