Bill Guerin, Jakarta – Just when investors might have been thinking it was safe to look at Indonesia a little less skeptically, the biggest banking scandal to hit the country since the central bank liquidity scandal, this one involving Bank Negara Indonesia (BNI) and allegedly fraudulent letters of credit, has shattered confidence yet again.
With BNI marked for semi-privatization next year, the scandal could hardly have come at a worse time. It highlights concerns raised by the International Monetary Fund (IMF) over corporate governance in Indonesia and the central Bank Indonesia's failure to detect the scam until a year after it allegedly began. The BNI embezzlement involves huge losses in connection with the alleged issuance of fictitious letters of credit worth Rp1.7 trillion (US$200 million) between December 2002 and July 2003. It also involves an apparent femme fatale, Maria Pauliene Lumowa, a middle-aged Indonesian woman with Dutch citizenship who lives in Singapore, as well as, according to local newspapers, three of the Golkar party's seven presidential candidates who allegedly received campaign funds.
Chief among them is the former military commander Wiranto, a leader in the sweepstakes to become the country's next president. The retired four-star general, who temporarily launched a singing career after being cashiered from his cabinet position for not taking action to stop massacres in East Timor in 1999, has heatedly denied any meetings with Edi Santoso, a key suspect in the case. Santo, according to his lawyer, met twice with Wiranto, once to discuss campaign funds.
National Police chief General Da'i Bachtiar told local reporters on Monday that his investigators would question everyone believed to be connected with the flow of BNI money. "We shall summon every relevant actor connected to the scandal, including those who have received money from the main suspects," Da'i was quoted as saying.
BNI, with some 8 million accounts and assets of Rp123.7 trillion, now faces huge losses from the scandal, in which the money was allegedly disbursed through 105 transactions without formal assessments or checks. Losses from the bogus transactions could equal half of BNI's forecast 2003 net profit, the bank says. The credits were disbursed to local companies by BNI's Kebayoran Baru branch in South Jakarta, ostensibly to finance commodity exports to the Congo and Kenya between December and July, even though the exports were never made.
The requests for export credit facilities were supported with letters of credit from little-known banks in Kenya, Switzerland and the Cook Islands that were not only unknown to staff but were not on the BNI list of correspondent banks. This alone meant the transactions violated BNI internal regulations.
The key mover and key suspect is Lumowa, a plump 55-year-old known as Erry, who, according to the local press, was "always clad in sparkling, expensive jewelry", reportedly has businesses spread over at least four countries and is said to have a "sparkling personality". She shows no intention of coming back from Singapore to face questioning. Nor has Singapore, which has steadfastly refused to sign an extradition treaty with Indonesia and which has been accused of sheltering errant Indonesian bankers and conglomerate owners on the run from justice, shown any sign of wishing to turn her over.
As the full extent of the scam was being exposed in Jakarta, BNI's president director, Saifuddien Hasan, and compliance director Mohammad Arsjad flew to Singapore this month to meet with Lumowa. BNI senior officials remain tight-lipped about the meeting other than confirming it took place.
Five days later, police in Indonesia listed Lumowa and seven others as fugitives. Eleven people ultimately have been charged with corruption, violations of banking laws and embezzlement and are currently in police custody being interrogated. Jeffrey Baso, Lumowa's former husband, has also been arrested along with another key suspect, Adrian Waworuntu.
The letters of credit were disbursed to accounts of several local companies: PT Pan Kifros, PT Metrantara, PT Bhinnekatama Pacific, PT Magnetique Usaha Esa Indonesia, PT Triranu Caraka Pacific, PT Basomasindo and PT Gramarindo Mega Indonesia (Gramarindo). An internal BNI audit showed that Gramarindo was owned by Lumowa, Baso, and Waworuntu. The latter cut his teeth with Bank of America before teaming up with Endang Utari Mokodompit, the eldest daughter of the late Ibnu Sutowo, founder of state-owned oil giant Pertamina and who, in the words of one local commentator, had connections that "sometimes allow them to evade the laws of financial gravity".
Mokodompit, in what was almost standard operating procedure for bank owners at the time, had been channeling loans from Bank Pacific, jointly owned by Bank Indonesia and the Sutowo family, to her own businesses, creating bad debts of Rp1 trillion for the bank.
In 1995 the attorney general instructed that investigations be halted into claims that she and Waworuntu had defrauded Bank Pacific. Bank Pacific was then taken over by BNI, but was liquidated by the government in November 1997.
Lumowa, Baso and Wawarunto are also connected through businesses set up to meet Singapore's relentless demands for sand. PT D'Consortium Indonesia, a sand-mining and dredging consortium operating out of Riau province, had ex-banker Dicky Iskandar Dinata as chief executive officer, and Waworuntu as a commissioner. Baso had his own sea-sand-dredging outfit, PT Bahtera Bintang Selatan, and Waworuntu owned another dredger, PT Sumber Sarana Bintang Jaya.
Dinata, once deputy CEO of Bank Duta, was sentenced to 10 years in prison in 1990 over a Rp780 billion foreign-exchange fraud at the bank. Unfortunately for Dinata, though he has not been charged or even questioned in the BNI case, he heads up another of Lumowa's operations, PT Brocolin International, which is alleged to have also received money from the BNI fraud. Perhaps fearing another conviction, he has been nearly hysterical to local reporters in denying involvement.
Brocolin, set up in March this year, is 70 percent owned by Lumowa's sister, Indonesian national Jane Iriany Lumowa, with the rest equally split between Waworuntu and Baso.
The investment company has been buying up assets being sold off at big discounts by the Indonesian Bank Restructuring Agency (IBRA), including rubber, cocoa and palm-oil plantations.
Edi Santoso, head of the international services division at the Kebayoran Baru branch, is one of those detained along with his boss Kusadiyuwono, head of the branch. Kusadiyuwono put up his own umbrella, saying last Thursday through his lawyers that he was "bypassed" in the fraudulent credit disbursement by Santoso.
Santoso, the lawyers said, had gone ahead with the transactions even without their client's approval. Santoso's lawyer, Herman Kadir, hit back, saying that all the statements made by Kusdiyuwono's lawyer were lies and that finalization of the transactions "should be made by the branch manager and someone at headquarters", so his client could not possibly have disbursed money without their approval. Santoso is in deep water with Wiranto after Santoso told local media last week that he had met the former military commander twice in the course of disbursing the funds, suggesting that he had been psychologically pressured into disbursing the letters of credit despite Wiranto's denials. Wiranto in turn has reported Santoso and his lawyer Herman Kadir to police for alleged defamation and slander in their statements linking him to the scam. Little wonder, given that one of the Santoso statements claimed that at a meeting in April, Wiranto told Santoso he lacked sufficient funds for his presidential bid.
Kusadiyuwono's lawyers said their client did not know Wiranto at all.
Non-performing loans, some Rp2.3 trillion worth, are a persistent problem for BNI. On top of that the Texmaco Group, the failed textiles and engineering giant, owes $100 million. Four years ago, BNI was also in the spotlight over three pre-shipment credits of $276 million, $240 million and Rp240 billion disbursed to Texmaco.
Marimutu Sinivasan, the charismatic founder, had enjoyed political patronage from the ousted dictator Suharto, who, persuaded that Texmaco needed to be "saved" as a national asset, instructed the governor of Bank Indonesia to release the credits to settle Texmaco's foreign debts. Since April 2002 several other instances of branch office fraud have been discovered.
The bank has set aside a provision of Rp941 billion to cover the losses from the latest scandal. Consequently September's net profit dropped to Rp1.17 trillion from Rp2.1 trillion in the same period last year.
State Enterprises Minister Laksamana Sukardi has said BNI's management will be reshuffled at a shareholders meeting next month, though the bank's board has denied any wrongdoing and directors have refused to accept responsibility for the loss. Sukardi and senior deputy governor of Bank Indonesia Anwar Nasution earlier called on the management of the bank to accept responsibility for the case.
Nasution said the board of directors and the board of commissioners of Bank BNI should be held accountable, even if they were not directly involved in the crime, adding that the central bank may impose sanctions on BNI. He added that the fraud could not have been committed without the complicity of parties at the bank.
Though the central bank, now independent, monitors banks and conducts spot checks, analysts say the challenge to improve accountability of public officials and public institutions at all levels has not been met to the full. The banking sector has swallowed up $75 billion of government funds for recapitalization and restructuring since the crisis, but once again corruption is likely to affect adversely the business and financial climate and investor confidence in Indonesia.
The government is hoping to raise nearly $500 million by selling 40.5 percent of state-owned Bank Rakyat Indonesia (BRI). Kookmin Bank of Korea and Temasek Holdings, the investment arm of the Singaporean government, won the bidding for 51 percent of Bank Internasional Indonesia in late October just as the BNI scandal was breaking.