Indonesian anti-graft enforcers set their sights on a new target: corporations

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  • Indonesia’s anti-graft agency, the KPK, is widely recognized for its prowess at catching corrupt government officials.
  • The agency has been less successful, however, at prosecuting companies on the other side of that corruption.
  • Recently, the KPK has begun to rethink its approach, with potential implications for natural resource firms that pay bribes in exchange for permits.

This article was co-published with The Gecko Project.

KOKOE, Indonesia — For years, this eastern Indonesian village of fishermen and seaweed farmers simmered with anger over the pollution of its coastline by a nickel mining company.

Heavy rains sweeping over a razed patch of forestland carried metal-rich soils into the sea, turning the water a rust-red color, ruining seaweed harvests and scaring away fish. The constant flow of barges loaded with nickel ore damaged fish traps and nets. Local livelihoods dwindled and disappeared.

In 2018, a corruption court in Indonesia’s capital city sentenced the governor of Southeast Sulawesi province, Nur Alam, to 12 years behind bars for issuing permits to the company, PT Anugrah Harisman Barakah (AHB), in exchange for bribes. Prosecutors argued that damage done to the environment by AHB had cost the state 2.7 trillion rupiah ($196 million).

Last year, Nur Alam began his sentence in prison. But after a brief respite while the trial went ahead, PT AHB resumed operations last year. No sanctions have been imposed on the firm.

“Unfortunately, the permits were not revoked,” said Iqbal Damanik, a researcher at Auriga Nusantara, an NGO that seeks to ensure Indonesia’s natural resources are used equitably. “[AHB] was not even blacklisted [by the government], so it could continue to operate.”

Shutting it down isn’t on the table, according to Nining Rahmatia, head of licensing at the province’s office of energy and mineral resources.

“Someone went to jail, right?” she said in an interview at her office in Kendari, the provincial capital. “So there’s no problem anymore.”

Nanang, a 60-year-old Kokoe resident, says the company’s activities mean he can no longer support his family with money from seaweed farming. “Just a few days after planting, the seaweed is covered in dirt.” Image by Ian Morse for Mongabay.

In Indonesia, political corruption is endemic. Unscrupulous officials make money by stealing from state budgets, engaging in procurement scams, or abusing their power to issue permits, especially in the natural resource sector. The heavily forested Southeast Asian nation is a top producer of palm oil, coal, nickel, gold, tin, rubber and coconuts.

Indonesia’s anti-graft agency, the KPK, has sought to crack down on licensing rackets, pursuing several notable cases in recent years. But despite the agency’s globally recognized success in prosecuting politicians, the companies on the other side of that corruption have largely escaped sanctions.

Indonesian law stipulates that corporations, not just the people who own and work for them, can be held responsible for crimes. But a lack of clarity as to how corporate corruption charges should be prosecuted and a perceived lack of willingness among judges to punish the private sector have made doing so seem unfeasible to law enforcers, who did not pursue such cases until recently.

Jimly Asshiddiqie, a former chief justice of Indonesia’s Constitutional Court, said the lack of precedent had deterred judges from “ventur[ing] into uncharted waters,” and that they tended towards protecting the “rights” of corporations.

This has left a litany of cases in which companies have gained control of natural resources through corruption and continued to reap the rewards for years, even after the graft is proven in court.

In 2012, billionaire tycoon Siti Hartati Murdaya was arrested for bribing the elected head of Buol district on the island of Sulawesi. She had wanted the politician to expedite a permit for her palm oil company, PT Hardaya Inti Plantations (HIP).

Both Hartati and the district chief, Amran Batalipu, went to prison. But HIP was allowed to proceed with its plans. Last year, Environment and Forestry Minister Siti Nurabaya Bakar granted the company permission to develop an additional 10,000 hectares (24,700 acres) of mostly forestland, even in the face of protests from local communities and the new district chief, who had moved to cancel permits issued by his predecessor.

Siti Hartati Murdaya. Image courtesy of the KPK.

In another case, a district chief in the Sumatran province of Riau, Azmun Jaafar, corruptly issued timber plantation licenses to a string of companies affiliated with Asia Pulp & Paper and the APRIL Group, the two biggest paper producers in Asia. The firms used the permits to clear rainforest worth tens of millions of dollars.

But while Azmun and a raft of other politicians were convicted of graft in the scandal, none of the companies have had their permits revoked or been charged with a crime.

A coalition of NGOs observed that paper products “tainted by corruption” would flood international markets due to the gap in the law that left the companies unscathed by the case.

“In reality in Indonesia, licenses acquired through corruption and bribery are considered as legal, even after the license-signer goes to jail, so none of these licenses have been revoked,” they said in a 2012 statement.

Former Riau governor Rusli Zainal stands trial in the province. He was also convicted of corruption in the case that brought down Azmun Jaafar. Image by Made Ali for Mongabay.

Until a few years ago, the KPK didn’t view prosecuting companies as a priority, according to Dedi Hartono, head of research and development at the agency. In light of some recent developments, however, it has begun to rethink its approach.

In 2016, the Supreme Court issued a landmark set of regulations that charted a path to convicting a company of corruption. Prosecutors need to prove that the firm has no crime prevention mechanism, that it allowed its employees to commit the corrupt act and that it benefited from it.

The regulations addressed an “absence of detailed technical guidance on how to conduct enforcement measures” against corporations, Dwi Siska Susanti, anti-corruption program coordinator at the United Nations Office on Drugs and Crime in Jakarta, wrote in an email.

Since then, the KPK has indicted several companies for graft. Last year it won a first-ever conviction, against publicly listed PT Nusa Konstruksi Enjiniring for rigging tenders for construction projects in collusion with lawmaker Muhammad Nazaruddin, who was already in prison.

Besides ordering the firm to pay a fine of 700 million rupiah ($43,000) and 85.4 billion rupiah ($5.2 million) in restitution to the state, judges banned it from seeking government contracts for six months, though it could still pursue private projects.

From 2017 to 2019, the KPK investigated at least four firms, while the National Police and the Attorney General’s Office have brought corruption charges against one each, according to Dwi.

Last year, the KPK brought first-ever corruption charges against a company in the natural resource sector: PT Palma Satu, a subsidiary of the Darmex Group, whose billionaire owner, Surya Darmadi, was also indicted in the scandal.

It will take time before KPK teams and court judges understand the legal methods that can be used to revoke permits, Dedi said in an interview.

“[These cases] require a lot of changes of mindset, training and competence, and that seems low compared to the needs we see in the field,” he said. “Our standards are high, so when we want to change, we need a lot of training.”

Kokoe lies on a narrow isthmus on the island of Kabaena. Image by Ian Morse for Mongabay.

In Kokoe, residents are still dealing with the fallout of Nur Alam’s corruption.

Fishermen in the village, which is sandwiched between two mining concessions on the small island of Kabaena, must move further out to sea to find fish, forcing them to compete with larger ships.

Villagers complain that AHB, the nickel miner, has blocked off their water sources, leaving them dependent on a water treatment plant built by another firm whose management costs they must pay for. Still, they’re torn about whether AHB should be made to close because they’re now dependent on it for compensation payments.

“We made a deal with [AHB] to receive compensation, so if the business stops, the money stops too,” says Hatta, 54, Kokoe’s former village chief. “If the business stops, what are they going to give us?”

The KPK can ask government agencies to cancel existing permits, though officials often resist because it is not legally obligatory. In the case of Buol, the forestry ministry rejected such a request from the KPK, Dedi said. There has been no such request to revoke AHB’s permit, he added.

The company is sitting on a stockpile of 2 million tons of nickel ore worth roughly $50 million, according to the provincial mining office. The company temporarily halted its operations after the bribery scandal broke, but last year it resumed selling that ore to a smelter on the Sulawesi mainland.

The KPK declined to answer specific questions about the AHB case because it is still ongoing, as Nur Alam has requested judges assess new evidence.

AHB could not be reached for comment. Company director Widdi Aswindi and Ikhsan Rifani, a minority shareholder, did not respond to phone calls.

Houses on stilts in Pongkalero, a village on the other side of the mine from Kokoe. Image by Ian Morse for Mongabay.

Darmawi is the head of Pongkalaero village, on the other side of the mine. When AHB returned, residents struck a deal for AHB to finish funding a mosque it had begun building in the village. Darmawi says he hopes things change for the better.

“We’re farmers, not miners,” he says. “This is our land, and it’s all we have to earn a living.”

Banner: Kokoe residents observe AHB’s activities by boat. Image by Ian Morse for Mongabay.

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This story first appeared on Mongabay

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