Tom Allard, Jakarta – Indonesia's powerful corruption watchdog, the Corruption Eradication Commission, or KPK, is in disarray after two of its most senior officials were yesterday named by police as suspects in an investigation that alleges they allowed two executives to flee the country before facing justice for embezzlement.

The action follows the arrest earlier this year of the former chairman of the commission, Antasari Azhar, on charges of ordering the murder of another executive who was allegedly a rival for the affections of a young female golf caddy.

The spectacular implosion of the senior ranks of the commission – an institution until this year regarded by Indonesians as a heroic force for cleaning up the country's endemic culture of graft – has devastating consequences for President Susilo Bambang Yudhoyono's campaign to convince foreign investors that the country is making headway against corruption.

Perhaps most damaging of all, Indonesia's parliament appears set to neuter the commission with a bill that strips it of its ability to pursue those engaged in corruption and prosecute them in an anti-corruption court removed from the notoriously corrupt regular judiciary. Underpinning yesterday's naming and shaming of the two commission deputies, Chandra Hamzah and Bibit Samad Rianto, is a barely concealed war between the police and the office of the Attorney-General with the commission.

Senior members of the police and Attorney-General's department have been arrested and jailed by the commission.

If anything, the competing claims of corruption indicate that all the main institutions in Indonesia with a role in combating graft have, at the very least, some senior members who are themselves corrupt.

Mr Hamzah and Mr Rianto were both questioned at length on Tuesday and yesterday. They are accused of "abuse of power" in decisions to "apply and revoke travel bans" in two cases.

A travel ban was puzzlingly not applied to Anggoro Widjaja, the owner of a company under investigation by the commission. He fled the country before he was declared a suspect in the inquiry.

The other case involved Djoko Tjandra, a banker who pilfered about $500 million of taxpayer funds that were allocated to bail out his Bank Bali during the financial crisis of 1997-98. He escaped to Papua New Guinea the day before the Supreme Court rejected his appeal, consigning him to prison.

Both the allegations against the deputies came from Mr Azhar, their former boss.

Emerson Yuntho from Indonesian Corruption Watch said it was difficult to come to a judgment at this stage about the bona fides of the claims and counter-claims of corruption among the commission, police and Attorney-General's office.

"What we worry about is the [commission] as an institution," he said. "We must separate these two issues, the persons and the institution."

Mr Yuntho said the commission – with its independence, powers to compel testimony, and use of high-tech surveillance devices – was a model for anti-corruption.

But it appeared it would be emasculated. President Yudohoyno, he added, was doing nothing to prevent legislators from his own party supporting measures to greatly reduce its powers.

Indonesia's parliament is also seen as a deeply corrupt institution. Its members, too, have been snared by the commission. "There is a systematic effort to weaken the fight against corruption," Mr Yuntho said.