Standards of integrity in the state-owned enterprises

Several standards of integrity are being implemented in SOEs, such as the SOE ministerial circular governing good corporate governance, prohibition of gratification, business transactions indicated of fraud, conflict of interest and the whistleblowing system.¹

In February 2020, the Ministry of SOEs began the implementation of ISO 37001 quality management standards on anti-bribery management systems in all SOEs,² including a code of conduct, whistleblowing system and conflict of interest guidelines. Two hundred SOE representatives attended. The Ministry of SOEs is responsible for implementing anti-bribery management systems in SOEs.

Challenges to effective commitment implementation
The implementation of ISO 37001 in Indonesia is still considered ineffective because it has no legal power and is not strictly enforced, even though the approach is incentive-based. The integrity of ISO auditor institutions is also difficult to monitor.³

Indonesian SOEs manage state assets totalling more than IDR8,000 trillion or equivalent of US$5.5 billion.⁴ Political actors used these resources as a source of campaign funds during elections.⁵ It remains to emerge because the system of supervision or internal control in SOEs is not well implemented.⁶ The recruitment system of SOEs’ boards of directors is frequently distorted by political interests and often ignores competence, so that it is difficult to avoid people with a lack of integrity.⁷

On the other hand, supervisory positions in SOEs, particularly those of commissioners, are not filled by professionals. The phenomenon of dual positions in the SOEs is widespread, so there a large risk of conflicts of interest occurring.⁸

Opportunities to accelerate commitment implementation
The considerable number of SOE leaders being investigated by the KPK has shifted the attention of many agencies and organisations to encourage the integrity system within SOEs. The Ministry of SOEs needs to strengthen the culture of integrity by referring to the G20 Standards on preventing corruption in SOEs.

Strengthening the internal control within the SOEs is fundamental so that the leaders of SOEs do not enact policies that violate the law or lead to acts of corruption. In addition, there is a need to develop more robust, transparent and accountable procurement processes within the SOEs.

Recommendations

The Ministry of SOEs needs to establish a stronger mechanism for supervising internal anti-corruption control in SOEs.

The Ministry of SOEs needs to employ experts to develop, maintain and asses the business integrity system including commitment, risk assessment, policy and codes, training and personnel, and help develop ties between the ministry and the SOEs. To improve corporate governance and ethical management practices, the Ministry of SOEs needs to appoint individuals who are generally seen to be “leaders of anti-corruption” as commissioners in SOEs.

The SOEs have the responsibility to provide anti-corruption education to employees and directors, disclose information about the organisational structure of subsidiaries, affiliates and joint ventures, including the areas of operation and the locations of the company.

Companies need to disclose information about their financial statements, especially those related to reporting between countries, such as income, capital expenditure, income before taxes, profits and the company’s contribution to the communities.