Crack down on bad bankers

Crack down on bad bankers

Many citizens have become very skeptical about the willingness
and/or courage of law enforcers to dig deep into the roots of the
Rp 1.7 trillion (US$200 million) lending scam at the country's
second largest bank, state-owned Bank Negara Indonesia (BNI).

However, in a Cabinet meeting on Monday, ministers gave
priority to a discussion on the BNI loan fraud, which is perhaps
a strong signal that the government seems determined to get to
the bottom of the scandal.

That the President chaired the Cabinet meeting with several
coordinating ministers, the central bank governor, the attorney
general and the chiefs of the police, military and the national
intelligence, shows that the government really means business
this time.

Judging from the influence and power held by the senior
officials who were at the meeting, the government wanted to see
to it that investigations into the BNI scandal should be well
coordinated and thorough.

President Megawati Soekarnoputri should indeed be outraged by
this wanton fraud because it took place on her watch and just a
few years after the government had spent more than Rp 650
trillion in taxpayers' money to bail out and restructure the
banking industry.

What made this even more worrisome was the fact that the
fraud, which involved only the use of bogus letters of credit,
had been ongoing for more than a year up to July 2003, apparently
without detection by internal auditors, senior management
executives, independent auditors or the supervisors from the
central bank.

Perhaps even more mind-boggling is the fact that state-owned
Bank BNI is a publicly listed company, and therefore subject to
tough disclosure requirements. It also must have a compliance
director, who is specifically in charge of ensuring that the bank
fully complies with all laws, rules and standards set both by the
bank itself and the central bank.

If such a crudely conceived, multimillion dollar hoax could
occur at such a giant, publicly listed bank for over a year
without being detected by the internal and independent auditors,
directors and commissioners, we have reason to be greatly
concerned about the quality of supervision at state-controlled
banks.

It is rather ominous that what took place at Bank BNI may
reflect the quality of governance at other state-controlled
banks, and thus the situation is quite worrying indeed because
after the massive banking recapitalization in 1998-2000, most of
the large banks are now government-controlled.

Hence, the President's direct involvement in the handling of
this high-profile case is greatly warranted. We can still clearly
remember how the law enforcers deliberately botched up the
handling of the Rp 654 billion Bank Bali scandal in 1999, which
implicated many well-known politicians and senior officials. In
fact, all of the defendants in the Bank Bali scandal that were
eventually taken to court were acquitted of all charges.

The BNI loan scandal also has an element of a high-level
cover-up because, as the preliminary investigations found, the
flow of the funds derived from the swindle was very similar to
the Bank Bali scandal, with cash flowing to more than 150
accounts belonging to persons and companies within the country
and overseas.

So it is encouraging that now the President herself has paid
keen attention to the BNI scandal and has instructed all agencies
related to the case to work in a coordinated effort to
investigate and prosecute all those involved, as well as
tracking the money trail. There is a better chance that the
culprits will be brought to justice this time.

The success in bringing all those implicated in the BNI
debacle to justice is quite vital as a deterrent to banking
crimes in the future, because the authorities now have a chance
to demonstrate to all would-be corruptors that the costs of
corruption will be very dear indeed. Most believe that there is
no chance at all for those involved in the BNI fraud to escape
justice as they can now be convicted by multi-layered criminal
charges based on the Criminal Codes and the laws on banking,
money laundering and corruption.

But justice is only part of the solution, and is not enough to
protect the banking industry from bad bankers and white-collar
criminals. The BNI calamity should be a strong reminder to the
bank supervisors at the central bank and the banking industry as
a whole to realize that integrity and technical competence are
the primary prerequisites for good bankers willing to ensure good
governance practices.

The BNI scandal, which was followed by a another similar case
of fraud at state Bank Rakyat Indonesia, once again proves how
the government can never be a good banker. It is therefore most
imperative and urgent now for the government to put all state-
controlled banks under private management and ownership so that
it can focus its attention on the regulatory system.