In late July 2024, the Indonesian government released a draft Presidential Regulation on Legal Compliance in the Formation and Implementation of Law (“Draft Regulation“). The Draft Regulation is a reflection of the government’s effort to ensure effective implementation and compliance of laws by legal entities (badan hukum), business entities (badan usaha), and public institutions (badan publik) in fulfilling their legal obligations. The National Legal Development Body (Badan Pembinaan Hukum Nasional or BPHN) explained the rationale behind this effort, stating that “this Draft Regulation is designed to address gaps in legal compliance regulation that have not been covered by other ministries or agencies.”
To this effect, one key aspect of the Draft Regulation is the introduction of mandatory annual legal audits for businesses, legal entities, and public institutions as part of the framework aimed at enhancing legal awareness and compliance. The purpose of the annual audit is to evidence the compliance of legal entities, business entities, and public institutions with the laws and good governance practices. The audit process will involve the appointment of a certified auditor, who will identify and analyse issues, perform a legal analysis, and evaluate compliance. At the end of the audit, the auditor will issue an opinion that includes recommendations for corrective actions. Entities will be responsible for implementing these recommendations to ensure full compliance with the laws and regulations.
Although the Draft Regulation has not yet been enacted, we believe it is important to provide an overview now, given its potential impact.
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