Cartel Activities in Indonesia: The Role of Indirect Evidence in Proving Illegal Cartel Activities

A. Introduction

Laws regulating business competition are needed to ensure that freedom of competition in the economy can take place without hindrance and on the other hand also functions as signs to guard against unhealthy economic practices. Those became background to the creation of Law Number 5 of 1999 concerning the Prohibition of Monopolistic Practices and Unfair Business Competition (“Law 5/1999”), which regulates several provisions, among other, provision on prohibited agreements, prohibited activities, dominant positions, and the role of Business Competition Supervisory Commission (“KPPU”). 

In terms of prohibited agreement, the types of agreement prohibited under Law 5/1999 are outlined in Articles 4 to 14, and one of them is provision on cartel practice. Referring to the Chapter I of KPPU Regulation Number 4 of 2010 on Cartels, a cartel is understood as cooperation among competing companies to coordinate their activities to control volume of production as well as price of goods and/or services to obtain profits above reasonable level.

The enactment of Law 5/1999 in Indonesia established a legal foundation to fighting cartel practice. Despite this, various challenges in its enforcement are often encountered. The issues such as limited resources, difficulties in evidence collection, a lack of public awareness, understanding of business competition law, and resistance from a large business with significant influence are prevalent. Among any prohibited agreements, cartels are frequently engaged in by business entities.¹

Referring to Article 11 of Law 5/1999 that explicitly regulates cartels practice in Indonesia, it can be concluded that cartels are regulated by a “Rule of Reason” approach. The rule of reason can be identified in the formulation of particular article containing the phrases “which may result in” and/or “reasonably suspected”. This means that the approach emphasizes the consequences of the result from the cartels practice, especially whether those activities result in shaping the market structure, which may lead to monopoly practices and/or unfair business competition. Therefore, cartel practice may not necessarily be prohibited, and further assessment is required to determine whether a cartel practice results in monopoly and/or unfair competition. 

The implication of rule of reason in cartel provision is that, to prove whether an activity qualifies as a cartel, further evidence, and examination by the KPPU is required to determine whether the activity leads to monopoly practices that hinder business competition or otherwise, and whether the reason provided by the business entities that perform the activity are reasonable. The terms ‘reasonable’ is referred to a reasonable restraint, or reasons why business entities engaged in cartel activity might be acceptable.²  Another justifiable reason may also be due to reasonable necessity, or defined as the actions that reasonably need to be taken by the cartel participants, or that no other options left for the business entities to sustain their business. Thus, KPPU must be able to prove that the reasons provided by the business entities are unreasonable³, in order to determine that a particular cartel practice is a prohibited one.

An investigation on cartel practice might be conducted by two types of evidence: direct evidence and indirect evidence. Direct evidence is defined as evidence that directly shows the existence of a cartel practice, while the indirect evidence, on the other hand, can indirectly indicates the presence of a cartel⁴. Both types of evidence are considered by KPPU and the judging panel when deciding on violations by business actors. In this writing, the author will emphasize on indirect evidence and its implementation in cases by KPPU.

B. Discussion

B.1 How Business Entities Conduct Cartel Practices
Prohibited agreement is essentially binding commitment, whether formally made (written) and informally made (unwritten), among business entities who should have been competing, but instead forming a type of coordination that regulates prices, quotas, and/or market allocation⁵. The impact is clearly disadvantageous to consumers. Production control may cause a quantity of product to become limited, leading to irregular distribution of the product, resulting in rise of the product’s price. In other words, this production restriction is deliberately carried out solely to increase price and maximize profits for the cartel participants.

The practice described above will become increasingly difficult to carry out effectively if there are many business actors in the market. Cartels can be easily formed and operate effectively if the number of business entities in the market are few, or the market is concentrated. Similarly, for the products, if the products are homogeneous, then cartel practices will operate more smoothly, unlike if the products are heterogeneous, which means there are other product options available for consumers to choose from.

B.2 Evidence Used in Proving Cartel Practice in Indonesia

To prove the existence of cartel, in Article 11 Law 5/1999 requires the fulfilment of certain elements of an agreement to be classified as a cartel. Besides the fulfilment of the elements in the agreement between business entities, indications of an established cartel must be proven by using evidence.

The types of evidence recognized in proving the violations in monopoly practices and/or unfair business competition are essentially regulated by Article 42 Law 5/1999, which states that such evidence may include:

1. witness testimony; 
2. letters and/or documents; 
3. indicative evidence; and 
4. business operator statements. 

However, as the time progress, KPPU determines that the existence of cartel can also be established through indirect evidence, even though Law 5/1999 does not mention or regulate indirect evidence. In regard to indirect evidence, the only mention of indirect evidence is set out in KPPU Regulation No. 4 Tahun 2010 concerning Cartel (“Perkom No. 4/2010”) chapter I page 11, stating that indirect evidence is developed due to business entity’s tendency to exclude themselves from obvious evidences such as regular meeting, an agreement, and other things which tend to be used as evidences on law enforcement. Indirect evidence could be derived from economic analysis which may prove correlation between economic fact with another economic fact, forming comprehensive evidence on cartel’s existence as well as identification of harmful economic impact upon society. 

As further observed, a loose definition of indirect evidence on the aforementioned paragraph, bears similarity to the definition of indicative evidence. The definition of indicative evidence is expressly defined in KPPU Regulation Number 1 of 2019 concerning the Procedures for Handling Monopoly Practice and Unfair Business Competition Cases (“Perkom No. 1/2019”), in which Article 57 paragraph (1) defines as such: ‘an action, event or situation, which due to its compatibility of both one to another, or either due to an agreement and/or illicit action and/or an abuse of dominant position in accordance to the Law, implying an existence of an agreement and/or illicit action and/or abuse of dominant position and the perpetrator”.

Further detail on indicative evidence is regulated in Article 57 paragraph (2), stating “the indicative evidence referred to paragraph (1) can include economic evidence and/or communication evidence, which by the Commission Panel considers to be true”. While Article 57 paragraph (3) further describes, “economic evidence itself is defined as the use of economic theories supported by the quantitative and/or qualitative data analysis methods and result of the analysis from the expert, all aimed at supporting the allegation of monopoly practice and/or unfair business competition⁶”. Meanwhile, paragraph (4) defines the communication evidence as the use of data and/or documents that shows an exchange of information between business entities which suspected of engaging in monopoly practice and/or unfair business competition⁷. Furthermore, the examples from the economic evidence include parallel pricing, price signalling, production reduction, and others. On the other hand, some examples of communication evidence are telephone recording evidence, evidence of certain employees from several companies travelling to the same destination, and evidence that several companies were present at the same place/meeting. Communication plays a crucial role among business entities to the extent that such communication can be indicated as a forum for the formation of cartel⁸. 

B.3 Example of Cartel Cases Proven Using Indirect Evidence

Examples of KPPU using indirect evidence in its investigation could be seen in cases example below:

B.3.1. KPPU Decision Number 24/KPPU-I/2009 regarding Cartel in the Cooking Oil Industry .

Referring to the Cartel in the Cooking Oil Industry case, KPPU claimed a particular cartel practice resulted in losses suffered by the community of at least IDR 1,270,000,000,000.00 for branded packaged cooking oil products and IDR 374,300,000,000.00 for bulk cooking oil products. In its evidence, apart from using direct evidence as proof, the KPPU also uses indirect evidence, which are economic and communication evidence. 

The Commission Council attempted to prove the existence of a cartel by using indirect evidence in this case as follow:

1. By evidence of communication: which in the form of meetings and communications between competitors on 29 February 2008 even though there was no substance to the meeting, and the meeting on 9 February 2009 which discussed prices, production capacity, and production cost structure. 
2. By economic evidence, namely structure and behaviour. In this case, the cooking oil industry, both bulk and packaged, has a market structure that is concentrated in a few business entities or an oligopoly. Evidence of behaviour can be seen from the existence of price parallelism. 
3. By facilitating practice, carried out through price signalling in promotional activities at different times as well as meetings or communication between competitors through associations.

At district court level, by decision No. 03/KPPU/2010/PN.Jkt.Pst, the Panel of Judge determined that the cartel practice was not proven. In its consideration, the Panel of Judge determined that indirect evidence used by KPPU could not be used to rule on competition law in Indonesia as Article 164 HIR and Article 184 KUHAP does not recognize indirect evidence. The Panel of Judges in their considerations stated that evidence cannot be based on assumptions, theories, conjectures, interpretations or interpretations alone. Meanwhile, indirect evidence in the a quo case is based on economic theory and doctrines, hence it cannot be used as evidence. This is also supported by expert information, Prof. Erman Rajagukguk stated in essence that indirect evidence cannot be equated with indicative evidence and is not recognized in proving business competition as stated in Article 42 of Law 5/1999.

This is strengthened by the consideration of judex juris, which states that the application of the indirect evidence system is not the same as indicative evidence, because instructions must be obtained from witness statements, letters or statements from the business actor/reported party, while indirect evidence is obtained from conjecture, interpretation or interpretation, logic and assumptions. Therefore, through Supreme Court Decision No. 582 K/Pdt.Sus/2011, the Supreme Court strengthens the decision of the the District Court.

B.3.2. KPPU Decision Number 05/KPPU-I/2013 regarding Cartel in Garlic Importation.
In contrast, referring to the Cartel in Garlic Importation case, KPPU suspects that there was a deliberate scarcity of garlic. KPPU found that there was cooperation between importers, both directly and indirectly, by using the same party in processing the Import Approval Letter (“SPI”) document and

in extending the SPI issued by the Ministry of Trade of the Republic of Indonesia, as well as cooperation between business actors who still had family relationship, hence it is strongly suspected that there has been an affiliation, either directly or indirectly, between the garlic importing business actors. in this case, judex facti and judex juris have different opinions. In this case, judex facti through court decision number 2/Pdt.Sus-KPPU/2015/PN.Jkt.Utr, in its consideration stated that in the evidence law, indirect evidence cannot stand alone as main evidence, but it is just supporting and strengthens other evidence originating from witness statements, letters, or statements from the business actors.

However, the Supreme Court annulled the District Court decision through Supreme Court Decision Number 1495K/Pdt.Sus-KPPU/2017 on the grounds that indirect evidence with evidence is in the form of a conspiracy where business actors enter into a silent agreement which is then followed by behaviour that adapts to each other (concerted action), can be used as sufficient evidence to prove the occurrence of prohibited cartel practices. The case resulting to 19 business actors together with the Director General of Foreign Trade, Ministry of Trade of the Republic of Indonesia were found guilty.

C. Conclusion

Cartels are basically a group of business entities that work together to control or setting the supply and price of a product, rather than competing healthy with each other. Cartels involves agreements to control price, limit production, or divide markets among themselves. Such agreements are often made silently amongst the cartel performers. Article 11 Law 5/1999 follows the principle the rule of reason, meaning that an indication of cartel practice must be assessed whether such practices or activities result in monopoly and/or unfair business competition, or otherwise. Article 42 Law 5/1999 provides clear stipulation on what kind of evidence could be used as formal evidences. Even though it is not regulated, KPPU develops indirect evidence as evidence to prove existence of cartel as business actors tends to avoid clear indication of cartel behaviour such as no regular meeting and no written agreement.

KPPU provides loose definition of indirect evidence as an economic analysis which may prove correlation between economic fact with another economic fact, forming comprehensive evidence on cartel’s existence as well as identification of harmful economic impact upon society. It bears similarity with definition of indicative evidence as stipulated in Article 57 paragraph (1), paragraph (2), and (3) Law 5/1999. 

As observed in several cases of cartel practice in Indonesia, the use of evidence in proving cartel cases must be conducted according to the principles of evidentiary law both in Article 184 KUHAP, 164 HIR, and Article 42 Law 5/1999. However, in practice, indirect evidence will be considered through the interpretation of each Judging Panel at hearing to determine whether the evidence can be recognized as valid evidence or not according to positive law in Indonesia. As referring to the case of the cooking oil and garlic cartel, where the Panel of Judges had different opinions in assessing or viewing this indirect evidence.

1. Hukum Larangan Praktik Monopoli dan Persaingan Usaha Tidak Sehat di Indonesia, Drs. Suhasril, S.H., M.H. & Prof. Muhammad Taufik Makarao, S.H., M.H., Penerbit Ghalia Indonesia: 2010, page117 ↩︎
2. Bab IV Peraturan Komisi Pengawas Persaingan Usaha (“KPPU”) No. 4 Tahun 2010, KPPU, 2010. ↩︎
3.  Bab II Peraturan Komisi Pengawas Persaingan Usaha (“KPPU”) No. 4 Tahun 2010, KPPU, 2010. ↩︎
4. DAF/COMP/GF/WD(2006)41, “Roundtable on Prosecuting Cartels Without Direct Evidence of Agreement,” The Organization for Economic Cooperation and Development (“OECD”). ↩︎
5. ibid, page 116 ↩︎
6. Article 57 Number (3) Perkom No.1 of 2019 ↩︎
7. Article 57 Number (4) Perkom No. 1 of 2019 ↩︎
8. DAF/COMP/GF(2006)7, “Prosecuting Cartels without Direct Evidence of Agreement”, OECD. ↩︎