Photo Credit: Wikimedia Commons (https://commons.wikimedia.org/wiki/File:KPK_Logo.svg)
For anyone with even a passing interest in anti-corruption issues, the headquarters of Indonesia’s Corruption Eradication Commission (KPK) is a sight to behold. Entering the lobby, visitors see a floor-to-ceiling glass wall, and just behind it sit journalists with a clear line of sight to view recently arrested government officials as they enter the KPK building for processing. Outside, three to four satellite TV news trucks are often parked, underscoring the symbiotic relationship between Indonesia’s free press and what is arguably the world’s most powerful anti-corruption agency.
Given the KPK’s authority in Indonesian society and its recent commitment to engage the private sector, Jakarta is an obvious destination for the Center for International Private Enterprise (CIPE) to test a new anti-corruption concept. For the integrated compliance pilot project to work, CIPE needs a country with a strong, independent body like the KPK, along with a dynamic economy, robust labor and environmental NGOs, reliance on labor-intensive agricultural exports, and a significant connection to global value chains. The project seeks to build upon CIPE’s existing emerging markets programs that support mid-sized firms to put in place anti-corruption compliance programs. These programs, from Thailand to Kenya and Ukraine, build upon the motivating force of increased profits through access to global value chains.
Beyond legal risks, local companies that CIPE trained on anti-corruption compliance in Pakistan, Ukraine, Indonesia, and Kenya, for instance, have expressed the need for training on labor and environmental standards to help boost competitiveness as well. Therefore, the need for an integrated approach to corporate compliance systems has evolved beyond just standards rooted in the U.S. Foreign Corrupt Practices Act (FCPA). The KPK has been watching this trend closely since 2016, when the agency received a mandate to work on anti-corruption prevention in the private sector. A small unit within the KPK now works on discouraging business leaders from engaging in the bribery of government officials. According to a member of the unit, KPK’s motivation is to send a message to potential investors and lenders, especially those overseas, that the local private sector is changing and it “is not the Indonesia of 10 years ago.”
CIPE’s pilot project is based upon the premise that today’s global supply chains are not just vulnerable to corruption but also labor and environmental risks. Two of CIPE’s partners in the pilot project, World Resources Institute and Solidarity Center, have significant local footprints. A third partner, Verité, is experienced in assessing the role of forced labor and human trafficking in some of Indonesia’s most risk-prone sectors: fisheries, timber harvesting, and palm oil production.
Indonesia is the world’s largest exporter of palm oil, found in goods ranging from chocolate bars to soap and biodiesel. Deforestation and child labor have both been issues for palm oil producers, drawing the attention of law enforcement and outrage from Western activists. In response, advocacy groups such as the World Wildlife Fund and companies like Unilever, formed the Roundtable on Sustainable Palm Oil in 2004. Since then, the group’s voluntary standards have been adopted by businesses accounting for 21% of the world’s palm oil production. Even big banks use the standard when assessing risk. The Indonesian government has also created a national sustainability platform, the Indonesian Sustainable Palm Oil initiative. What does palm oil have to do with the KPK and CIPE’s integrated compliance pilot project? It is evidence that businesses big and small can develop a voluntary standard, that, when aided by the market’s aversion to risk and law enforcement’s readiness to investigate, becomes a powerful agent for changing corporate cultures.
Frank Brown is the Value Chain/Anti-Corruption Program Team Leader at CIPE