Corporate Criminal Liability for the Trade of Non-Excise or Illegal Goods in Indonesian Ports

Indonesia’s port infrastructure constitutes the primary artery of its trade system and plays a decisive role in sustaining national economic growth. However, these very ports remain highly susceptible to violations of customs and excise laws, including the trade of non-excise or illegal goods. In recent years, the State has reinforced its position that corporate actors—rather than individuals alone—shall bear accountability for such violations.

Accordingly, the doctrine of corporate criminal liability for the trade of non-excise or illegal goods in Indonesian ports has become increasingly relevant. This doctrine underscores the principle that corporations benefiting from, directing, or negligently permitting unlawful trade activities will be held liable under Indonesian criminal law. The following analysis examines the statutory basis, enforcement practices, judicial precedents, and practical compliance imperatives for corporate entities engaged in port-related commerce.

Defining Non-Excise and Illegal Goods

The concept of non-excise and illegal goods in Indonesian law does not simply refer to goods exempt from taxation, but rather encompasses goods that are either unlawfully traded without compliance to excise obligations or are expressly prohibited from importation and distribution under prevailing laws. The classification derives from a web of statutory and regulatory frameworks, each with distinct legal implications:

a. Tobacco and Alcohol Without Excise Stamps

Under Law No. 39 of 2007 on Excise, all tobacco and alcoholic products must bear official excise stamps as evidence of duty payment. The absence of such stamps not only signifies tax evasion but also constitutes a criminal offense, undermining State revenue and fiscal stability.

b. Fuel and Lubricants Smuggled Without Import Clearance

Governed by the Customs Law (Law No. 17 of 2006), fuel and lubricants imported without customs documentation or diverted from subsidized quotas constitute smuggling. These violations often intersect with broader economic crimes, including subsidy fraud and illicit distribution networks.

c. Counterfeit Pharmaceuticals and Cosmetics

Products that are unregistered with the National Agency of Drug and Food Control (BPOM) or that fail to meet SNI (Indonesian National Standard) requirements fall into this category. Beyond fiscal implications, such goods directly endanger consumer safety and public health, elevating their legal gravity.

d. Wildlife, Timber, and Forestry Products

Illegal logging, wildlife trafficking, and exports of protected species contravene both domestic environmental regulations (e.g., Law No. 5 of 1990 on Conservation of Living Natural Resources) and Indonesia’s obligations under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). These offenses often attract international scrutiny and carry reputational risks for corporations.

e. Used Clothing Imports

Explicitly prohibited under Minister of Trade Regulation No. 18 of 2021 (as amended by Minister of Trade Regulation No. 40 of 2022), the importation of second-hand clothing is criminalized to protect domestic textile industries, ensure hygiene standards, and safeguard consumer interests. Enforcement actions in this area are highly visible and frequently publicized as part of consumer protection campaigns.

The breadth of these categories reflects the State’s multifaceted objectives: safeguarding public health, protecting consumers from dangerous or substandard products, preserving Indonesia’s natural resources, and securing fiscal revenue from excisable goods. Corporations involved in the importation, storage, or distribution of such goods within port jurisdictions are therefore not merely facing regulatory breaches—they are directly exposed to criminal prosecution, asset confiscation, and reputational harm under Indonesia’s robust enforcement regime.

Indonesian Ports as High-Risk Zones

With over 90% of Indonesia’s trade volume transiting through ports, enforcement challenges are acute. Major ports such as Tanjung Priok and Tanjung Perak process millions of containers annually, creating systemic vulnerabilities.

Risks are aggravated by:

• Limited capacity for physical inspection, compelling reliance on risk-based profiling.
• Potential collusion between port operators and syndicates.
• Fragmented inter-agency oversight between Customs, Police, Navy, and Port Authorities.
• Exploitation of bonded zones and transshipment procedures.

Consequently, ports remain a focal point for smuggling networks, and corporate liability serves as a deterrent mechanism against institutional complicity.

Regulatory Framework Governing Port Trade

Several legal instruments converge in regulating port-related trade:

1. Customs Law (Law No. 17/2006) – prohibits smuggling, misdeclarations, and misclassification of goods.
2. Excise Law (Law No. 39/2007 as amended by Law No. 7 of 2021) – mandates payment of excise and proper labeling of excisable goods.
3. Anti-Money Laundering Law (Law No. 8/2010) – extends liability to corporations where illegal trade constitutes a predicate offense.
4. Environmental Protection Law (Law No. 32/2009) – applies where illegal goods cause environmental harm.
5. Minister of Trade Regulation No. 18/2021 (as amended by Minister of Trade Regulation No. 40 of 2022) – bans specific categories such as used clothing.

The multiplicity of statutes underscores that port violations are rarely isolated offenses; they often invoke overlapping criminal provisions.

Mechanisms of Corporate Liability

Indonesian law imposes corporate criminal liability through well-established legal doctrines that ensure corporations cannot evade accountability by shifting unlawful conduct solely to individuals. These doctrines operate as follows:

a. Vicarious Liability

This principle attributes the unlawful acts of employees, officers, or agents to the corporation, provided such acts are committed within the scope of their duties or in furtherance of corporate interests. In the port-trade context, for example, if a logistics manager deliberately misdeclares the classification of imported goods to reduce customs duties, the liability extends not only to the individual but also to the corporation that benefited from the act.

b. Strict Liability

Certain regulatory offenses, particularly those under Customs Law (Law No. 17/2006) and Excise Law (Law No. 39/2007 as amended by Law No. 7 of 2021), apply strict liability standards. In these cases, intent or mens rea is immaterial. The mere occurrence of the violation—such as the importation of unstamped cigarettes or alcohol—renders the corporation liable. This reflects the State’s interest in safeguarding fiscal revenues and ensuring administrative efficiency in high-volume port operations where proving intent may be impractical.

c. Negligence Liability

Corporations may also be held liable for failing to establish and maintain adequate compliance frameworks to prevent unlawful acts. Negligence liability captures systemic deficiencies—such as the absence of internal audits, failure to vet third-party contractors, or lack of whistleblowing mechanisms—that enable violations to occur. In these instances, the liability does not arise from direct commission of the offense, but from the corporation’s failure to exercise a reasonable duty of care to prevent foreseeable risks.

Under Supreme Court Regulation No. 13 of 2016 (Perma 13/2016), Indonesian courts apply specific evaluative criteria when assessing corporate liability. Judges examine whether the corporation derived economic or strategic benefit from the unlawful act, whether decision-making or oversight failures contributed to the offense, and whether the corporation had established a credible compliance culture. The absence of demonstrable due diligence, internal controls, and preventive mechanisms is often determinative in convicting a corporation.

The legal framework thus shifts the expectation onto corporations to not only abstain from unlawful conduct but also to proactively implement governance systems designed to prevent violations. In effect, liability attaches not merely to acts and omissions but also to corporate culture and institutional behavior, underscoring the critical importance of compliance as both a shield and a strategic necessity in Indonesian port operations.

Investigative and Prosecution Procedures

Investigations are primarily conducted by Customs Investigators (PPNS DJBC), with prosecutorial authority vested in the Attorney General’s Office. Coordination frequently extends to PPATK where money laundering aspects arise.

Evidence typically includes bills of lading, invoices, HS classification records, excise documentation, and port surveillance. Prosecutors increasingly adopt a strategy of joining customs or excise violations with money laundering charges to broaden asset forfeiture and heighten penalties.

Sanctions and Consequences

Corporate sanctions extend beyond financial penalties. Statutes provide for:

• Fines—often multiples of the value of the illegal goods.
• Confiscation of goods, vessels, and facilities used in the commission of the offense.
• Revocation of licenses—including import/export and port access permits.
• Corporate dissolution in severe or repeated offenses.

Beyond statutory sanctions, reputational damage, supply chain exclusion, and financial sector scrutiny constitute collateral consequences that can permanently impair a corporation’s viability.

Common Violations in Port Operations

Empirical evidence reveals recurring patterns:

• Smuggling via container concealment.
• Undervaluation and misclassification to reduce duties.
• False declarations of origin to exploit preferential tariffs.
• Illegal diversion of bonded goods into the domestic market.
• Excise leakage through unstamped tobacco and alcohol products.

Although contractors and intermediaries frequently engage in these practices, prosecutorial practice attributes liability to the corporation.

Judicial Precedents

Indonesian courts have imposed corporate fines and license revocations in high-profile cases such as:

• The used clothing smuggling cases in Tanjung Priok (2019).
• Cigarette smuggling networks in Batam, resulting in confiscation of assets and prosecution of both corporate and individual actors.
• Timber export cases prosecuted under both Customs and Environmental Law frameworks.

These precedents confirm the judiciary’s readiness to hold corporations accountable, consistent with comparative practices in Singapore and Malaysia.

Compliance and Risk Mitigation

Corporations should adopt structured compliance frameworks encompassing:

• Periodic internal audits of customs and excise compliance.
• Training of staff and contractors on regulatory obligations.
• Due diligence mechanisms for suppliers and logistics providers.
• Whistleblowing systems with anti-retaliation safeguards.
• Digital monitoring technologies, including blockchain and cargo tracking.
• Alignment with AEO (Authorized Economic Operator) standards, which strengthen credibility with regulators.

Proactive compliance investment is consistently less costly than criminal defense and post-enforcement remediation.

Practical Commentary from Kusuma & Partners

In advising clients, we observes recurring missteps: reliance on unvetted third-party contractors, insufficient documentation of HS classification and valuation, and delayed engagement with regulators.

Our recommended practices include:

• Early consultation with Customs to obtain binding rulings.
• Incorporation of compliance obligations and indemnities in contractual frameworks.
• Corporations may voluntarily disclose violations identified through internal reviews to mitigate potential penalties.
• Development of crisis management protocols for investigations.

In practice, the demonstration of a robust compliance culture remains the most effective defense against liability.

Conclusion

The enforcement of corporate criminal liability for the trade of non-excise or illegal goods in Indonesian ports reflects Indonesia’s commitment to safeguarding fiscal revenue, public safety, and international trade integrity. For corporations, this liability is not hypothetical; it is immediate and enforceable.

Accordingly, boards, compliance officers, and legal counsel must view port operations as high-risk zones demanding robust governance, diligent oversight, and proactive legal strategies. Failure to do so exposes corporations not only to statutory penalties but also to reputational and commercial ruin.

How We Can Help

For corporations engaging in Indonesian port operations, compliance is no longer optional—it is imperative. Kusuma & Partners Law Firm provides tailored legal advisory, compliance program design, and defense representation in customs, excise, and port-related matters.

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“DISCLAIMER: This content is intended for general informational purposes only and should not be treated as legal advice. For professional advice, please consult with us.”