QSAR's fall brings lax regulations into spotlight

Berni K. Moestafa, The Jakarta Post, Jakarta

They may claim to be trading agricultural products, handicrafts, or cosmetics, but what companies like the now defunct PT Qurnia Subur Alam Raya (QSAR) really do is amass public funds without stringent regulations to protect investors.

So far no state institution has claimed responsibility for the debacle that followed QSAR's recent bankruptcy. Around 6,800 people lost Rp 500 billion (about US$56 million).

The subsequent finger pointing by officials however directs attention to lax regulations behind QSAR's alleged reckless dealings.

"We gave QSAR a license to trade agricultural products," said Sihar Pohan, head of the business development section at the Ministry of Trade and Industry on Monday. "Trading is covered in that license, public fund raising is not."

Indeed, QSAR is not the only company to seek public funds under various disguises. According to local media reports, about 40 agro-businesses could still be collecting money from the public the way QSAR did.

QSAR's permit, Sihar said, was issued by the administration of Sukabumi, the West Java town where the company was operating.

It did own some land, and some investors said they had seen the crops QSAR claimed it was selling to export markets.

But locals at Sukabumi said the company sold its agricultural products to nearby farmers. And far from earning exports in U.S. dollars, QSAR scooped billions of rupiah from unsuspecting investors lured by its profit sharing scheme which promised quick returns.

QSAR's collapse was quick. Efforts to see justice done are slow.

It seems difficult to pinpoint under what laws QSAR should have operated and thus be held accountable to, according to legal expert Rudy Satrio of the University of Indonesia.

"Basically it (QSAR operations) becomes criminal if it violates criminal articles in any of our laws," he said. What these laws were however are questionable.

For now, QSAR director Ramli Araby is charged with violating Bank Law 10/1998 Article 46 for collecting public funds in accounts without a permit. The maximum penalty is five years in jail.

He may also be charged under Criminal Code articles 378 and 372 on fraud which carry four-year sentences.

Bank Indonesia spokesman Erwin Riyanto however said the banking law was unsuitable as it applied only to illegal banks.

"Unless QSAR raised public funds and kept them in accounts ... or deposits," he said.

The law that could have stood between companies like QSAR and profit-hungry investors was the capital market law.

It requires that a company raising funds from more than 300 individual investors must first register itself with the Capital Market Supervisory Agency (Bapepam).

But the agency is turning its back on QSAR's case, arguing the law does not provide it with clear authority to deal with it. Bapepam said legislators should draft a new bill to prevent similar cases in the future.

"We try to warn regencies against issuing permits on business activities that reek of multilevel marketing or have investment- based schemes behind them," said Sihar.

Since companies must report their progress every six months to the permit issuer, he said, the Sukabumi administration should have moved earlier to suspend QSAR's operations.

However, from his office's experience in suspending the operations of fraudulent multilevel marketing firms, investors became furious when the management stopped paying them, he said.