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The Indonesian Election Process and Contributions to Political Parties and Campaigns

Article 35 of Law No. 2 of 2008, as amended by No. 2 of 2011, on Political Parties (“Political Party Law”) provides for contributions to political parties as follows:

(a)   Individuals who are members of the political party may contribute according to the bylaws of the political party, potentially making contributions by individual party members unlimited.

(b) Individuals who are not members of the political party are limited to making contributions upwards to IDR 1 billion (approx. USD 83 thousand) per financial year.

(c)   Companies are limited to making contributions upwards to IDR 7.5 billion (approx. USD 623 thousand) per financial year.

Articles 94 to 96 of Law No. 42 of 2008 on Presidential and Vice Presidential Elections (“Presidential Elections Law”) provides for contributions to political campaigns as follows: 

(a)   Contributions by candidates are unlimited.

(b) Contributions by the political party, or coalition of political parties, of the candidate are unlimited.

(c)   Contributions by individuals are limited to IDR 1 billion (approx. USD 83 thousand)

(d) Contributions by companies or other groups are limited to IDR 5 billion (approx. USD 415 thousand).

Law No. 8 of 2012 on the Election of the House of Representatives, the Regional Representative Council and Regional House of Representatives (the “Legislative Elections Law”) provides for contributions to House of Representatives campaigns as follows: 

For DPR (House of Representative) and DPRD (Provincial/Regency/Municipality Legislative) Election (Articles 129-131 Legislative Elections Law):

(a)   Contributions by candidates are unlimited.

(b) Contributions by the political party, or coalition of political parties, of the candidate are unlimited.

(c)   Contributions by individuals are limited to IDR 1 billion (approx. USD 83 thousand)

(d) Contributions by companies or other groups are limited to IDR 7.5 billion (approx. USD 623 thousand).

For DPD (Regional Representative Council) campaigns (Articles 132-133): 

(a)   Contributions by candidates are unlimited.

(b) Contributions by individuals are limited to IDR 250 million (approx. USD 21 thousand)

(c)   Contributions by companies or other groups are limited to IDR 500 million (approx. USD 42 thousand).

Donations that count towards the contribution cap include financial and in-kind contributions. In the case of in-kind contributions, the market value of the donation will be used to calculate in-kind contributions (Article 97(2) of the Presidential Election Law, Articles 129(5) and 132(5) of the DPR/DPD Elections Law, and implicit in the Political Party Law based on the spirit of the law).

In relation to in-kind contributions, the conservative view is to view anything benefiting/going to a party/campaign as potentially classifiable as a contribution. Therefore, for example, a company program that provides employees with paid days off, with or without the use of company equipment/facilities, on the condition that such time is used for non-profit activities (such as charitable volunteering but also working on a political campaign), could be viewed as political party/campaign contributions even in the case where it is the individual employee that makes the decision to volunteer for a given campaign. Further discussion with KPU to confirm this conservative view will be undertaken and the result updated accordingly.

 

Limitation on Contribution by Foreign Donors

Political contributions are further qualified by a prohibition on contributions by non-Indonesians in the following manner:

 

            For Political Parties

For political parties, the definition of “foreigner” applies broadly – political parties are banned from receiving donations from foreign persons, entities, government or organization (Article 40(3)(a) Political Party Law and its elucidation).

 

            For Presidential/Vice-Presidential Candidates

Presidential/Vice-Presidential Candidates are banned from receiving donations from foreign individuals, entities incorporated abroad, Companies incorporated in Indonesia with any number of foreign shares (e.g. PT PMA), foreign NGOs and foreign social organizations (Art. 103 Presidential Election Law).

 

            For Legislative Candidates

Legislative Candidates are banned from receiving donations from foreign individuals, entities incorporated abroad, Companies incorporated in Indonesia whose majority shares are foreign-owned (over 50%), foreign NGOs and foreign social organizations (Art. 139 Legislative Election Law). Although the literal phrasing of the Law only specifies simple percentage, there is a risk that foreign-controlled corporations (e.g. Indonesian corporations whose voting shares rest with foreign shareholders) meet the foreigner criteria.

 

With respect to share ownership by foreigners, the law is silent on the distinction between Foreign Direct Investment companies and listed companies (which are treated as Indonesian under the investment regime). Consequently, considering the national significance of elections, the conservative view would be that in order to make political donations a company must be at least 50% owned by Indonesian individuals or entities that are fully owned by Indonesian individuals.

Alternatively, interpretations could include tracing through and apportioning ownership, 50% ownership of parent entities, or control of parent entities, although the approach taken to strategic industries in the case of telecoms and recent legislative attempts in other areas indicate that the current Indonesian political climate is to take the conservative approach.

 

Limitation on Contribution by Affiliated Individuals and Corporate Groups

Limit on Individual Contribution

The limitation on individual contributions applies only to donations made by non-members. In this respect, a party member may contribute without limitation to his or her party, which in turn may fund its candidates. Article 35 Political Party Law places no limit on member contribution, subject to the party’s Articles of Association. In turn, presidential/vice-presidential candidates and Legislative Candidate (except DPD candidate), may receive funding without limitation from his or her party.

 

            Limit on Individual Contribution Through Business Entities

It is possible that a non-party member individual may channel contributions through his or her corporations or other entities. In this respect, it is theoretically possible for him or her to bypass the individual funding cap. Nevertheless, the amount they could channel through corporations or entities will be subject to limitations applicable to legal entities.

 

            Limit on Contribution by Affiliated Corporations

With respect to the Legislative Election Law, there is no specific rule in regards to contributions by groups of affiliated companies or entities. Based on KPU confirmation, the limitation is applied for one company as separate entity, not as a group, even if the subsidiary companies are also funding the same election campaign.

 

Politically-linked entities also exist in Indonesia. The laws do not explicitly stipulate on the attribution of responsibility for the receipt of illegal donations. An entity may undertake certain activities that are not intended to benefit any political parties but nevertheless carry tangential benefit. A conservative approach would be to consider such activities as political contribution, especially if undertaken by entities with political affiliation.

The laws contain penalties, ranging from fines that are a multiple of the amounts contributed in breach of the regulations, up to imprisonment. The sanctions apply both to the contributor and the officials of the recipient party/campaign. 

Considering the above, and potential obligations under foreign regulatory regimes that the contributor may be subject to, it would be advisable to obtain certain relevant information from the recipient party/campaign, ranging from a list of companies/groups and politically-linked entities that contribute to, or are affiliated with, the party/campaign (to ensure that the contribution limits are not inadvertently exceeded through donations made to different entities that are in fact affiliated), and of the affiliates of the party/campaign as well as the details on how party/campaign funds are spent (for a variety of public relations, FCPA, and potential terrorism financing reasons).

 

[Last update: 2014-01-29 10:34:34]

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