Fri, 12 Dec 2003

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.