A new legal reality: corporations are now criminal subjects

For decades, Indonesia's criminal law targeted only individuals. Companies as legal entities enjoyed relative insulation from direct criminal prosecution. The New Criminal Code — Law No. 1 of 2023, effective 2 January 2026 — has fundamentally changed this.

Under Article 45, corporations of all kinds — limited liability companies, state-owned enterprises, foundations, partnerships, and cooperatives — are now explicitly recognised as criminal law subjects. Your company can be prosecuted, fined, and in the most serious cases, dissolved by the state.

More critically: Article 49 of the New Criminal Code establishes that when a criminal act is committed by or for the benefit of a corporation, liability does not stop at the entity. Functional executives, those who give instructions, those who exercise control, and ultimate beneficial owners can all be held criminally responsible. In plain terms: your CEO and CFO face personal criminal exposure.

 

 

Why financial statements are the highest-risk document in your company

Financial statements tell the story of your company's true condition. They are also where criminal risk most readily takes shape — through deliberate misrepresentation or through negligence.

Four areas of critical exposure:

1. Financial statement manipulation: Window dressing, asset inflation, or concealment of liabilities can constitute fraud and corruption under Article 603 of the New Criminal Code. The Garuda Indonesia case set a clear precedent: directors who signed off on misleading financial statements faced personal criminal liability, regardless of their hierarchical position within the company.

2. State financial loss: Inaccurate financial reporting for tax purposes or state-enterprise disclosures falls within the scope of Article 603 — a corruption provision that now explicitly captures corporations and their executives as perpetrators.

3. Money laundering: Financial statements that do not reflect true economic reality are frequently used as instruments of money laundering. Under the New Criminal Code, corporations and their directors can be simultaneously prosecuted under the Anti-Money Laundering Law and the New Criminal Code as the overarching general law.

4. Capital market violations: For publicly listed companies, misleading financial disclosures expose the company to class action suits and capital market criminal proceedings — with personal liability for every director who signed the statements.

 

 

Personal assets of directors can be seized

This is not abstract legal theory. In a binding Supreme Court decision, the court ordered the personal assets of directors to be seized and auctioned to satisfy fines and restitution obligations where corporate assets proved insufficient.

The principle of limited liability that protects shareholders does not apply in criminal proceedings. Directors who sign off on problematic financial statements bear personal legal risk — and the New Criminal Code puts this beyond doubt.

 

 

When is a corporation considered to have "allowed" a violation?

Article 48 of the New Criminal Code establishes that a corporation can be held liable where the act benefited the corporation unlawfully, was accepted as corporate policy, or — most commonly overlooked — where the corporation failed to take adequate preventive measures.

This is a significant shift. It is not only active wrongdoing that creates liability. The absence of compliance systems and the failure to prevent misconduct is itself sufficient grounds to prosecute the corporation and its officers.

 

 

Professional audit as active legal protection

Here is the constructive side of this legal shift. Article 56 of the New Criminal Code explicitly states that the existence of documented compliance systems — including audit follow-through, implemented internal policies, and measurable compliance training — is a mitigating factor in sentencing.

This reframes what audit means for your organisation. An independent audit by a licensed public accounting firm is no longer simply a regulatory obligation or an annual formality. It is documentary evidence that your directors and your company have exercised good faith and due diligence — active legal protection that could determine the outcome if a case ever reaches court.

What your company needs to have in place now:

  • Financial statement audit by a licensed, independent public accounting firm

  • Internal compliance review against applicable accounting standards (PSAK/IFRS) and OJK regulations

  • Evaluation of internal control systems to identify risk before it escalates

  • Development or updating of accounting and financial policies

  • Documentation of approval trails and board decision records for financial reporting

  • Compliance training for directors, commissioners, and finance teams

 

 

Do not wait for a problem to act

The legal environment has changed. Directors who today lack adequate audit and compliance infrastructure are carrying personal risk that is entirely preventable.

Our team of certified public accountants is ready to help your company produce financial statements that are accurate, legally compliant, and protected under the New Criminal Code. Reach out now — before risk becomes liability.

[Schedule an Initial Consultation]

 

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