The enactment of Law Number 16 of 2025 on the Fourth Amendment to Law Number 19 of 2003 concerning State-Owned Enterprises (SOE) (“Law No. 16 of 2025”) marks a paradigm shift regarding criminal liability for the Board of Directors, Board of Commissioners, and Supervisory Board members (“SOE’s Organs”) through the strengthening of the Business Judgment Rules, a doctrine designed to protect directors from legal risks when making decisions, provided those decisions are made in good faith and with responsibility.
The primary issue so far has been the overlap between business risks and the elements of corruption offenses outlined in Law Number 31 of 1999 on the Eradication of Corruption. Numerous SOE directors have faced corruption charges because their business decisions were perceived to have caused state losses or provided undue benefits to themselves, others, or corporations.
The Business Judgment Rule doctrine emphasizes that decisions made by the Board of Directors must be rooted in good faith, prioritize the company’s best interests, demonstrate prudence, avoid conflicts of interest, and be supported by adequate information and thorough analysis. This principle establishes that losses resulting from business decisions are not automatically deemed the fault of the Directors. This doctrine is encapsulated in Law Number 40 of 2007 on Company Law (“UUPT”). However, a significant issue persists within the UUPT due to the lack of clear parameters defining “good faith” and “prudence,” leaving these terms open to interpretation by judges and law enforcement authorities.
Law No. 1 of 2025 on the Third Amendment to Law Number 19 of 2003 on State-Owned Enterprises (“Law No. 1 of 2025”), in conjunction with Law No. 16 of 2025, closes this gap by introducing Article 9E, which limits actions outside the Business Judgment Rule. It prohibits SOE Organs from securing personal benefits beyond legitimate income, thereby creating a clear indicator of bad faith and an objective basis for criminal accountability.
Under the Law Number 16 of 2025, legislators sought to establish a more balanced approach to criminal liability by granting immunity to SOE’s organ, ensuring they could not be immediately prosecuted for business decisions aimed at benefiting the company. This initiative stemmed from the reality that, in practice, business decisions leading to state losses are often misconstrued as fulfilling the element of “profit” for individuals, others, or corporations, which constitutes a corruption offense. However, in the business realm, decisions inherently carry risks of loss and do not necessarily indicate malicious intent and unlawful actions by the SOE’s organs.
Summary of Law No. 16 of 2025 relating to criminal liability:
1. The Status of Directors as State Administrators
Previously article 9G of the Law Number 1 of 2025 stated that the members of the Board of Directors, Board of Commissioners, and Supervisory Board of SOE are not state administrators.. However, this provision was eliminated in Law No. 16 of 2025, and members of the Board of Directors, Board of Commissioners, and Supervisory Board of SOE are now classified as state administrators once again.
2. Separation of State-Owned Enterprise Assets from State Finances
SOE, which include Limited Liability Companies (Persero) and Public Companies (Perum), have distinct legal identities and assets that are separate from state assets and the individuals who operate them. As a result, any losses incurred by SOEs should not be equated with losses suffered by the state, as legally, SOE assets are no longer considered state assets. Therefore, losses arising from SOE business activities are regarded as corporate losses, not as losses for the state. This principle is outlined in Article 4B of Law No. 16 of 2025:
“The profit as referred to in Article 2 paragraph (1) letter a, or the loss incurred by a State-Owned Enterprise, constitutes the profit or loss of the State-Owned Enterprise itself.”
3. Criminal Liability
Under the Article 3Y of Law Number 16 of 2025, The Head of the SOE Regulatory Agency (BP BUMN), SOE’s organs, and its employees cannot be held legally liable for losses if it can be proven that:
a. The losses mentioned in Article 3H, paragraph (21), were not due to errors or negligence on their part;b. Management actions were undertaken in good faith, with prudence, and aligned with the investment objectives, intent, and the principles of sound governance and business practices;
c. There was no direct or indirect conflict of interest in carrying out investment management actions; and
d. No unlawful personal benefits were derived.
Further, Article 9F of Law No. 16 of 2025 stipulate that members of the Board of Directors cannot be held legally liable for losses if they can prove:
a. the loss did not arise from fault or negligence;
b. the management was carried out in good faith and with due care, for the benefit of and in accordance with the purposes of the State-Owned Enterprise (BUMN);
c. there was no conflict of interest, whether direct or indirect, in the management actions that resulted in the loss; and
d. measures were taken to prevent the occurrence or continuation of such loss.
Members of the Board of Commissioners or Supervisory Board of a State-Owned Enterprise (BUMN) shall not be held legally liable for losses if they can prove that:
a. they have exercised supervision in good faith and with due care, for the benefit of the BUMN and in accordance with its purposes;
b. they have no personal interest, whether direct or indirect, in the management actions of the Board of Directors that resulted in the loss; and
c. they have provided advice to the Board of Directors to prevent the occurrence or continuation of such loss.
Therefore, criminal liability upon SOE’s Organs may only arise where there is demonstrable mens rea —namely, intent or bad faith in the conduct of management. So long as decisions are made within the framework of reasonable business judgment and in observance of prudence, losses attributable solely to business risks should not be constituted a basis for corruption charges against the enterprise’s organs.
Authors: Nadira Karisma Ramadanti and Agdelia Meiva Azarine
Editor: R. Bayu Perdana
Disclaimer: The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information.
Partner