Indonesia has drafted a new competition law that contains heavier fines for businesses convicted of competition, more enforcement power for the competition authority and the introduction of a leniency programme. While the regulator has been struggling to get the law to parliament for a number of years, it is now thought to have enough support to be to be passed later this year.
Features of the new law
The draft law on Prohibition of Monopoly Practices and Unfair Business Competition:
- Extends the definition of enterprise to foreign businesses outside of Indonesia, particularly digital businesses such as e-commerce, e-payments and online platforms
- Increases fines for businesses convicted of unfair practice, ranging from 5% to 30% of sales value through violation period. There is no maximum penalty for fines, whereas the existing law sets the maximum amount at $1.88 million.
- Outlines leniency programme to target cartels
- Provides for pre-transaction merger clearance instead of post-merger notification
The new law will also give the Business Competition Supervisory Commission (KPPU) more authority in investigations, including getting support from the police to summon witnesses. Individuals who fail to cooperate in the investigation process could be sent to jail for up to six months.
“The introduction of a leniency programme, beefed up enforcement powers, a pre-transaction merger clearance regime and increased penalties will no doubt help to focus minds on compliance, “says Ben Clanchy, foreign counsel at Makarim & Taira S. “The KPPU has had for some time focused on the food, health, energy, infrastructure and banking sectors with more than 60% of cases being bid-rigging cases and 25% cartel cases.”
“The current competition law was passed in 1999 and became effective in 2000, which means it has been in effect for almost 18 years,” Rusmaini Lenggogeni, managing partner of SSEK Legal Consultants.
Tips for businesses
Businesses can prepare for the new legislation in a number of ways. Observers point to a few common mishaps they’ve come across, including lack of staff training and coordination with overseas head offices on pricing and marketing efforts.
“It is important to conduct a thorough review of business practices and conduct training, particularly for sales teams,” says Clanchy. “The application of a leniency programme will blow apart existing cosy practices between competitors that would most likely fall under one or more of the cartel prohibitions in the law and could spark a frenzy of litigation. Local sales teams are often not aware of the prohibition on or the seriousness of pricing and marketing coordination with competitors and head offices overseas are often not aware of the practices their local subsidiaries are engaged in.”
Though the change to the law may increase compliance, the KPPU will need more resources to handle cases efficiently. “The regulator struggles to deal with its merger clearance caseload already,” says Clanchy. “The slow timeframes are grudgingly tolerated by the business community currently because it is post-transaction. It will no longer be possible to maintain the status quo when they move to a pre-clearance regime.”
“The KPPU needs to swiftly prepare and ready itself for the implementation of the amendment to the competition law,” says Lenggogeni. “This means producing the necessary implementing regulations.”
Indonesia’s new, modernised competition law will bring it in line with international standards, but the competition authority will need to ensure that it is equipped with resources and clear guidelines for the law’s successful implementation.