Measuring the Criminal Liability of Directors in Corporate Crimes

Corporate crimes have become increasingly complex in the modern era, particularly within the context of Indonesia’s evolving criminal law system. The question of whether directors can be held criminally liable for crimes committed by corporations is becoming ever more relevant, especially considering that corporate crimes are now more covert, systemic, and far-reaching due to technological advancements and economic expansion. One of the most prominent forms of such crimes is corruption committed through corporate mechanisms.

This article comprehensively discusses the legal framework of corporate criminal law, the theories underlying criminal liability, the critical role of Good Corporate Governance (“GCG”), and the legal indicators used to distinguish between actions taken on behalf of the corporation and those constituting the personal liability of directors. By referring to the Company Law, the Employment Law, and fiduciary duty principles, this article offers an in-depth understanding of the legal dimension of directors’ criminal liability within the corporate structure.

In this context, a crucial question arises: to what extent can criminal liability be imposed on directors, and what legal indicators can be used to hold them accountable?

Corporations as Subjects of Criminal Law

Traditionally, criminal law only recognized individuals as offenders in criminal acts, following the principle sociates delinquere non potest, which excluded corporations from criminal liability. However, as modern business practices become more complex, many legal systems—including Indonesia’s—have begun to acknowledge that corporations can play a direct role in committing crimes.

Indonesia reflects this shift through Law Number 1 of 2023 on the Criminal Code (“KUHP”), which explicitly includes provisions on corporate liability. Article 47 KUHP recognizes corporations as subjects of criminal law, while Article 50 KUHP affirms that corporations may be held criminally liable for actions taken for and on behalf of the company.

Theories of Corporate Criminal Liability

There are three primary theories used to assess corporate criminal liability:

Strict Liability: Corporations are held criminally liable without the need to prove intent (mens rea), as long as there is a violation of the law resulting in harm to the public or the state. The focus is on the act itself rather than the intention behind it, making this theory particularly relevant in regulatory and public welfare violations.
Vicarious Liability: Shareholders or directors are held accountable for the actions of their subordinates when such actions are carried out within the scope of employment. It arguably extends liability to the company’s top management, such as directors or shareholders, when they fail to supervise or prevent misconduct by subordinates.
Identification Theory: The intent of directors or senior officials is considered the intent of the corporation. Therefore, their criminal acts are regarded as acts of the corporation itself. If these individuals engage in criminal actions while acting on behalf of the corporation, their actions are considered those of the corporation. This theory reflects the idea that a corporation acts through its controlling minds.

The Role of Directors in Corporate Structure

Fundamentally, the board of directors is a corporate organ responsible for the day-to-day operations and representing the company in and out of court. Article 92 paragraph (1) of the Company Law provides that “The Board of Directors shall carry out the management of the company in the interests of the company and in accordance with its intent and objectives.” Accordingly, Article 97 Company Law stipulates that directors are personally liable in full if they are at fault or negligent in performing their duties.

That said, the status of directors is not always clear. According to the Supreme Court Circular Letter No. 1 of 2022, directors appointed by a General Meeting of Shareholders (“GMS”) are not considered “workers” or “employees” under Employment Law. On the other hand, individuals who are appointed as directors based on an employment contract—something that still frequently happens in practice—may arguably still fall under the protection of employment law. This distinction is crucial in determining who holds legal or even criminal responsibility when complications happen.

In light of the above, it is widely believed that formally appointed directors—those appointed through a GMS and recorded in the company’s Articles of Association—are more likely to bear broader legal responsibilities, especially when acting beyond their authority or breaching governance standards. On the other hand, individuals who hold the title of “director” solely based on an employment contract and are not formally registered in corporate documents may arguably bear less legal risk, as they could still be considered employees acting under the instructions of their employer.

GCG as a Key Indicator

GCG, which holds importance in terms of corporate governance, includes transparency, accountability, responsibility, independence, and fairness. It serves not only as a guide for ethical business practices but also as a legal criterion for determining whether an action is taken on behalf of the corporation or for personal gain.

For instance, according to Article 108 of the Company Law, commissioners are authorized to oversee policies and management conducted by the board of directors. Major corporate decisions usually require approval from either the Board of Commissioners or the GMS. Thus, if an alleged criminal act occurs in the course of an approved process, liability may arguably rest with the corporation. However, if the act takes place without the knowledge of the commissioners, or breaches GCG principles, personal liability may fall on the director.

Criminal Indicators That May Incriminate Directors

Theoretically, a director may be held personally liable for a criminal act if certain indicators are present, such as:

The act is performed outside the scope of authority or without the approval of corporate organs (GMS/commissioners).
The act violates GCG principles such as transparency and accountability.
The act is intended for personal or group benefit or results in losses to the state/public.
There is a breach of fiduciary duty, duty of care, or duty of loyalty.

That said, if the act is conducted within the director’s legal authority, based on internally approved company policies, and in line with the corporate objectives, then the responsibility, arguably, may shift from the individual to the corporation. In such cases, the corporation itself may also be held criminally liable on the principle that corporate decisions made through proper governance processes represent the corporation’s will. This distinction is critical in determining whether liability rests on the individual or the corporate entity.

Conclusion

Holding directors accountable in corporate crimes requires a clear delineation between acts carried out as part of a director’s official capacity and acts committed personally. GCG plays a crucial role in determining whether a criminal act should be attributed to the corporation or to an individual director.

To mitigate risks, it is recommended that corporations strengthen their GCG frameworks, ensuring thorough documentations (e.g., GMS approval and commissioner oversight). This not only promotes compliance but also safeguards both the company and its directors from potential criminal liability. Law enforcement agencies should also examine the internal governance structures to accurately assess the scope of liability in cases of corporate crime.

Directors, either appointed through the GMS or designated under employment contracts, must adhere to GCG principles, applicable laws and regulations, and their employment agreements. Failure to uphold these standards may result in them facing personal criminal liability.

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