Insight from TRACE INTERNATIONAL: Indonesia

Insight from TRACE INTERNATIONAL: Indonesia

1. How would you characterize corruption risks in Indonesia?

Indonesia is considered a moderate-to-high risk country for corruption. The TRACE Matrix, which measures business bribery risk, ranks Indonesia 71st out of 197 countries and gives an overall risk score of 51 – citing a moderate risk of intensive interaction with the government, moderate regulatory burden and moderate expectation of bribes. The areas of business operations that are most vulnerable to bribery risks are permits and licenses, procurement and logistics, sales and marketing, and finance and taxation.

Recent cases involving bribery of Indonesian officials have also highlighted the propensity for companies to use third parties as conduits for illicit payments, disguising bribes as fees to third-party vendors.

2. How do these risks typically impact foreign businesses operating in Indonesia?

In the 2015 World Bank Ease of Doing Business report, Indonesia is ranked 109th out of 189, highlighting the difficulties for investors in Indonesia, and the need for a simpler and more predictable regulatory environment.

In addition, foreign businesses are often bewildered by the significant inconsistencies and frequent contradictions between national and local regulations – leading to lack of coordination and conflicting interpretations of regulations. The ambiguity of legislation poses a problem for foreign companies, as public officials may use this lack of clarity to extort bribes to facilitate basic business processes, such as registering a business, securing permits, obtaining electricity and registering property. Companies should also be vigilant regarding customs and tax procedures, which also present opportunities for bribe demands.

3. Which foreign business sectors are particularly vulnerable to corruption?

Industries involving large government projects, discretionary government decisions and heavy government regulation are substantially more prone to bribery risks. The following sectors are particularly vulnerable to corruption: the extractive industries, power, pharmaceuticals, construction and engineering, and transportation and communications.

4. What can foreign companies operating in Indonesia do to bolster their protection against corruption?

Foreign companies need to fully understand the corruption risks inherent to their industry and business model, so that they can maintain a robust anti-bribery compliance and training program. Companies should conduct risk-based due diligence on all third parties and follow up on any red flags uncovered during the screening process, such as a family member who is a government official.

Companies can also work with TRACE Certified companies, which have completed a rigorous due diligence process based on international standards, including training and continuous daily screening against international sanctions and enforcement lists.

5. What are the best sources of anti-bribery compliance support in Indonesia?

Indonesia Business Links, a non-profit foundation dedicated to ethical business practices, publishes compliance guides in the local language. They also host quarterly CEO meetings and regular training workshops/seminars for companies. The Canadian Trade Commissioner Service in Indonesia offers assistance to Canadian companies operating in the country. Organizations such as TRACE, Transparency International and the Business Anti-Corruption Portal can provide companies with access to resources on anti-bribery compliance, wherever they are located.

Categories TRACE Advantage: Anti-Corruption

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