Police confirm bosses of closed banks to be tried

JAKARTA (JP): Legal proceedings on alleged banking fraud are expected to begin soon against owners and executives of all but three of the 16 banks closed by the government in November 1997, a police official confirmed on Saturday.

Col. Made Mangku Pastika, the head of the National Police economic crime unit, said that completed dossiers on the alleged fraud would be submitted to the court within the next two months.

He said dossiers on bankers from two of the banks would be submitted to the prosecutor this week, but he declined to disclose their identities.

"We expect all the dossiers of the 13 liquidated banks to have been completed in two months time," he told reporters on the sidelines of a seminar on banking.

Made said that court proceedings involving five officials and owners of two of the 16 banks -- Bank Dwipa Semesta and Bank Citra Hasta Dhanamanunggal -- were finished.

He did not state the penalties for the faulty bankers who breached the legal lending limit requirement.

Among the closed banks were Bank Andromeda and Bank Jakarta, respectively owned by a son and half-brother of former president Soeharto. The liquidation was part of the effort to restructure the country's ailing banking industry.

A police investigation of one of the banks, Bank Umum Majapahit, is virtually impossible because it had halted operations before the government announced its liquidation.

Bank Indonesia, the central bank, asked the police to investigate the bankers in May, and the authorities started questioning several bank owners in August. Allegations have centered on the breaching of the 20 percent legal lending limit.

If proven guilty, the bankers will face a maximum sentence of six years in jail and a Rp 6 billion fine under the 1992 banking law.

Several suspects have fled Jakarta and the police have put those under investigation on an overseas travel ban.

Made said that the completion of the dossiers was arduous due to the complexity of proving the suspects were guilty of channeling more than 20 percent of their money into their related businesses.

He characterized it "as a white-collar crime and organized crime," saying the bankers were alleged to have deliberately sought to conceal their intragroup lending by channeling funds through a series of companies before they reached the targeted company.

"The prosecutor's office is very demanding because if the dossiers are incomplete or don't contain strong facts, the suspects could get away with it."

Made explained that breaching the legal lending limit requirement, and financial engineering with the intention to get large Bank Indonesia liquidity support, were the most significant banking crimes discovered so far.

The government had to inject more than Rp 141 trillion in liquidity support to help banks in meeting massive withdrawals by panicked depositors following the closing of the 16 bank.

Liquidity support

Made suspected that some banks deliberately fiddled their books to get a larger amount of the liquidity support.

Owners and top official of 14 other banks, including seven which were liquidated in April, have been summoned by the police for questioning over the liquidity support they received.

Controlling shareholders had promised to surrender fixed assets to repay their debts, but President B.J. Habibie demanded a cash payment in one year.

The government is reconsidering the repayment system for the liquidity support following a letter from the IMF Asia Pacific director Hubert Neiss urging flexibility because a "fire sale" of assets would cause their prices to plunge.

Made also warned the banking authority over possible fraud in the bank recapitalization program, in which 80 percent of the recapitalization funds would be provided by the government.

He said there seemed to be a trend of banks positioning themselves in the category of institutions needing to be recapitalized.

Under the government recapitalization program, banks are first audited by international accountants and Bank Indonesia auditors. Only those which have capital adequacy ratio (CAR) of between minus 25 percent and less than 4 percent qualify for the government funding.

The government is requiring all of the country's more than 200 commercial banks to have a minimum CAR level of 4 percent by the end of this year. (rei)