💎 No Fraud. No Bribe. Just a Really Bad Deal: Pertamina's Rotten Diamond

❓ Why Does This Case Matter?

The case of Karen Agustiawan and Pertamina’s BMG investment remains emblematic of a broader legal and ethical dilemma facing state-owned enterprises in Indonesia and elsewhere:

When does a bad business decision become a crime?

This question is particularly critical in environments where corporate decision-making intersects with political oversight, public resources, and ambiguous governance procedures.

In Indonesia, where anti-corruption enforcement is increasingly rigorous and often politically charged, executives must be prepared to defend not just the substance of their decisions, but also the sequence, documentation, and internal process leading to them.

The Karen Agustiawan case triggered widespread debate among lawyers, policy makers, and scholars. Was the failed BMG deal simply a matter of poor commercial judgment? Or was it evidence of abuse of authority?

The case revealed the fragility of internal governance structures in state-owned firms, and how unclear signals, conditional approvals, and procedural gaps can have life-altering consequences for those involved.

🛠️ How Did It All Start?

In late January 2009, ROC Oil Ltd, an Australian upstream operator, sought to offload its interest in the underperforming BMG oil field in the Bass Strait. Acting through Citibank, ROC Oil approached Pertamina’s senior finance leadership, including Frederick Siahaan, the company’s CFO. ROC Oil needed a buyer, and fast.

At the same time, Pertamina was actively seeking ways to build its international upstream portfolio. This aligned well with the government’s mandate to strengthen Pertamina as a globally competitive energy player. An expression of interest was quickly issued by Pertamina on 29 January 2009, effectively kicking off what would be known internally as Project Diamond.

At this early stage, Karen Agustiawan was still serving as Director of Upstream Operations. Just a week later, however, she was promoted to CEO on 5 February 2009, a move that would place the BMG acquisition on her desk during her first month in the top job.

After a swift internal review, the Sale and Purchase Agreement (SPA) was signed on 27 May 2009, valuing Pertamina’s 10 percent stake at USD 31 million.

But the optimism didn’t last. On 20 August 2010, just 15 months later, ROC Oil announced that BMG was no longer commercially viable. Production was halted, and Pertamina, being a minority shareholder, had no effective veto power over the consortium’s decision.

An impairment charge of AUD 35 million was recorded in Pertamina’s financial statements, writing off the investment in full.

🚨 What Triggered the Legal Fallout?

What turned a failed business deal into a criminal case? Prosecutors alleged that internal processes were ignored, external warnings were disregarded, and that the project was pushed through recklessly.

📊 A Presentation Built on Seller’s Data

A key concern was that the internal investment proposal relied almost entirely on technical projections provided by ROC Oil itself, rather than an independent assessment. The reserves estimate used by Pertamina’s M&A manager Bayu Kristanto, who later also became a suspect, came from a consultant hired by ROC Oil, not by Pertamina. This created an obvious conflict of interest that went unchecked.

⚠️ Independent Reviews Came Too Late

Pertamina later hired Deloitte Indonesia for financial due diligence and Baker McKenzie Australia for legal review. Both reports were delivered on 23 April 2009, more than a month after the internal pitch had been made and just weeks before the SPA was signed.

Deloitte’s review warned that upside projections relied on an unapproved second phase of development.

Baker McKenzie flagged deficiencies in legal documentation on such second phase that could complicate any future expansion or dispute resolution.

The fact that these cautionary reports arrived after the project had already gained momentum cast doubt on whether the internal decision-makers truly considered them in good faith.

⚖️ What Did the Courts Conclude?

In 2019, prosecutors charged Karen Agustiawan with corruption for misusing her authority and failing to follow governance procedures. They argued that while formal due diligence had been conducted, it was largely superficial, and that Karen proceeded with the deal despite having seen negative assessments from experts.

The Jakarta High Court upheld the conviction in 2020, concluding that her actions amounted to deliberate circumvention of process, even in the absence of personal financial gain.

But the Supreme Court disagreed. In its ruling in 2020, the Court overturned the conviction based on the following grounds:

1. Conditional board approval did exist, and although the terms were blurred, they were not entirely absent.

2. Due diligence was completed prior to closing the transaction, even if its conclusions were not favorable.

3. Most importantly, the Court held that commercial losses do not automatically equate to corruption unless there is evidence of fraud, abuse of authority, or personal enrichment.

The ruling reinforced the business judgment rule, often applied in corporate governance to protect executives from liability when decisions, though ultimately flawed, are made in good faith and through reasonable processes.

📌 Key Takeaways for SOE Leaders and Advisors

1. Document Intent Thoroughly

   The only reason Karen escaped criminal conviction was because internal memos, board minutes, and email records proved there was no corrupt intent. In state-owned enterprises, robust documentation is often the best protection against retrospective accusations.

2. Decode Board Signals with Caution

   A conditional yes from an SOE board can be far more dangerous than a flat-out no. Board members, especially political appointees, may later revise their positions under public pressure or political shifts. Always insist on clear, written, and unconditional approvals before proceeding.

3. Respect the Sequence of Governance

   Prosecutors often infer intent from timelines. If internal pitches precede due diligence, or approvals come after the fact, the entire process can appear suspicious even if done in good faith. Align every milestone including proposal, review, and approval with clear governance checkpoints.

4. Bad Deals Are Not Crimes, but Only If You Can Prove It

   Business mistakes happen. What saved Karen in the end was the ability to prove that the mistake was not criminal. Without transparent governance and proper documentation, the line between misjudgment and misconduct becomes dangerously thin.

📘 Epilogue: A Lesson in Public Sector Risk

The BMG case remains a textbook example of the complexity of decision-making inside state-owned enterprises, especially in high-stakes sectors like oil and gas. For public sector executives, investors, and their advisors, the key lesson is simple but profound:

Good faith alone is not enough. Process must be followed, documented, and defended.

Intent matters. But in the eyes of regulators, courts, and the public, paper trails and timing often matter more.

Source: 

• Decision of High Court of Jakarta 34/Pid.Sus-TPK/2019/PT.DKI

• Decision of the Supreme Court 121K/Pid.Sus/2020