Indonesia’s Rogue Bank

Indonesia’s Rogue Bank

As we were...

Stolen millions, money laundered to terrorists and the Russian Mafia are just a start

In a country replete with financial scandals, there are few with as many twists and turns as Bank Century, whose near failure in 2008 spurred fears of a systemic collapse of Indonesia’s financial system before it was taken over by Bank Indonesia, the central bank, and fashioned into what became Bank Mutiara.

The  bank is now known as Bank J Trust and is owned by a Japanese parent, Ikko Shoji Co. Ltd, with ties to gaming and the pachinko parlor industry in Japan, an industry that in turn has ties to Japan’s yakuza crime families.  Over the past three years, the bank has lost about US$50 million a year for a total of US$153 million, raising concerns that given Indonesia’s lax banking regulatory regime, the losses were to cover money laundered out to other countries, particularly Cyprus, a state known for warehousing Russian and other flight capital.

Subsequently the new J Trust owners bought into an obscure motorcycle-leasing operation in Thailand, eventually driving the stock to 100 times earnings via what appeared to be financial legerdemain before an auditor’s report brought the shares back to earth. According to a letter obtained by Asia Sentinel, they are now exploring motorcycle leasing across eastern Europe and Africa, from a new base in Cyprus, stirring concerns they would be charging usurious rates.

Investors in the Japanese parent include the Kirkland, Washington-based Taiyo Pacific Funds LLP, whose CEO and founding partner is Brian K. Heywood, and include Wilbur Ross, the Trump administration’s commerce secretary, formerly known as the “king of bankruptcy” for buying up distressed companies and selling them off later. The California Public Employees Retirement System, or Calpers, is also an investor.

Inauspicious Beginning

The story began in 2002 when three smaller banks were merged to create Bank Century – although allegedly it didn’t meet the most basic capital and other Bank Indonesia requirements for a banking license, conditions for which had been drastically tightened in the wake of multiple bank failures during the Asian financial crisis, 1997-99.

When the 2008 global financial crisis hit, the government poured US$830 million into Bank Century to keep it afloat, only to have at least US$350 million in bailout funds disappear out to Singaporean banks. Its beneficial owner, Robert Tantular, eventually was sentenced to 20 years in prison – although, with Indonesia’s porous prison system, he has often been seen on the outside.

The effort to save Bank Century cost Sri Mulyani Indrawati, then Indonesia’s globally respected finance minister, her job when political forces opposed to her reform efforts ganged up on her in the parliament and accused her of corruption.

Former Bank Indonesia Deputy Governor Budi Mulya was sentenced to 14 years in jail for corruption in the case for having taken a Rp1 billion loan (US$75,000) from the bank when he headed the central bank’s monetary operations and acted as chief auditor and regulator of the bank. According to sources in Indonesia, Budi and 22 auditors from Bank Indonesia were inside, monitoring Bank Century when the money disappeared.

Expert Alleges Money Washed to Cyprus

The money that vanished, a major part of which has been widely rumored in Jakarta to have been slush funds of the Democrat Party headed by former President Susilo Bambang Yudhoyono, has never been recovered.

According to a 67-page report dated Aug. 14, 2014 by money laundering expert Peter Barrie Brown, who was commissioned by Quinn Emanuel Urquhart & Sullivan UK, lawyers for Bank Mutiara, it appears that some of it was laundered out of Bank Century in 2008 and again out of Bank Mutiara in December of 2014 in a bewildering series of transactions between the Cyprus branch of a Tanzanian-based bank then known as the Federal Bank of the Middle East (FBME Bank), whose beneficial owners were Ayoub-Farid M and Fadi M Saab,  Lebanese brothers whose banking methods, according to African media are interesting to say the least:

In his report, which is in the public record at the New York Second Circuit Appellate Court, Brown said “the number of separate reasons for being suspicious are so many in total that I rate the whole arrangement and its operation to be the greatest collection of suspicious circumstances I have ever encountered in real life.”

berthelsen-mutiara

Source: Barrie Brown expert report

In 2014, the Financial Crimes Enforcement Network, a unit of the US Department of the Treasury, accused FBME, which is headquartered in Tanzania, of facilitating money laundering, terrorist financing, transnational organized crime, fraud schemes, sanctions evasion, weapons proliferation, corruption by politically-exposed persons and other financial crimes, particularly by the Russian Mafia and Hezbollah.  After the accusation, the Central Bank of Cyprus and the Bank of Tanzania respectively took over management of the bank and appointed new administrators.

Comments