Indonesia’s Business Competition Body Issues New Regulation on Enforcement of Fines

The Indonesian Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha or "KPPU") issued a regulation at the end of May 2021 on the enforcement of fines for monopolistic practices and unfair business competition.

KPPU Regulation No. 2 of 2021 ("Regulation No. 2") aims to provide certainty in the enforcement of administrative fines regulated under Government Regulation No. 44 of 2021 regarding the Implementation of the Prohibition of Monopolistic Practices and Unfair Business Competition to conform with the provisions in the Omnibus Law.

Regulation No. 2 addresses the enforcement of fines imposed on business actors found guilty of monopolistic practices and unfair business competition ("Reported Party"). We look at the key parts of this new regulation.

1. Calculating Fine Amount

In general, any corporate activities that involve monopolistic practices or unfair business practices are subject to administrative sanctions, which include fines. Regulation No. 2 stipulates a minimum/base fine of Rp. 1 billion (approximately USD 69,500 at the current exchange rates) that will be enforced against violators ("Base Amount").

Regulation No. 2 further sets out several factors that will be considered in calculating fines against a Reported Party on top of the Base Amount, as follows:

a. Negative impact following the violation

The KPPU will consider whether the violation by the Reported Party resulted in less or no competition in the same market.

b. Duration of the violation

The KPPU will take into account the number of months the violation occurred, as follows:

i. If the duration of a given violation extends up to six months the violation duration will be calculated as half a year;
ii. If the duration of the given violation is more than six months but less than one year, the violation duration will be calculated as one year.

c. Mitigating factors

The following are among the mitigating factors the KPPU will consider in calculating the size of fines against a Reported Party:

i. They have, in the past, engaged in activities that demonstrated compliance with fair business competition;
ii. They voluntarily ceased their monopolistic practices after the relevant case was brought to the KPPU's attention;
iii. They have not previously committed similar violations;
iv. Whether the violation was intentional;
v. The Reported Party did not initiate the violation; and/or
vi. The violation did not have a significant impact on the relevant market.

d. Aggravating factors

The following are aggravating factors that will be considered in calculating the fines that will be enforced against the Reported Party:

i. They have committed similar violations within the last eight years, based on a final and binding decision; and/or
ii. They acted as the initiator in relation to the relevant violations.

e. The ability of the business actor/violator to pay the fine

In calculating the size of a fine, the KPPU will consider the financial condition of the Reported Party and whether a large fine may potentially result in the Reported Party becoming non-operational.

Regulation No. 2 sets out the following limitations in calculating the final fine amounts:

- Maximum of 50% of the relevant net income received by the Reported Party during operations within the related market throughout the duration of the violation; or
- Maximum of 10% of the total sales generated during operations within the related market throughout the duration of the violation.

The KPPU may also calculate fine amounts based on the net income or the sales of the Reported Party throughout the duration of the violation.

2. Bank Guarantee 

To file an objection or appeal the KPPU's decision on fines, the Reported Party must submit a bank guarantee, issued by a commercial bank operating in Indonesia, for a maximum of 20% of the imposed fine as a guarantee of the enforcement of the KPPU's decision. The bank guarantee must be submitted within 14 business days after the decision has been handed down.

If the Reported Party fails to submit a bank guarantee within the provided timeline, the KPPU will consider the Reported Party to have accepted the decision. The KPPU can only draw down the bank guarantee once there is a final and binding decision. In the event the decision is annulled, the bank guarantee will be returned to the Reported Party.

3. Paying Fines 

The Reported Party must deposit payment for imposed fines in the state treasury as non-tax income within 30 business days after receiving notification of the KPPU's decision. Failure to deposit payment by the deadline will result in additional administrative sanctions in the form of fines for late payment. As a last measure, the KPPU may seize the Reported Party's assets after continuous refusal to pay the fines.

Regulation No. 2 stipulates that a Reported Party may apply for leniency, which would allow it to pay its fines in installments or within a certain time period, with the approval of the head of the KPPU. An application for leniency must be submitted with the required financial reports within 14 business days of a final and binding decision. An application submitted after 14 business days will be rejected.

The maximum leniency period the KPPU may approve is 12 months for installment payments or an extended time period for payment of between 12 months and 36 months. To qualify for leniency, the Reported Party must submit an adequate guarantee in one of the following forms:

a. Insurance;
b. Bank guarantee;
c. Surety bond;
d. Material guarantee; or
e. Other guarantees approved by the KPPU.

Regulation No. 2 came into effect on 31 May 2021. (30 July 2021)

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