Bank fraud blamed on insiders

Bank fraud blamed on insiders

Eva C. Komandjaja, The Jakarta Post, Bogor, West Java

Most bank fraud cases here occur with the help of employees who
have access to the accounts and are capable of persuading
decision-makers to dole out funds illegally.

Sigit Pramono, president director of state Bank Negara
Indonesia (BNI) said that if someone intended to embezzle money
from a bank, especially a large one, they would try to build a
relationship with one of the insiders.

"The relationship would be maintained for two to three years
until these insiders could be persuaded to do anything,
especially illicit things. Banks are very prone to this kind of
method," Sigit explained during a seminar on bank fraud over the
weekend.

The pattern was evident, according to Sigit, in cases
involving state banks such as Bank Mandiri, Bank Rakyat Indonesia
(BRI), Bank Internasional Indonesia (BII) and BNI, which caused
trillions of rupiahs in state losses.

"Internal controls within the banking institution are not
working properly. Inspectors, who should supervise the whole
administration of a bank, have to report to the head of the
branch. But what if the head of the branch is involved (in the
scandal) too?" Sigit said.

Member of the House of Representatives' Commission XI on
finance, Dradjad Wibowo, asserted that stricter internal control
mechanisms within each institution were necessary, as
embezzlement mostly involved bank employees.

Dradjad found that the graft cases involving banks were mostly
in the form of fake letters of credit, lending limit violations
and fake bonds.

BNI and Bank Mandiri reportedly had Rp 1.3 trillion (US$136
million) embezzled, in a scam that involved fake letters of
credit in 2003.

Lending limit violations are cases where insiders' involvement
is a must, said Dradjad.

"Lending scams take place when a bank's board of directors
work together with the debtors to disburse loans illegally so
that they can all share part of the loan for themselves," he
said.

A group of former top executives at Bank Mandiri have been
implicated in an alleged lending scam, which caused Rp 12
trillion in state losses for channeling loans to 24 companies in
contravention of bank regulations.

"This type of fraud has been popular since the government has
encouraged companies to seek infrastructure loans from banks,
although they can be very costly, and are seen as high-risk due
to a longer period of return, not to mention the vulnerability to
mark-ups," Dradjad said.

The pattern changes when it involves smaller banks, which are
usually managed by the owners or close relatives.

"In small banks, fraud is usually perpetrated by bank owners
who take money from customers' accounts and run away," Dradjad
said, referring to the Bank Global and Bank Pacific cases.

Police are still looking around for two top executives from
the now-defunct Bank Global for effectively stealing customers'
money by issuing fake bonds.

Dradjad urged the central bank to tighten supervision over
banks to prevent more scandals involving insiders.

"Taking money from a bank by illegal ways is a very easy thing
to do as long as you have enough money to start with and you can
bribe the bank employees and then law enforcement personnel if
you get caught," Dradjad said.