BI Governor's conviction

BI Governor's conviction

The Central Jakarta District Court's sentencing of Bank
Indonesia's Governor Sjahril Sabirin to three years in jail for
his involvement in the 1999 Bank Bali scandal surprised most
lawyers and analysts, who had expected his acquittal after three
principal defendants in the same corruption case had earlier been
judged as innocent.

As Sjahril has decided to appeal, we should let the higher
court or the Supreme Court make a final legal decision on that
matter, a process that may take until the central bank governor
officially ends his five-year term in March, 2003.

The verdict should be welcomed as evidence of a more concerted
effort by the government to combat corruption. But the decision
raised questions as to why Sjahril was convicted while the
persons who were primarily responsible for and were the main
conspirators in the crime were declared innocent.

We are also troubled by the inconsistencies in the judgment
and the discriminatory manner in which the Attorney General's
Office prosecuted those suspected of involvement in the scandal.

Sjahrir was found guilty of corruption, as he approved Bank
Bali's claims for Rp 905 billion (US$80 million based on the
rupiah rate in mid-1999) in inter-bank claims in violation of
prudential banking regulations. However, three main defendants --
Rudy Ramli, Pande Lubis and Djoko Tjandra -- were acquitted
because the judges decided that because the Bank Bali scandal
caused no losses to the state, it could not be classified as
corruption.

If breaches of prudential banking rules were the main reasons
that led to Sjahril's conviction, then justice is not blind here,
because the decision to pay Bank Bali's claims went through a
multistep process involving then minister of finance Bambang
Subianto, deputy chairmen of the Indonesian Bank Restructuring
Agency (IBRA) Farid Harianto and Pande Lubis and several
directors at the central bank.

The Bank Bali scandal was indeed a classic case of corruption
and patronage politics within the government, which has been
assessed as one of the most corrupt in the world.

A special investigation of the scandal conducted by
PricewaterhouseCoopers at the request of then IBRA chairman Glenn
Yusuf and the Supreme Audit Agency in late 1999 uncovered
numerous indications of fraud, noncompliance, irregularity,
misappropriation, undue preferential treatment, concealment,
bribery and corruption during the processing and payment of Bank
Bali's claims.

PwC discovered, with the support of more than 37 documents as
exhibits to validate its findings, that Bank Bali's claims, which
had been rejected as ineligible for payment under the blanket
guarantee scheme by IBRA and the central bank, suddenly gained
special attention from both institutions in February, 1999 .

The claims were not only reexamined by both institutions soon
after Rudy Ramli hired PT Era Giat Prima, a company owned by
leaders and supporters of the Golkar party, as a broker to
collect the loans. The joint ruling of the minister of finance
and the central bank on the requirements for claims to be paid
were suddenly amended in May, 1999 to make the Bank Bali claims
eligible for payment.

The PwC report describes a flurry of meetings between then
minister of finance Bambang, Rudy, PT Era Giat Prima's directors
Djoko Chandra and Setya Novanto, Golkar leader A. Baramuli, IBRA
deputy chairman Pande Lubis, minister of state enterprises Tanri
Abeng and several other Golkar executives between February and
May, 1999, discussing the processing of Bank Bali's claims. Yet
the report mentioned only one such meeting at which Sjahril was
present.

The investigations also discovered how almost all the senior
officials involved in the processing of the claims had actually
known of the "cessie" (debt collection) agreement between Bank
Bali and Era Giat Prima.

The debt collection service was unnecessary because if the
claims did not meet the requirements set by the minister of
finance and the central bank, nobody could have made them valid
anyway.

But the fact was that it was only after the signing of the
agreement, Bank Bali's claims were reviewed and made valid and
eligible for payment after both the minister of finance and the
central bank amended their joint ruling on the requirements.

PwC also discovered how numerous transfers of funds suddenly
flowed out of Era Giat Prima's and Djoko's accounts, immediately
after Bank Bali paid Rp 546 billion in broker's fees to the
accounts of a number of Golkar leaders and many other senior
government officials and businessmen affiliated with the Golkar
party. These transactions involved techniques commonly associated
with money laundering, such as currency swaps, foreign exchange
deals and cash withdrawals.

But then attorney general Marzuki Darusman, himself a Golkar
leader, did not make any effort to follow the money and uncover
the whole truth about the scandal.

The report describes how IBRA deputy chairman Pande Lubis and
Bank Indonesia's director and deputy director for banking
development division Erman Munzir and Dragono Lisan seemed to be
the most responsible for verifying and processing the claims. Yet
only Lubis has thus far been brought to court, and was eventually
declared innocent.

Sjahril's conviction will therefore not help to improve the
public's confidence in the government's credibility and
resoluteness in law enforcement, notably in the fight against
corruption, if others strongly suspected of involvement in the
Bank Bali scandal are not prosecuted.