The Jakarta Post/Asia News Network

Fri, Apr 22, 2011

http://news.asiaone.com/News/Latest%2BNews/Business/Story/A1Story20110422-275092.html

"We'll have to go through some unprecedented hurdles before we can finally get a green light from the central bank to investigate money laundering allegations at Citibank," Financial Transaction Reports and Analysis Centre (PPATK) chairman Yunus Husein said.

Yunus' remark may suggest the conspicuously daunting task the watchdog has to bear in investigating the case, as the fate of a dozen of active and retired public officials - as well as the reputation of Citibank as a prominent player in the financial world - are at stake.

Despite the looming opposition, the PPATK officially launched the investigation on Monday.

The investigation follows in the wake of allegations that Citibank senior relationship manager Inong Malinda embezzled at least Rp 17 billion (S$2.4 million) from bank customers and laundered the proceeds through material purchases and an investment company.

The PPATK found indications that public officials were among Malinda's clients in Citibank's Citigold program, which requires customers to have a balance of at least Rp 500 million.

According to a source at the PPATK who declined to be named, Malinda's clients included police generals, local administration leaders and their families. The police have repeatedly denied that any of its officers had Citibank accounts.

"The watchdog wants to verify indications that public officials are laundering their money at the bank. That's why we are deploying our investigators to look into the bank accounts," said Yunus.

The investigation, which was expected to take about 30 days, would also follow the trail of funds related to Malinda's alleged embezzlement and verify Citibank's compliance with regulations designed to prevent money laundering.

Investigators, Yunus said, would determine if Citibank exercised due diligence in opening accounts for "politically exposed" customers, such as public officials who might be more likely to engage in money laundering.

"It's about time Citibank and other banks to go beyond the 'Know Your Customer' policy, and start applying a 'Customer Due Diligence' policy to clients who are public officials."

Normally, it takes more than seven years for the highest rank of public officials to accumulate Rp 500 million in savings, based entirely on their official take-home pay.

Suspicions that Malinda's clients might include such officials were bolstered after only three of her clients came forward and filed police reports.

The three alleged that a total of Rp 17 billion was withdrawn from their accounts without authorization. However, Malinda might have allegedly embezzled Rp 90 billion from her customers, according to police.

"Of course no one will stand up to report Malinda as her clients may include wealthy public officials who are afraid that if they file reports then they may end up being investigated for money laundering," economist Dradjat Wibowo, a former legislator with the National Mandate Party (PAN), said.

According to a former Citibank employee who declined to be named, no action was taken after the bank's compliance division flagged Malinda for alleged money laundering during an audit around five years ago.

"There was a kind of unwritten regulation that nobody could touch Malinda and her high-value clients," the former employee said.

Citibank's senior management also apparently did not transfer Malinda, a 22-year veteran of the bank, to another position out of fear of upsetting her clients.

Bank Indonesia (BI) requires banks to regularly rotate their executives to avoid conflicts of interest and the potential for collusion.

"We couldn't rotate Malinda because of opposition from her clients," Citibank's vice president for customer care Hotman Simbolon said at a recent hearing at the House of Representatives.

Citibank's decision to compromise regulatory compliance so as to please its clients may not be exclusive to Indonesia.

In June 2009, Japan's Financial Services Agency ordered Citibank to suspend retail banking operations for one month after it failed to beef up money laundering prevention programs targeting criminal syndicates and other underground organizations.

The agency alleged that Citibank had insufficiently monitored suspicious transactions.

Citibank eventually apologized to customers after the ban and pledged to implement all measures needed to prevent a reoccurrence of the problems identified by Japanese regulators.

BI instructed Citibank to freeze its high-value client Citigold program in the wake of the embezzlement allegations. No sanctions, however, were handed out to Citibank executives.

The question remains as to the susceptibility of high-value customer banking services in Indonesia to money laundering.

President director of state-run Bank Negara Indonesia (BNI) Gatot Suwondo said the services were extremely susceptible to money laundering. Gatot said many bureaucrats had money invested in such programs, which usually required a minimum balance of Rp 1 billion.

"There are some [bureaucrats] in the program. But [it's] mostly rich people from the regions," he said on the sidelines of a Cabinet meeting in Bogor, West Java, on Monday.

BNI is among several lenders that reported suspicious transactions connected to the accounts held by the relatives of former tax official Bahasyim Assifie, who used a private banking service to disguise the origins of funds he embezzled.

Bahasyim was sentenced to 10 years' imprisonment in February for money laundering.

When it comes to suspicious transactions, bankers usually have three options: take a customer's money and then report it to the PPATK, decline to accept the money out of fear it might damage the bank's reputation or take the money and ignore any violations.

"The risks outweigh the benefits if you tolerate suspicious transaction at your bank - particularly to your reputation," state-run Bank Mandiri president director Zulkifli Zaini said.

In response to the money laundering allegation, Citibank spokesperson Ditta Amahorseya said while the PPATK was conducting their audit, it would be premature to comment on the issue. "Citi has a robust anti-money laundering policy and strong internal controls - this is the rationale behind our decision to report it to the authority."

The bank has retained the services of Roesmanhadi Law Firm - owned by former National Police chief Gen. (ret) Roesmanhadi - to deal with the cases.