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Status and Outlook of Indonesia's Judiciary Reforms

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Status and Outlook of Indonesia’s Judiciary Reforms

An Interview with Todung Mulya Lubis
By: Noelan Arbis
May 7, 2014

This year marks the third direct presidential election in Indonesia since the end of the Suharto regime in 1998. Government institutions, including the judiciary, have continued to undergo significant reforms during this period. Given the recent spotlight on Indonesia’s judiciary following controversial rulings against foreign firms, NBR spoke to Todung Mulya Lubis (Harvard University) to better understand the progress of judicial reforms in Indonesia, the perception of the judiciary domestically and internationally, and the positions of the leading presidential candidates on judicial reforms ahead of the 2014 elections.

Indonesia’s “reformasi” period, which began after the fall of Suharto in 1998, ushered in an incredible amount of change to Indonesian society and institutions, including the judiciary. Could you give us a brief rundown of the major reforms that the judiciary has successfully undertaken during this period?

There have been a number of reforms taking place in the Indonesian judiciary. First and foremost, the country has strengthened the powers of the Supreme Court by making it the only state body that administers the judiciary. Under Suharto’s rule, judges were under both the Ministry of Law and Human Rights and the Supreme Court. The Ministry of Law and Human Rights dealt with administrative functions, such as recruitment and promotion of judges, while the Supreme Court dealt with judicial functions, such as examining the quality of judges. When Suharto stepped down, all supervision of judges fell under the auspices of the Supreme Court. This conferred independence on the judiciary in the sense that it no longer has any ties with the executive branch of the government. Whether or not judges are truly independent is another issue.

Indonesia also established the Constitutional Court to deal with cases such as the impeachment of a president, election disputes, and dissolution of political parties. More recently, the Supreme Court began publishing its decisions online, making them more accessible and transparent, and began imposing sanctions on judges who are indicted for corruption and other unethical behavior.

What aspects of Indonesia’s judiciary could be improved? What measures need to be taken, and what are the major hurdles?

Indonesia needs a better recruitment process for judges to place the brightest and most qualified people into the system. This is an extremely important process to ensure judicial independence. Highly qualified judges are harder to corrupt. We also have to keep the doors open for practicing lawyers who would like to change their profession and sit on the bench. I think the presence of former lawyers on the bench would be beneficial for Indonesia’s judiciary.

We also need continuing legal education for judges. The infrastructure already exists in Indonesia for such education, but we need to make it mandatory. In addition, there should be better remuneration for judges to put them in a position to make fair decisions.

Yet all of these changes would require commitment on the part of the government, and I do not think that the government realizes the importance of a strong judiciary. In fact, in the short term an independent judiciary could harm government interests by hindering officials’ capacity to act and make decisions that may not be in accordance with the law. For that reason, the government by default has not supported independence of the judiciary. This perspective is very shortsighted, however, and the government has to realize that in the long run it is better for Indonesia to have a stronger judiciary.

In 2013, Transparency International’s Corruption Perception Index showed that the Indonesian public perceives the judiciary as one of the most corrupt institutions in the country, along with the legislature, political parties, and police. Why do you think there is such poor public perception of the judiciary, and is there any credence to it?

The judiciary has failed the people again and again. Recent cases showing the Corruption Eradication Commission sending court judges, prosecutors, lawyers, and even public notaries to jail exemplify why there is such poor public perception of the judiciary. The judiciary in Indonesia is called a “court mafia.” It is a mafia consisting of judges, prosecutors, police, and lawyers who obstruct justice and the due process of law.

There have also been statements by former Supreme Court justices in the past saying that over 50% of Indonesian judges may be corrupt. Of course, no one knows the exact number, but the perceptions of the people have been and still remain very negative.

Local and international media have shone a spotlight on recent Indonesian courts’ decisions against foreign firms on charges of corruption and the like. Many perceive the trials as flawed and intended to target international companies in Indonesia. Should foreign investors be worried about being targeted by Indonesian courts? What issues might foreign investors face in the judiciary as they look to invest in Indonesia?

I do not blame foreign firms for being worried about Indonesia’s judiciary. Criminalization of business matters in Indonesia is becoming very common, and it can be done by competing firms, local partners, or organizations that are acting as proxies to local partners. Local politicians may also use the judiciary to pressure and extract money from foreign firms. Therefore, it is common and advisable for these companies to settle disputes through foreign arbitration. The problem with such arbitration is that it is difficult to enforce decisions in Indonesia. As a result, foreign companies often try to find other ways to settle their disputes outside of the courts.

Another problem is the lack of competence and preparedness among many Indonesian judges to examine complicated business transactions, which is a cause for concern for the business community. This is why the country’s domestic judiciary must be improved in areas such as recruitment, education, and remuneration.

The Indonesian government’s intention to terminate more than 60 of its bilateral investment treaties (BIT) is another big problem, not only because it weakens protection for foreign companies but also because the termination of these treaties would be done unilaterally. If the Indonesian government deems unfair or is unhappy with a specific BIT, the correct legal process should be to propose an amendment that could be agreed on by the government and the opposing treaty party. Termination of a treaty should not be the answer.

Where do the leading presidential candidates stand on judicial integrity? How could the presidential election results potentially affect the judiciary?

Anyone who is elected has no choice but to continue with judicial reforms; everybody agrees that it needs to be done. But independence of the judiciary is harder to achieve. All presidential candidates have expressed their commitment to the independence of the judiciary, but it will not be easy to achieve because they all must compromise and form coalitions with parties that may have conflicting interests.

I have been asked by one presidential candidate to prepare a legal roadmap. Unfortunately, other candidates have shown no or little interest in pursuing judicial reform. Many see it as secondary to economic and political reforms, and they assume that judicial reforms will automatically take place following economic and political reforms. There is always room on the legislative side of the government to play a constructive role in strengthening the independence of the judiciary, but the prevalence of money in Indonesian politics makes that extremely difficult.

Do you have any other insights into the judiciary that you think are valuable for observers of Indonesia and Asia to understand?

Indonesia’s free press is extremely important, not only to oversee the government but also to strengthen the idea of an independent judiciary. Indonesia also has a very active and vibrant civil society, which plays a countervailing role in the country’s reforms vis-à-vis the judiciary and the government. The source of reform in Indonesia thus comes from both the media and civil society, which will be extremely important for reforms to continue.

Author Bio:
Todung Mulya Lubis is a Founder and Senior Partner of Lubis Santosa & Maramis, one of the leading law firms in Indonesia. He is also a Research Fellow in the Ash Center for Democratic Governance and Innovation at the Harvard Kennedy School. Dr. Lubis graduated from the Faculty of Law, University of Indonesia, and also completed law courses at the Institute of America and International Law in Dallas. He obtained master's degrees from University of California–Berkeley and Harvard University and also holds a Doctor of Judicial Science from the University of California–Berkeley.

Clouds Gather Over Indonesia

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Clouds  Gather Over Indonesia
Investors Fear That Contract Disputes, Nationalism Will Curb Access to Natural Resources
By Kathy Chu
And I Made Sentana

JAKARTA, Indonesia-Indonesia is struggling to contain rising con­ cern that contract disputes and nationalism could impede investors' access to its valuable stores of oil, gas and minerals.
European financier Nat Rothschild stepped down last month from the board of London-listed Bumi PLC after Indonesia's Bakrie fantily offered to buy the coal miner's Indonesian assets. U.K. based Churchill Mining PLC is locked in a battle with local authorities over a coal project in Borneo. Australia-listed mining company Intrepid Mines Ltd. says its employees were forced off a gold and copper exploration project by Indonesian investors. And four    employees of U.S.based Chevron Corp., which has been in Indonesia almost 90 years, have been jailed as the at torney general's office investigates possible corruption at a Sumatra environmental cleanup site.
"The issues are accumulating to that investing in Indonesia is not easy," says Dipnala Tamzil, executive director of the Indonesian Petroleum Association  trade group.
Business disputes can crop up in any country. And this archipelago of nearly 250 million people, with one of the world's fastest-growing econ­ omies in the world, has attracted    record foreign direct invesonent in recent quarters.
But Indonesia's recent incidents are fueling concern about regulatory transparency and predictability, says Andrew White, managing director of the American Chamber of commerce in Indonesia.

"The question is: How much more investment could Indonesia realize if it addresses these critical issues?" he says. ''There are tens of billions of dollars sitting on the sidelines." Chevron spakesman Alex Yelland says the company "regularly reviews its investment plans, and confidence in the legal and regulatory framework is a critical part" of any decision.

Indonesia's foreign direct investment rose to a record $5.9 billion in the third quarter, up 22% from a year earlier, a sign the country remains attractive to foreign investors because of its swelling middle class. Indonesia's palicies are "robustly supportive  of  a continuously  improving investment climate," says Indonesian Trade Minister Gita Wirjawan last month.

Yet while Indonesia ranks among the world's top 10 countries in mineral POtential , it is among the bottom 10 as far as the effect of government policies on exploration, aecording to a survey late last year by Canadian think tank Fraser Institute  of about  800 mining-related companies. Indonesia, a former member of the Organization of the Petroleum Exporting Countries, has be a net importer of oil for years as its aging fields have yielded progressively less oil.

As the presidential election approaches in July 2014, there is alSo a "very nationalistic tone" to the country's mining regulations that could hurt foreign investment, says "Adam Worthington, an analyst with Macquarie Securities. Mr. Rothschild, the European financier, wrote in his resignation letter that the Bakrie family's offer to buy the coal miner's Indonesian assets was "obviouslY not in the Utterests  of minority shareholders and the "vast majority of indonesian business people are shocked by the appalling impression" that the dispute gave to foreign investors. The Bakries declined  to comment.

Indonesia has introduced new restrictions on .foreign ownership  of mines and is renegotiating mining royalty rates with major foreign investors. Some investors view the government's  actions as nationalistic, and "maybe there's,some  truth to it,"says Muhamad Chatib Basri, chairman of Indonesia's Investment Coordinating Board. But Indonesia needs to diversify from its reliance on natural-resource mining, so must encourage companies to move to higher value services, according to Mr. Basri. Only a quarter of the companies in the American Chamber of Commerce's most recent pall said they planned to expand in Indonesia, compared with 72% last year and 69% in 2010. The latest survey, of 356 chamber members in seven Southeast Asian countries. was conducted between June 15 and July 3.

While the reason for this year's drop wasn't clear, corruption, infrastructure, protectionism and government regulations consistently rank as top concerns for chamber members, Mr. White
says. Whether contracts in Indonesia will be honored also is key, he says. Churchill Mining is pursuing its claims on the Borneo coal project through arbitration at the International Centre for Settlement of Investment Disputes in Washington. Intrepid Mines alleges that its Indonesia partner,  PT Indo Multi Niaga, breached their contract by selling a stake in the gold and copper exploration project. "This episode, and others in Indonesia recently, have demonstrated that so,me elements of the business community believe they can act unlawfully with impunity," says Intrepid Chief Executive Brad Gordon.

Indo  Multi  Niaga  declined  to comment. And  Mr. Wirjawan,  the  Indonesian trade minister, calls the Bumi struggle a "corporate issue." Meanwhile,   the   Chevron   employee  arrests  could  set a "new precedent" for the oil and gas industry, says the petroleum association's Mr. Tamzil, because production sharing contracts say dlsputes should be resolved through civil not criminal law. The  Indonesian   attorney  general's office aJleges Chevron's cleanup project was "fictional" and cost the country $23.4 million be cause oil drilling related waste wasn't removed from the soil.

Chevron's Mr. Yelland says the project was approved by the government and has rehabilitated enough soil for 75 football fields. The U.S. company requires employees to commit to a "stringent" code of conduct, he says.

Todung Mulya Lubis, a lawyer for the Chevron workers, says the project was conducted by the rules and proof submitted to the attorney general's office.

Eric Bellman
and Joko Hariyanto
contributed to this article

 

Kejagung & Chevron Setelah Praperadilan

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Senin, 18 Februari 2013
 
GRESNEWS - Ngotot-ngototan terjadi dalam proses hukum kasus dugaan korupsi proyek bioremediasi PT. Chevron Pacific Indonesia (CPI). Pihak mantan General Manager Sumatera Light South (SLS) PT CPI Bachtiar Abdul Fatah berkukuh akan melakukan semua upaya hukum agar Kejaksaan Agung mematuhi putusan praperadilan Pengadilan Negeri Jakarta Selatan yang memutuskan bahwa penetapan tersangka dan penahanan Bachtiar tidak sah. Sementara Kejagung akan mengadakan perlawanan terus sambil menunggu putusan Mahkamah Agung.
 
"Kita sampai saat ini masih menunggu putusan MA terkait (kasus) Bachtiar," kata Kepala Pusat Penerangan Hukum Kejagung Setia Untung Arimuladi kepada Gresnews.com di Jakarta, Senin (18/2).
 
Menanggapi respons 'liat' dari Kejagung itu, Maqdir Ismail, kuasa hukum Bachtiar, mengatakan pihaknya akan terus melakukan langkah-langkah hukum karena PN Jakarta Selatan telah memutuskan penetapan tersangka Bachtiar tidak sah. "Selain itu penahanan keempat tersangka kasus Chevron tak berdasar hukum tetapi bisa ditafsirkan bahwa keseluruhan penyidikan kasus dugaan korupsi bioremediasi itu tak berdasar," kata Maqdir kepada Gresnews.com, Senin (18/2).
 
Maqdir menuding Kejagung jelas-jelas melanggar atau tidak mematuhi putusan PN Jakarta Selatan. "Jadi waktu itu kita dapat panggilan (Kejagung) untuk (pemeriksaan) Bachtiar, tapi kami tidak datang dan kami kirimkan surat penolakan, karena pemanggilan yang dilakukan Kejagung tidak ada dasar hukumnya karena penetapan tersangkanya diputuskan tidak sah oleh Pengadilan Jaksel," katanya.
 
Jika Kejagung ngotot menjemput paksa Bachtiar, kata Maqdir, pihaknya akan melakukan langkah hukum. "Kita akan gugat ke pengadilan atau laporkan ke polisi karena menahan orang tanpa ada dasar hukumnya itu merupakan tindak pidana. Kejaksaan Agung harus menaati putusan praperadilan, jangan menggertak-gertak dengan cara seperti ini, melaporkan ke MA lah," ujar Maqdir.
 
Kepala Biro Hukum dan Humas MA Ridwan Mansyur belum menjawab panggilan telepon dan SMS Gresnews.com, Senin (18/2).
Ya, Kejagung memang sebelumnya meminta MA untuk menanggapi laporan dugaan pelanggaran kode etik hakim PN Jaksel Suko Harsono yang memutuskan penetapan penahanan dan penetapan tersangka kasus Chevron tidak sah.
 
Pada 10 Januari 2013, kantor Lubis-Santosa-Maramis melayangkan surat kepada Ketua MA Hatta Ali yang intinya mohon perhatian dan perlindungan hukum sehubungan dengan pendapat Kejaksaan Agung atas putusan Praperadilan No.38/Pid.Prap/2012/PN.Jkt-Sel tanggal 27 November 2012. Mereka bertindak untuk dan atas nama Bachtiar Abdul Fatah.
 
Dalam surat itu disebutkan bahwa tidak adanya upaya hukum untuk melawan putusan praperadilan telah diatur dalam Pasal 83 Ayat (1) KUHAP dan Keputusan Mahkamah Konstitusi Nomor 65/PUU-IX/2011 yang menyatakan inkonstitusional dan tidak mempunyai kekuatan hukum tetap Pasal 83 Ayat (2) KUHAP.
 
Upaya selanjutnya, pada 12 Februari 2013, dikirimkan juga surat kepada Komisi Yudisial yang pada pokoknya meminta perhatian atas kemungkinan upaya Kejagung sehubungan dengan putusan praperadilan.
Dimintai pendapatnya, Pakar Hukum Pidana Chairul Huda mengatakan kalau berbicara tidak sah penahanan tapi perkaranya tetap bisa dilanjutkan karena penahanan merupakan cara bagi penyidik untuk mendapatkan bukti-bukti.
 
"Sekarang perkaranya sudah digelar di pengadilan, itu sudah menjadi kewenangan hakim, apabila kejaksaan Agung tetap ingin melakukan penahanan (pada terdakwa kasus ini) itu sama saja tindakan melawan hukum bisa dibilang merampas kemerdekaan seseorang," katanya kepada Gresnews.com, Senin (18/2).
 
Perkara korupsi ini berawal ketika Kejagung mengusut dugaan korupsi pada proyek bioremediasi yang dilakukan Chevron di Riau, Sumatera bersama dua kontraktor. Kejagung menduga proyek itu fiktif sehingga merugikan negara Rp200 miliar berupa dana cost recovery. Penyidikan dimulai Maret 2012.
 
Bioremediasi adalah metode untuk membersihkan tanah yang terkena limbah produksi minyak dengan menggunakan mikroba. Selama 3-6 bulan, mikroba itu dengan metabolismenya mengubah senyawa minyak menjadi senyawa air dan gas tidak beracun.
 
Chevron telah memulai proses ini sejak tahun 1994. Dimulai dengan uji laboratorium. Chevron memiliki sembilan fasilitas bioremediasi yang berada di wilayah Minas, kawasan Duri, serta ladang minyak lain di wilayah Riau. Proses bioremediasi ini dioperasikan penuh sejak tahun 2003. Selanjutnya, proses ini ditenderkan kepada perusahaan PT Green Planet Indonesia dan PT Sumigita Jaya. Pada tahun 2006 proyek ini diklaim fiktif. Karena perusahaan subkontraktor (PT Green Planet Indonesia dan PT Sumigita Jaya), pelaksana proyek ini, hanyalah kontraktor umum. Padahal, PT Chevron telah mengklaim biaya bioremediasi kepada pemerintah Indonesia melalui BP Migas sejak tahun 2003.
 
Kempat pegawai Chevron yang menjadi tersangka dalam kasus dugaan tindak pidana korupsi pada proyek bioremediasi di Chevron mengajukan gugatan praperadilan, gugatan ini dilaksanakan di PN Jakarta Selatan. Dalam putusannya, hakim mengabulkan sebagian permohonan keempat tersangka tersebut. Hakim menyebutkan, penahanan dan penetapan tersangka yang dilakukan oleh Kejagung tidak sah, karena tidak memenuhi bukti permulaan yang cukup.
 
Keempat pegawai Chevron tersebut adalah Manajer Lingkungan Sumatera Light North (SLN) dan Sumatera Light South (SLS) Endah Rumbiyanti, Team Leader SLN Kabupaten Duri Propinsi Riau Widodo, Team Leader SLS Migas Kukuh Kertasafari, dan General Manager SLS Operation Bachtiar Abdul Fatah. Keempatnya telah dibebaskan dari tahanan.
 
 
Reporter : Alan Jhon

LSM, Nama Beken Todung Jadi Andalan

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Bisnis Indonesia Page 11, October 16, 2012

JAKARTA-Panduan tahunan International Financial Law Review atau IFLR1000, yang dimulai sejak 1990, memberikan gambaran peringkat firma hukum bagi pelaku bisnis internasional. Panduan ini mencakup 120 yurisdiksi termasuk Indonesia.

IFLR melakukan riset untuk menentukan firma hukum papan atas di Indonesia.
Penelitian dilakukan berdasarkan wawancara dengan firma hukum, kemudian meminta mereka memberikan pendapatnya tentang tren di pasar saat ini.

Selain itu, IFLR melakukan wawancara dengan klien firma hukum dan akhirnya menetapkan 20 firma hukum masuk papan atas versi IFLR. Tulisan ke-20 kali ini mengenai Lubis Santosa & Maramis Law firm (LSM)

Nama beken Todung Mulya Lubis boleh jadi salah satu claya tarik kantor hukum Lubis, Santoso & Maramis (sebelumnya Lubis Santosa & Maulana).

Meski begitu, tentu bukan alasan utama IFLR1000 edisi tahun ini memasukkan nama Lubis, Santoso & Maramis (LSM) law firm dalam rekomendasi untuk area praktik restrukturisasi dan kepailitan.

"Kami mempertahankan hubungan (dengan klien) melalui komitmen yang kuat untuk memberikan nilai tambah dan keuntungan strategis kepada klien,” kata kantor hukum itu dalam website resminya.

Setelah menamatkan pendidikan di Fakultas Hukum Universitas Indonesia, dia meneruskan ke University of California pada 1978 and Harvard University in  1987, kemudian menyelesaikan pendidikan doktor di University of California.

Kantor hukum ini didirikan Todung bersama rekannya pada 1986. Kantor hukum ini bergerak pada tiga kelompok utama, korporasi dan komersial, kekayaan intelektual, dan penyelesaian sengketa.

Arbiter ICC
Todung adalah panel arbiter Dewan Arbitrase Nasional Indonesia (Badan Arbitrase Nasional Indonesia/BANI) dan Chambers of Commerce Internasional (ICC) Paris. Dia juga aktif sebagai dosen di beberapa universitas di Indonesia.

Dia pernah menjadi kuasa hukum ConocoPhillips (Grissik) Ltd., melawan Badan Pengatur Hilir, Minyak dan Gas Bumi dalam perkara pembatalan Surat keputusan tentang penetapan penyesuaian tarif pengangkutan gas bumi melalui pipa pada ruas transmisi Grissik-batas Negara Singapura.

Nama partner lain adalah Lelyana Santosa yang memimpin praktik resolusi sengketa LSM.
Lulus dari Fakultas Hukum Universites Padjadjaran pada 1980, perempuan ini kemudian mengikuti kursus soal transaksi realestat di Osgoode Hall Law School, York University, Canada.

Dia ditugaskan dalam membela kepentingan klien, seperti PT INCO, Bank Multicor, PT Apac Inti Corpora, Total E&P Indonesia, Citibank, NA, Halliburton, Diebold Inc, PT Diebold Indonesia, P&G, PT Asuransi Hanjin Korindo, PT Nestle, dan lain-lain.
Lelyana juga secara intensif terlibat dalam kasus besar dari perusahaan yang melibatkan isu-isu hukum media, seperti mewakili Time Inc, Asian Wall Street Journal, Majalah Matra dan Majalah Tempo.

Teguh Irianto Maramis adalah mitra lainnya, yang praktik utamanya di bidang korporasi dan komersial perusahaan. Pria yang pernah mengenyam pendidikan di UI dan Universitas Leiden ini banyak membantu klien luar negeri dan lokal.

Nama-nama perusahaan yang pernah menjadi kliennya antara lain PT Indosat Tbk, Flame SA, PT
Telkomsel, Intercontinental Hotels, PT Nusantara Infrastructure Tbk, PT Garuda Indonesia, dan Reckitt Benckiser.

Sementara itu, Hesti Setyowati adalah partner di bidang praktik penyelesaian sengketa LSM.
Lulusan UI dan Leiden pernah bekerja di Pusat Studi Hukum dan Kebijakan Indonesia.

Perempuan ini adalah anggota dari tim hukum yang ditugaskan mewakili Morgan Stanley & Co
Incorporated dan Credit Suisse, dalam klaim gugatan yang diajukan oleh PT Indah Kiat Pulp & Paper dan PT Lontar Papyrus Pulp & Paper.

Dalam bidang kepailitan, LSM beberapa kali membela kliennya di pengadilan niaga, baik untuk proses kebangkrutan serta mewakili klien dalam mengklaim hak-hak mereka atas harta pailit perusahaan yang dinyatakan bangkrut.

Technical Guidance on The Establisment of Franchise System

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TECHNICAL GUIDANCE ON THE ESTABLISHMENT OF FRANCHISE SYSTEM

Our Senior Associate, Dr. Julius I.D. Singara, together with Ir. Abdul Kadir Damanik, M.M. (Assistant Deputy for Partnerships and Business Networks), Burang Riady, M.B.A. (Partner at the International Franchise Business Management) and Ir. H. Tamba, M.B.A. (Director of Business Development of Rotating Fund Management Board), have received inquiries from the Ministry of the Cooperative and Small and Medium Enterprises (“Kemenkop”) to participate in the Technical Guidance on the Establishment of Franchise System (“Bimtek”) which was held on 4th September 2012 at the Madani Medan Hotel in Medan (North Sumatera) and attended by micro-, small-, and medium-scale enterprises (“UMKM”).

In such Bimtek, Dr. Julius I.D. Singara was assigned by Kemenkop to explain the legal aspect of franchise under the prevailing laws and regulations in Indonesia.       Such technical guidance might be the first socialization of the new franchise regulation, namely Regulation of Minister of Trade Number 53/M-DAG/PER/8/2012 regarding the Establishment of Franchise (“MOT Regulation No. 53/2012”) which replaced Regulation of Minister of Trade Number 31/M-DAG/PER/8/2008 regarding the Establishment of Franchise (“MOT Regulation No. 31/2008”). The principle points explained by Dr. Julius I.D. Singara to the UMKM, are as follows:

1.  Legal Basis. The franchise business in Indonesia is regulated under:

  1. Law Number 20 Year 2008 regarding Micro-, Small-, and Medium-scale Enterprises  (“UMKM Law”);
  2. Government Regulation Number 42 Year 2007 regarding Franchising   (“GR No. 42/2007”); and
  3. MOT Regulation No. 53/2012.

2.  Criteria. To be considered as a franchise, a business shall meet the 6 (six) criteria as set    forth in Article 3 of GR No. 42/2007 in conjunction with Article 2, paragraph (1), of MOT Regulation No. 53/2012, namely:

  1. Shall possess business special characteristics;
  2. Shall be proven to have generated profits;
  3. Shall have the standards for the services and goods and/or other services offered made in writing;
  4. Shall be easy to be studied/taught and applied;
  5. There is sustainable support; and
  6. There are registered Intellectual Property Rights.

An individual person or business entity shall be prohibited to use the terms and/or name of the franchising for the name and/or activities of their business, if they fail to fulfill the above criteria (Article 2, paragraph (2), of MOT Regulation No. 53/2012). Failure to comply with such provision, such person or business entity shall be subject to penalties as regulated in the Indonesian prevailing laws and regulations (Article 34 of MOT Regulation No. 53/2008).

3. Registration of Prospectus. The Foreign Franchisor, Domestic Franchisor, Subsequent Franchisor from Foreign Franchisor, and Subsequent Franchisor from Domestic Franchisor (hereinafter, shall collectively be referred to as the “Franchisor”) shall obtain a Certificate of Franchising Registration (“STPW”) by filing registration for Prospectus of Franchising Offering (“Prospectus”) to the Office of Commercial Services at the Directorate of Business Development and Company Registration (Article 10, paragraph (1), of GR No. 42/2007 in conjunction with Article 9 of MOT Regulation No. 53/2012). However, in order to obtain the STPW, the Franchisor shall prove that its business activities are successful and profitable for a period of at least 5 (years) which are proven by financial statement audited by public accountant in the last 2 (two) years (the obligation for using the public accountant does not apply to the micro and small enterprises).

Subsequently, no later than 2 (two) days as of the receipt of application letter for STPW and required documents in complete and accurate manners, the official will issue STPW which is valid for 5 (five) years and may be extended for the same period (Article 12, paragraphs (5) and (6), of GR No. 42/2007 in conjunction with Article 14 in conjunction with Article 17, paragraphs (1) and (2), of MOT Regulation No. 53/2012). Further, the Franchisor shall provide a Prospectus to prospective Franchisee minimum 2 (two) weeks prior to the signing of Franchising Agreement (Article 4, paragraph (1), of MOT Regulation No. 53/2012).

4. Registration of Franchise Agreement. Foreign Franchisee shall be obliged to obtain the STPW by filing registration for Franchise Agreement to the Office of Commercial Services at the Directorate of Business Development and Company Registration, while Domestic Franchisee, Subsequent Franchisee from Foreign Franchisee and Subsequent Franchisee from Domestic Franchisee (hereinafter, shall collectively be referred to as the “Franchisee”), shall hold the STPW issued by the Offices in Charge of Trade of DKI Jakarta or Local Regency/Municipality (Article 11 of GR No. 42/2007 in conjunction with Article 10 of MOT Regulation No. 53/2012). Further, in order to be registered, the Franchise Agreement shall contain, at least, a number of clauses specified in Article 5 of GR No. 42/2007 in conjunction with Article 5, paragraph (2), of MOT Regulation No. 53/2012.

Subsequently, no later than 2 (two) days as of the receipt of application letter for STPW and required documents in complete and accurate manners, the official will issue STPW which is valid for 5 (five) years and may be extended for the same period (Article 12, paragraphs (5) and (6), of GR No. 42/2007 in conjunction with Article 14 in conjunction with Article 17, paragraphs (1) and (2), of MOT Regulation No. 53/2012).

5. Franchise Logo. Franchisor and Franchisee which already hold the STPW, shall use the Franchise Logo. Further provisions regarding the Franchise Logo shall be governed in a separate MOT Regulation (Article 18 of MOT Regulation No. 53/2012).

6. Franchisor and Franchisee Relationship. Franchisor cannot appoint Franchisee that is directly or indirectly controlled by Franchisor (Article 7 of MOT Regulation No. 53/2012).

7. Unilateral Termination. In the event of the Franchise Agreement being unilaterally terminated by Franchisor prior to the lapse of the Franchise Agreement, Franchisor shall not be able to appoint a new Franchisee covering the same area, prior to the achievement of dispute resolution by both parties (clean break) or until the issuance of a binding court decision (Article 8 of MOT Regulation No. 53/2012)

8. Obligation to carry out the business in accordance with the business permit. As stipulated in Article 21 of MOT Regulation No. 53/2012, Franchisor and Franchisee shall only be permitted to carry out business activities as per the business license held. In this matter, Franchisor and Franchisee may sell goods that support the principal business in as many as 10% of the total types of goods sold.

9. Local Content. Franchisor and Franchisee shall be obligated to use raw materials, business equipment and sell goods in no less than 80% of the goods and/or services that are produced domestically, unless permitted otherwise by MOT (Article 19 of MOT Regulation No. 53/2012).

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