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© 2012 Dr. Sofie Arjon Schütte, KKN, an Indonesian acronym denoting corruption, collusion and nepotism (korupsi, kolusi, nepotisme), encapsulated popular resentment against the authoritarian Soeharto regime during the financial and political crisis of 1998. Public demands to control widespread corruption were transformed into a set of legislation enacted between 1998 and 2002. Because corruption was endemic in existing law enforcement agencies, the centrepiece of the new legislation was the establishment of a new and independent agency to enforce them. Since 2004, this new entity, the Corruption Eradication Commission (KPK), equipped with a broad mandate in both prevention and enforcement, has spearheaded the government’s efforts against corruption. It has done so more effectively than any previous attempts in Indonesia and more successfully than comparative studies of specialized agencies in other developing countries would predict. This thesis examines the factors contributing to the KPK’s initial success. My research applies a theoretical framework derived from new institutional economics with reference to the growing body of literature on anti-corruption agencies. The analysis is based on a detailed review of legislation and associated policy documents. Application of the new laws by the KPK and its impact on formal and informal institutions is examined by drawing on semi-structured interviews during 2009 with more than sixty decision-makers and observers including academics, NGOs and donor agency representatives. These data are supported by content analysis of selected Indonesian media. This study finds that effective anti-corruption reform can be achieved in a highly corrupt environment if the third-party enforcement agencies maintain their political independence and integrity and in turn retain public support, so that the incentives that lead to corruption can be changed through consistent preventive measures and law enforcement. In Indonesia, the economic crisis, regime change and popular pressure led to a political consensus on the establishment of new formal anti-corruption institutions including new third-party agencies. The design of these anti-corruption institutions was influenced but not predetermined by international precedents and donor intervention. Precautions were put in place to maintain the integrity and political independence of the KPK, most notably the sequential selection recruitment of its leadership, thereby diluting loyalties of the nominees to particular groups. The KPK’s human resource management system has avoided the weaknesses of the Indonesian civil service system through higher, more transparent remuneration that aligns individual performance with organisational objectives. The KPK has increased the risks of engaging in corruption but, impeded by its organisational design, has as yet failed to reduce the opportunities and systemic weaknesses that lead to endemic corruption. The KPK’s law enforcement has generated public support but also resistance from vested interests. Resistance to the KPK has mostly taken legal form, allowing for examination by the courts and public pressure that have in turn consolidated the KPK and the Anti-Corruption Court. The long-term sustainability of the KPK and other formal anti-corruption institutions is dependent on consistent law enforcement, more preventive measures at national level and on maintaining public trust in their integrity.