LEGAL OPINION
Re: Legal Analysis of the Growing Prevalence of Alleged Fraud and Embezzlement Targeting Foreign Investors in Bali Province
Prepared by: FLORIANUS AMAN, S.H.
I. INTRODUCTION
Bali Province, one of the world’s leading tourism destinations, has a strong appeal for investment, particularly in the property, villa, resort, land subdivision, leasehold, and tourism business sectors.
Along with the increasing inflow of foreign capital, there has also been a significant increase in reports and complaints from foreign investors who have allegedly fallen victim to business practices conducted in bad faith and suspected of involving elements of fraud and embezzlement.
This Legal Opinion is prepared to provide an objective legal assessment of this phenomenon.
II. COMMON PATTERNS AND PRACTICES
Based on case-handling data and observations in the field, several recurring patterns have been identified:
1. Sale of Land Plots Without a Clear Legal Basis of Ownership
Investors are asked to pay substantial down payments, ranging from 40% to 70% of the purchase price, for land plots. Developers promise that individual land certificates will be issued within several months. However, when the promised deadline arrives, the subdivided certificates have not been issued and are never presented to the investors.
2. Refusal to Disclose Legal Documentation
When investors request supporting documents, such as proof of payment of Land and Building Tax (PBB), a power of attorney from the owner of the parent land title, or approval for land subdivision from the National Land Agency (BPN), the developers refuse to provide them, claiming that such documents are internal or confidential company documents.
3. Demands for Full Payment Without Legal Certainty
Investors are asked to make full payment of 100% of the purchase price, with assurances based solely on an internal notarial deed or a Building Approval (PBG) purportedly issued by the developer itself, rather than by the competent government authority.
4. Use of Refund Arrangements as a Means of Delaying Legal Action
After investors become aware of the problems and request the return of their funds, a Refund Agreement is drawn up, providing for repayment by instalments. In many cases, the agreement is never performed and is allegedly used merely as a means of delaying the filing of legal complaints.
5. Misuse of Nominee Arrangements and Foreign Investment Companies (PT PMA)
Foreign nationals who are legally prohibited from directly owning land under the Right of Ownership title (Hak Milik or SHM) are directed to use Indonesian citizens’ identity cards as nominees, without adequate legal agreements, or to establish or use Foreign Investment Companies (Perseroan Terbatas Penanaman Modal Asing or PT PMA) that do not hold valid licences or business authorisations through the Online Single Submission (OSS) system.
III. LEGAL FRAMEWORK
A. Criminal Law
1. Article 492 of Law No. 1 of 2023 concerning the Indonesian Criminal Code (the New Criminal Code), relating to fraud.
2. Article 486 of Law No. 1 of 2023 concerning the Indonesian Criminal Code, relating to embezzlement.
3. Article 391 of the Criminal Code, concerning document forgery.
B. Civil and Agrarian Law
1. Articles 1320, 1321, 1243, 1267, and 1365 of the Indonesian Civil Code (Kitab Undang-Undang Hukum Perdata or KUHPerdata), concerning the validity of agreements, breach of contract, and unlawful acts.
2. Law No. 5 of 1960 concerning Basic Agrarian Principles (the Basic Agrarian Law or UUPA).
3. Government Regulation No. 18 of 2021 concerning Land Rights.
4. Law No. 25 of 2007 concerning Investment.
C. Foreign Investment Law
Foreign nationals in Indonesia may hold certain land rights, subject to applicable laws and regulations, including the Right of Use (Hak Pakai), leasehold rights, and, where legally permitted through an eligible Indonesian legal entity such as a PT PMA, the Right to Build (Hak Guna Bangunan or HGB). Foreign nationals are not permitted to directly own land under the Right of Ownership title (Hak Milik or SHM).
IV. LEGAL ANALYSIS
Principal Legal Question:
Can the act of offering and selling land or property without legal certainty, followed by a failure to return investors’ funds, be classified as a criminal offence or merely as a civil dispute?
Our Legal Opinion:
Such conduct may be classified as alleged criminal fraud and embezzlement, rather than merely a civil breach of contract, subject to the following considerations:
1. Elements of Fraud (Article 492 of Law No. 1 of 2023)
The elements of fraud may be satisfied where:
* A series of false representations, deceitful acts, or other forms of deception is employed from the outset. For example, land is offered for sale despite being subject to a family ownership dispute or the absence of valid authority to sell, while the investor is led to believe that the land is legally ready for sale.
* The investor is induced to transfer money or other assets.
* The perpetrator acts with the intention of unlawfully obtaining a benefit for themselves or another party.
Supreme Court Decision No. 1689 K/Pid/2015 is cited as supporting the proposition that an agreement entered into in bad faith from the outset, with the intention of unlawfully obtaining control over another person’s funds, may give rise to criminal liability for fraud.
2. Elements of Embezzlement (Article 486 of Law No. 1 of 2023)
The elements of embezzlement may be satisfied where:
* Funds provided by investors, which should have been allocated for the processing of land certificate subdivision and transfer of title, are instead misappropriated or unlawfully retained for personal purposes.
* Such funds are not returned despite the existence of an agreed refund arrangement.
Whether these circumstances constitute embezzlement must be assessed by examining the original purpose of the transfer, the legal basis on which the funds were received, the subsequent handling of the funds, and the other elements required by the applicable criminal law.
3. Distinguishing Criminal Conduct from a Mere Breach of Contract
A purely civil breach of contract may arise where a developer has acted in good faith but encounters technical or administrative obstacles in the land registration process at the National Land Agency (BPN).
However, where the relevant legal documents were absent from the outset, the developer lacked the necessary authority to sell the property, and investors were nevertheless induced to transfer funds, these circumstances may indicate an intention to deceive (mens rea).
Accordingly, the distinction between a civil dispute and a criminal offence must be assessed based on the facts, the available evidence, the parties’ intentions, and the fulfilment of the statutory elements of the alleged offence.
V. CONCLUSION
1. The increasing number of cases allegedly targeting foreign investors in Bali indicates a potential pattern of white-collar crime in the tourism property sector, exploiting investors’ unfamiliarity with Indonesia’s land laws and regulatory framework.
2. The recurring patterns involving substantial down payments, certificates that are never issued, refusals to disclose legal documents, demands for full payment without adequate legal certainty, and unfulfilled refund agreements may provide an initial basis for investigating suspected criminal fraud and embezzlement. However, the determination of criminal liability must be based on sufficient evidence and the fulfilment of the applicable statutory elements.
3. This phenomenon poses a serious threat to the investment climate and may damage Bali’s reputation as a safe and reliable investment destination.
VI. LEGAL RECOMMENDATIONS
A. For Investors (Foreign and Domestic)
1. Conduct Legal Due Diligence Before Making Any Payment. Investors should engage an independent law firm to verify the authenticity and legal status of land certificates with the National Land Agency (BPN), check Land and Building Tax (PBB) payment records, verify powers of attorney and the authority to sell, and confirm the company’s business licences and authorisations through the OSS system.
2. Avoid Transferring Funds to Personal Bank Accounts. Payments should be made through a properly documented and legally structured escrow arrangement, where available, or to a verified corporate bank account. The arrangement should clearly identify the recipient, the purpose of the payment, and the conditions for the release or refund of the funds.
3. Do Not Sign Agreements Under Pressure. Investors should ensure that all material representations, obligations, payment terms, deadlines, and refund commitments are documented in writing and, where appropriate, formalised in a notarial deed.
B. For the Government and Law Enforcement Authorities
1. Strengthen Supervision of Property Developers. More rigorous oversight is required for property developers marketing their products to foreign nationals, particularly regarding land ownership, authority to sell, land subdivision, and compliance with applicable investment and property regulations.
2. Take Firm Action Against Misuse of PT PMA Entities. Appropriate enforcement measures should be taken against foreign investment companies that operate outside the scope of their authorised business activities or are allegedly used primarily as vehicles for collecting and holding investors’ funds without conducting legitimate business activities.
Badung, 22 October 2026
FLORIANUS AMAN, S.H.
