Reed Smith Client Alerts

Authors: Marjorie C. Holmes Paul Alfieri

On July 9, within just a few hours of the polls closing in the tightly contested presidential election in the world’s third-largest democracy – the Republic of Indonesia – the only two contestants running had claimed victory. Nearly 200 million people in the world’s fourth-largest country had turned out to vote for either the current Jakarta Governor Joko “Jokowi” Widodo or former military general Prabowo Subianto. Despite seven of the independently run “Quick Count” exit polls indicating that Jokowi had won the election by a margin of roughly 3 percent to 5 percent, Prabowo declared victory of his own citing three Quick Count results that supported his own victory by narrower margins.

Following both contestants' claim to winning the presidency, the current president, Susilo Bambang Yudhoyono, quickly made a televised appeal for self-restraint from supporters on both sides, in order to prevent street clashes. He asked that the people show restraint and allow the National Elections Committee (Komisi Pemilihan Umum, or KPU) to review the voting results and make a formal decision of the winner.

What happens next? The Law on National Elections requires the KPU to announce the results of the presidential election within 14 days of the election; most experts expect the KPU to make an official announcement of a winner July 22.

Within three days of any official decision from the KPU, the losing party can, thereafter, file a challenge of the KPU’s decision with the Constitutional Court. The Constitutional Court then has 30 days to review the election results and either affirm or overturn the KPU’s decision. The Constitutional Court’s decision is thereafter final.

Regardless of the KPU decision and any challenge before the Constitutional Courts, security consultants in Indonesia are expecting protests.

Should the KPU confirm Jokowi the winner, Prabowo supporters will inevitably challenge the decision in the Constitutional Court, as well as take to the streets to formally protest the decision.

Likewise, if the KPU finds that Prabowo is the winner, Jokowi’s supporters are expected to file a protest with the Constitutional Court and take to the streets. In this scenario, Jokowi’s supporters are expected to be more vocal and aggressive, given the Quick Counts were overwhelmingly in favor of Jokowi.

Despite rumors in Jakarta that one party has control of the military, the information we are receiving from reliable security consultants in Indonesia is that the military itself is neutral. The military has, however, indicated that it is ready to suppress any civil unrest should it occur.

July 22, 2014 While the KPU tallies the vote, both sides are stacking up for a victory. One side will inevitably be disappointed. Given that both sides have ties to the various street groups that have in the past shown willingness to use violence, the intelligence community in Jakarta is indicating that there could be a significant risk of civil unrest in the hours and days after the results are issued from the KPU. Given that the Constitutional Court has been under severe scrutiny since the former chief justice was very recently convicted of corruption charges in relation to bribes taken in election dispute cases, calls from the Constitutional Court to wait for a decision are unlikely to quell violent public protests. That said, folks in Jakarta are hopeful that the holy month of Ramadan will suppress violence. Ramadan will, however, end in July, and a decision from the Constitutional Court – the final decision – would be expected at the end of August, which may just delay the inevitable.

Regardless of the ultimate result and reaction from the Indonesian public, it is a good idea for your company to review and make sure your employees have both personal and commercial risk management contingency plans in place. If one is not in place already, developing an effective risk management plan will help mitigate possible safety issues that could impact your employees and your company’s business should a situation arise.

Develop a plan – review the contents of your contracts Developing a risk management plan is a straightforward exercise – discuss internally what could happen to your personnel and how your business could be affected. Preparing a ‘worst case scenario’ and how to address this situation will help to mitigate any losses that occur – even head them off, if possible. Understanding what your contracts have called for in relation to notice periods and defining force majeure events will be invaluable. Typical force majeure events often include periods of civil unrest.

Working locally with security consultants is important as well – to understand the safety issues in your work environment. In many cases in Indonesia, you will find you are working with your local government officials, police or military in these safety and security issues. It is not uncommon, for example, to be paying for these services as well. For international companies with ties to the United States, making payments to government officials often raises Foreign Corrupt Practice Act (FCPA) risk. As a general matter, the FCPA prohibits providing anything of value to a foreign official in order to improperly influence the official, or in order to secure an improper advantage. In addition, the FCPA requires U.S. issuers to keep accurate books and records, and to maintain an adequate system of internal accounting controls. Violations of the FCPA can carry criminal and/or civil penalties, including significant fines. Thus, it is important to speak to your local representatives to understand what dealings your company has with the local government officials, and to consult with in house or outside U.S. legal counsel to make sure that your company complies with the FCPA.

Idul Fitri (Eid al-Fitr) Gift Giving Regardless of what happens July 22, Idul Fitri – the end of the holy month of Ramadan festivities – is also right around the corner. This year’s celebrations are currently estimated to start July 28. With Idul Fitri come the traditional gift-giving culture as well.

While Indonesian regulations generally prohibit the giving of gifts to government officials, gift giving is an established part of culture and gifts are still given. Often, in practice, gifts are given at the request of government officials themselves. Given Indonesia’s non-confrontational culture, it is frequently difficult to say no to these requests – and sometimes just saying no can cause ‘loss of face’ that could destroy an otherwise important relationship. As a result, gifts are often given by local employees but not reported. While the Indonesian officials themselves may be relaxed to gift giving during the holiday season, the FCPA may prohibit the gift depending upon various factors such as the value of the gift, the purpose of the gift, whether it was accurately booked and, whether the company had adequate internal controls and policies relating to gifts. Not all gifts are illegal, however, and provided an accounting is made and the gift is reasonable under the circumstances, a gift can still be given to preserve these important cultural traditions. Speak to your local representatives to find out more about what is being done – understand the local culture and step in to mitigate any potential liabilities you could have back in the United States or in Indonesia. Having effective company gift-giving policies in place, and reviewing them at this time of year, are important to mitigating risk as well.


Client Alert 2014-194