Bank Indonesia renews agreement to nab fraudsters

Urip Hudiono, The Jakarta Post, Jakarta

In light of the increasing number of fraud cases occurring in the country's banking sector over the past year, Bank Indonesia (BI) on Monday renewed its cooperation agreement with the National Police and the Attorney General's Office (AGO) in order to better tackle such cases.

BI governor Burhanuddin Abdullah said that the new agreement would be a revamp of a similar agreement that the three institutions had signed in 1997. Law enforcers would now be given more authority to swiftly crack down on any possible misconduct by bad bankers.

"Today's agreement will enable the police and prosecutors to act immediately based only on BI's reports of fraud indications in a bank," he told a press conference after the inking of the agreement.

Previously, Burhanuddin explained, law enforcers could only investigate such indications of banking crimes after there was solid evidence from BI of wrongdoing.

Meanwhile, the central bank, which is responsible for supervising every bank operating in the country, also had no authority to investigate the cases on its own.

The country had witnessed several banking fraud cases over the year, with the most recent leading to BI's closing of Bank Global's operations last week due to its worsening financial condition and indications of fraud.

The central bank had also shut down Bank Asiatic and Bank Dagang Bali (BDB) in April for similar reasons.

Burhanuddin explained that preventing banking fraud was particularly difficult as most of them stemmed from the bad faith of the bank owners themselves.

"This would certainly lead to attempts to cover up their criminal activities," he said.

In the case of Bank Global, BI officials had been denied access to Bank Global documents in order to investigate indications of fictitious lendings and other fraud. The management had also attempted to destroy documents, before police intervened.

The management of Bank Asiatic and BDB, meanwhile, had been suspected of manipulating loans between themselves.

Burhanuddin stressed the critical importance for related institutions to coordinate with one another.

"Learning from the particular experience with Bank Global, which is a publicly listed bank, it is important that everyone now helps in monitoring banks," he said.

BI has, however, been criticized by many -- including the finance ministry -- for acting too slowly on indications that Bank Global's management had been committing fraudulent acts.

Despite such criticism, Burhanuddin explained that BI has up to now received 250 reports of possible frauds in 130 banks and 178 reports from 93 rural credit banks.

"Of those reports, 404 of them are now under intense investigation," he said.

Meanwhile, Attorney General Abdulrahman Saleh said that what was also important in banking fraud cases was how authorities could redeem state and public funds that may have been lost in the crimes.

"Besides bringing those responsible for such banking frauds to court, there is also a duty to recover the funds," he said.

The government has spent over Rp 600 trillion (US$64 billion) in public funds bailing out banks as a result of the 1997 financial crisis. Most of this money will never be recovered.

The country's banking law stipulates a maximum penalty of 15 years in prison and a Rp 500 million fine for bank fraud crimes.

In the case of Bank Asiatic and BDB, however, the Central Jakarta District Court only sentenced their management to one year in prison for their crimes.