Indonesia's Presidential Draft Regulation on Legal Compliance: Implications for Effective Governance
Authors
In response to the need for a cohesive national legal system that aligns with Indonesia’s foundational principles of Pancasila and the 1945 Constitution, the Indonesian government is preparing Presidential Draft Regulation on Legal Compliance (“PR Draft on Legal Compliance”).
The draft introduces mechanisms to promote compliance awareness and evaluation for corporations, legal entities, and public organizations. By filling previous gaps in monitoring, it aims to establish an integrated compliance framework across all levels of governance.
Based on Article 6(f) of Presidential Regulation No. 155 of 2024 concerning the Ministry of Law, this draft provides the government with the authority to advance national legal development through the implementation of consistent compliance standard.
Regulation Evaluation
The PR Draft on Legal Compliance introduces a significant shift in how Indonesia aims to regulate corporate adherence to legal standards through mandatory annual legal audits for business and legal entities facilitated by certified legal auditors appointed either by the entity itself or by the Ministry of Law and Human Rights (“MOLHR”). This framework aims to address gaps in corporate legal adherence while building a more robust compliance culture across the private sector. The audits are designed to assess legal, structure, and culture, and compliance,[1] following a multi-step process that includes planning, data collection, analysis, reporting, and submission to relevant authorities, including the Minister.[2] By mandating annual audits, the draft promotes ongoing evaluations accountability rather than ad hoc legal reviews.[3]
While the PR Draft aims to strengthen compliance culture, it introduces operational and financial challenges, particularly for small and medium-sized enterprises (SMEs that may struggle with the added costs and bureaucratic complexities. posing potential delays to what is otherwise intended to be a straightforward compliance system. The need for certified auditors will increase expenses, and submitting audit findings to multiple government bodies may lead to delays. Despite these hurdles, the regulation seeks to improve regulatory adherence, especially in sectors with historically inconsistent compliance. The Draft’s success will largely depend on the forthcoming ministerial regulations that clarify enforcement, sanctions, and procedural guidelines, making the effectiveness of the regulation contingent on how well these mechanisms are implemented and streamlined.
Certification and Accreditation of Legal Professionals
The PR Draft on Legal Compliance introduces stringent legal audit requirements, focusing on the certification, registration, and accreditation of legal professionals, including legal auditors, paralegals, and legal consultants. MOLHR will have an authority over the standards and integrity of legal auditors, ensuring that only qualified professionals conduct the annual audits for legal entities. The draft also includes certification and registration requirements for paralegals providing advisory and support services, aiming to align their qualifications with those of licensed legal practitioners.
Article 9 of the PR Draft on Legal Compliance ↩︎
Article 12 of the PR Draft on Legal Compliance ↩︎
the PR Draft on Legal Compliance ensures that companies are regularly and consistently reviewed for legal compliance. Instead of only being reviewed sporadically or when issues arise, the yearly audits promote a structured and ongoing assessment process. This systematic approach helps to maintain a steady level of accountability and compliance, as entities must address any identified issues or risks on a regular basis, rather than allowing legal compliance to become a secondary concern until a problem surfaces ↩︎