SBY'S ANTI CORRUPTION CAMPAIGN MOVES FORWARD

C O N F I D E N T I A L SECTION 01 OF 06 JAKARTA 003490 SIPDIS AIDAC SIPDIS DEPT FOR EAP/MTS, EB/IFD/ODF AND EB/IFD/OIA DEPT PASS AID FOR ANE/AA-KUNDER E.O. 12958: DECL: 03/16/2016 TAGS: PGOV KCOR KMCA ECON EINV ID SUBJECT: SBY'S ANTI CORRUPTION CAMPAIGN MOVES FORWARD REF: A. JAKARTA 2392 - BANK MANDIRI ACQUITTALS ¶B. JAKARTA 1652 - EX-RELIGIOUS AFFAIRS MINISTER CONVICTED ¶C. 05 JAKARTA 7222 - ANTI-CORRUPTION EFFORTS ¶D. 05 JAKARTA 5048 - PUTEH CONVICTION ¶E. 05 JAKARTA 5119 KPU CORRUPTION CASE JAKARTA 00003490 001.2 OF 006 Classified By: Finance and Development Officer Ruth M. Hall, Reasons 1. 4 (b,d) ¶1. (SBU) Summary. President Susilo Bambang Yudhoyono's (SBY) anti-corruption campaign, the most significant since Indonesia's independence, has made progress in recent months with a slew of high-profile investigations and prosecutions of current and former Government of Indonesia (GOI) officials. The Anti-Corruption Commission (KPK) and other GOI anti-corruption bodies have begun rapidly increasing their capacity and have received significant budget increases in 2006. The KPK in particular has bloomed: increasing staff; training new investigators; and receiving robust technical help from donors. Regional prosecutors have launched new corruption cases. Corruption watchdogs have begun to proliferate: 20-30 national groups and 200-400 local groups monitor the police, the government, and the judiciary. Indonesia,s media also energetically report on corruption cases. While the anti-corruption effort is still in its early stages, the atmosphere in the bureaucracy has changed with officials at all levels reluctant to take actions that could appear improper (and land them in jail). Less positively, we see a growing concern among GOI Ministers and the business community that the lack of a clear understanding of the "loss to the state" provision of the 1999 Anti-Corruption Law has slowed bureaucratic decision-making to a crawl: cautious bureaucrats decide that doing nothing appears safer than risking a corruption investigation. Finding a balance between fighting corruption and ensuring that government work continues will remain a challenge. End Summary. ¶2. (SBU) This comprises the first of two cables analyzing SBY's signature anti-corruption campaign and the challenges he and his Administration face in reducing corruption in Indonesia. This message addresses the GOI's prosecutorial successes to date and the ongoing development of anti-corruption institutions in Indonesia. A second message will outline the major legal, judicial, and institutional hurdles to achieving deeper progress in eradicating corruption, and areas where the U.S. might further assist. Corruption Caseload Rising Fast -------------- ¶3. (SBU) Over the past year, Indonesia's three main anti-corruption bodies -- the Attorney General's Office (AGO),the Anti-Corruption Commission (KPK) and the Interagency Coordination Team for Corruption Eradication -- have initiated hundreds of corruption cases across Indonesia. By our count, Indonesian courts have convicted nearly 70 current or former senior officials of the central government, local governments, courts, or regional parliaments on corruption charges (including a former Minister),with many now serving prison terms. Attorney General Abdul Rachman Saleh told visiting U.S. Senator Russell Feingold on February 22 that the AGO alone had initiated over 500 corruption cases in the past year. Investigations of corruption into Indonesia's 150-plus state-owned enterprises (SOEs) have increased noticeably, and the Minister of State Owned Enterprises publicly identified 16 SOEs with a "corruption problem." Paragraph 18 contains a partial list of prominent corruption cases GOI anti-corruption bodies at all levels have investigated or prosecuted over the past year. Anti-Corruption Institutions Developing Rapidly -------------- -- ¶4. (SBU) Behind the increase in corruption cases lies a trio of anti-corruption institutions undergoing significant change. The 2006 budget increased the allocation for the AGO JAKARTA 00003490 002.2 OF 006 by 76 percent in nominal terms, and for the first time, the KPK received a separate budget line item of Rp 224 billion or USD 24 million, a 32 percent increase over the Rp 170 billion or USD 18 million it received in 2005 through a less formal budget process. KPK employees will begin receiving formal salary payments in 2006 instead of informal allowances. The KPK anticipates that employees will earn more than civil servants with a salary based on a private sector average. ¶5. (SBU) The KPK hired 180 new investigators and support staff in 2005, and as of February 2006 had 56 full-time corruption investigators. As it trains new staff, the KPK receives assistance from numerous sources including the Asian Development Bank, the World Bank, the European Commission, the International Monetary Fund, USAID, Australia's AUSAID, the Japan International Cooperation Agency (JICA),the German Agency for Technical Assistance (GTZ),the Korean Independent Commission Against Corruption, Hong Kong's Anti-Corruption Commission, and the Asia Foundation. Because of the number of donors involved the KPK has developed an eleven-page matrix of ongoing projects. As of December 2005, the KPK had 17 cases in the investigation stage and 14 in the prosecution stage. Transparency International Indonesia told us it remains optimistic about the KPK and sees it as having the commitment to do a good job fighting corruption, but it needs more capacity. Interagency Coordination Team and AGO -------------- ¶6. (SBU) In May 2005, SBY issued Presidential Decree 11/2005 establishing an "Interagency Coordination Team for Corruption Eradication." The 48-member team, located at the AGO, includes prosecutors from the Attorney General's Office, investigators from the Indonesian National Police (INP),and auditors from the Supreme Audit Board (BPK). Hendarman Supandji, the highly-regarded Deputy Attorney General for Special Crimes, heads the team and reports directly to SBY. The team has a core mandate to investigate and prosecute corruption within government and state-owned enterprises. Relations between the interagency team and the KPK seem good. The Team has initiated a large number of investigations, and has begun prosecutions in several, with the most notable the successful prosecution of the former Minister for Religious Affairs and his deputy, convicted of diverting money from a fund to support the Hajj. The Team's has a two-year mandate with the possibility of an extension. ¶7. (SBU) The AGO has over 5,000 attorneys nation-wide in two major prosecutor divisions, the General Crimes and Special Crimes Divisions. The Special Crimes Division handles corruption cases, along with financial crimes and some other cases. Unlike the KPK and interagency team, the Special Crimes Division has prosecutors in district office of the prosecution service in every province and district. The Special Crimes Division also has its own investigators, although they receive little or no training in financial and banking matters. Both Attorney General Saleh and Supandji focus on combating corruption, and their personal efforts largely explain the significant increase in corruption cases filed in the provinces. The Special Crimes Division has had some notable setbacks in prosecuting high-profile graft cases in the banking industry in Jakarta, however. We do not know if these acquittals resulted from poor prosecutor performance, judicial corruption, or some combination. ¶8. (SBU) Senior KPK officials have told us the three GOI anti-corruption institutions work together well in a "target rich environment." The KPK and AGO signed a resource sharing MOU in December 2005 for the prosecution of complex corruption cases. The three institutions have slightly different, but overlapping mandates. Article 11 of Law 30/2002 requires the KPK to focus on prosecutions involving: a) law enforcement and government executives; b) cases involving a loss to the state of over a billion Rupiah (USD 109,000); and c) cases that have "attracted the attention and dismay of the general public." The interagency team receives most of its leads from within the Government, and therefore JAKARTA 00003490 003.2 OF 006 focuses on senior officials in government and state-owned enterprises. In contrast, the Special Crimes Division focuses mostly on smaller corruption cases, cases investigated by the INP, cases in the provinces, and bank frauds. Police and Anti-Money Laundering Agency Helping -------------- -- ¶9. (SBU) Improved performance by the Indonesian National Police (INP),and an increasingly effective anti-money laundering agency have contributed to the GOI anti-corruption campaign. New INP Chief General Sutanto has supported steps to clean up police corruption and strengthen internal discipline. Dubbed "Mr. Clean," General Sutanto has pushed for a more operationally effective INP, focused on combating terrorism, gambling, narcotics, illegal logging and corruption. During the second half of 2005, police discipline in Indonesia significantly improved. For the first time, high-ranking police officers became the subject of disciplinary measures or criminal investigation related to corruption cases. By early 2006, police arrested three INP generals or declared them suspects in corruption cases. These numbers will increase once police complete an investigation into a series of suspicious bank accounts owned by over a dozen INP senior officers. ¶10. (SBU) Since its creation in April 2002, the Indonesian Financial Transaction Reports and Analysis Centre (PPATK) has developed into a positive force in the GOI's anti-corruption effort. The PPATK has a great deal of donor assistance, including from FinCEN and USAID, to develop a credible and effective money-laundering regime. The PPATK has assisted investigations of the KPK and interagency team, and trained KPK, police and AGO staff. PPATK experts have testified in corruption trials, including the case against Adrian Waworuntu, a former client of state-owned Bank Negara Indonesia and involved in the Bank Pacific scandal in the mid-1990s. PPATK also has actively hunted assets that corruption suspects may have transferred overseas. The PPATK and Swiss authorities recently initiated investigations into accounts in Swiss banks under the name of Eddie Neloe, the former Bank Mandiri President Director recently acquitted on corruption charges. Reports from the PPATK also touched off the INP internal investigation by reporting on suspicious financial transactions by 16 senior police officials. Media and Anti-Corruption Watchdogs Blossoming -------------- - ¶11. (SBU) A rapid growth in the number and effectiveness of civil society organizations (CSOs) and non-governmental organizations (NGOs) monitoring corruption in Indonesia has created a supportive political environment for SBY's anti-corruption campaign, but also increased the public's expectations for progress. The German Agency for Technical Assistance (GTZ) estimates 200 - 400 CSOs or NGOs now monitor corruption in Indonesia, with 20-30 reliable national organizations. Transparency International (TI) and Indonesia Corruption Watch (ICW) the best-established national organizations, join with other groups including Police Watch, Indonesia's Judicial Monitoring Community (MAPPI),Indonesia Procurement Watch (IPW),Institute for the Independence of the Judiciary, and others. The "Institute for Public Prosecutor Performance, Monitoring of North Sumatra (LPPKK SU)," a new Sumatra-based NGO, has formed a coalition with like-minded NGOs in Bandung, Yogyakarta, Makassar, Semarang and Surabaya to promote a corruption-free judiciary. While most show commitment, they often lack capacity and need financial support. ¶12. (SBU) Indonesia's raucous news media regularly carry extensive "exposes" publicizing the misdeeds of government officials at all levels, as well as prominent business leaders. The leading weekly news magazine "Tempo" has led on many stories, but daily papers of various stripes also feature frequent corruption stories. In their editorial pages most papers also aggressively condemn corruption. The JAKARTA 00003490 004.2 OF 006 Surabaya daily "Jawa Pos" ran a series of front-page exposes on INP Chief Sutanto's support for former Surabaya Police Chief Sutarman's efforts to fight internal police corruption. The Jawa Pos managing editors told ConGen Surabaya that for the first time they had felt able to conduct such investigations without reprisals. The editors noted that even though they had received some threats, support "from the top" allowed them to continue. Atmosphere Changing--But Has It Gone Too Far? -------------- ¶13. (SBU) Government officials, local business leaders and other contacts have told us the atmosphere in the bureaucracy has changed significantly as SBY's anti-corruption campaign makes headway. The large number of corruption cases in the courts coupled with vigorous press reporting on corruption cases act as clear disincentives. Our contacts in the international business community report far fewer requests for payoffs, especially large ones. A longtime U.S. businessman told us "no GOI official wants to see his name on the next big corruption case." ¶14. (C) The increased pressure on the bureaucracy, however, has left many GOI officials even less willing to make decisions for fear of appearance of impropriety. This particularly applies to officials involved in government procurement or the sale of GOI assets. The Deputy Head of the GOI Asset Management Agency (PPA) told us that he and his colleagues in the PPA management had decided to make no more decisions until the rules become clearer. Finance Minister Sri Mulyani noted in a speech on February 23 that Indonesia's battle with corruption will prove "long, difficult and painful," and that while the GOI must become serious about corruption, it needs a balance between anti-corruption measures as a deterrent and paralysis created by over-zealous efforts. Mulyani has counseled patience as Indonesia tries to solve entrenched corruption problems. ¶15. (SBU) Much of the confusion relates to a noticeable lack of clarity concerning the "losses to the state" provision of Law 31/1999 on Corruption Law. That provision finds an individual guilty of corruption if he/she enriches himself/herself or others or a corporate entity in a manner that causes "losses to the state." No consensus exists among prosecutors or judges re the meaning of this provision; few of them have training in business transactions. To add confusion, a different definition of "losses to the state" exists in the 2004 State Treasury Law, which defines it as "actual and certain loss of money, goods and securities." According to press reports, disagreement over whether the existence of a bad loan at Bank Mandiri in and of itself represented a "loss to the state" lay at the heart of the February 20 acquittal of former Mandiri President Director Eddie Neloe. ¶16. (SBU) A similar lack of clarity on the "losses to the state" provision has emerged in an investigation by the interagency team into allegations of corruption at state telecommunications giant PT Telkom. To the dismay of U.S. companies doing business with Telkom, investigators base their case solely on allegations that Telkom has under-priced voice over internet protocol (VOIP) long-distance telephone services, thus causing a loss to the state. They note that VOIP services commonly get priced below standard long-distance services, and that the investigators have no idea how the telecommunications industry works. The attorney for former Indonesian Bank Restructuring Agency (IBRA) Chairman Syafruddin Temenggung, held as a corruption suspect, told us the AGO's case against his client rests on highly simplistic approaches to complex business issues. SBY Wants To Focus on "Ongoing Corruption" -------------- ¶17. (C) Several Embassy contacts told us that SBY knows of the disruptive impact of his anti-corruption campaign on the work of the bureaucracy. A prominent Indonesian businessman JAKARTA 00003490 005.2 OF 006 described to us a February 17 meeting SBY chaired on anti-corruption issues with Attorney General Saleh, Bank Indonesia Governor Burhannudin Abdullah, Coordinating Minister for Economic Affairs Boediono, Indonesian Chamber of Commerce and Industry President Mohammed Hidayat, and himself. The meeting came as the Neloe trial roiled the banking sector, prompting fears that state banks might stop lending altogether to avoid facing corruption allegations should a loan go sour. According to our contact, at the meeting SBY told participants that he wanted the AGO and other anti-corruption bodies to "focus on ongoing corruption" (instead of older cases) and asked Saleh to come up with a plan within two weeks for making this shift. Since that meeting, our contact told us that Abdullah and INP Chief Sutanto agreed that local police in the regions would not arrest bank borrowers on suspicion of corruption related to non-performing loans without first consulting with regional BI branches. Police would retain the right to pursue ongoing corruption or extortion cases. Rap Sheet of Corruption Cases -------------- ¶18. (U) In February 2006, the Central Jakarta District Court found Said Agil Munawar, Minister of Religious Affairs, 1999-2004, guilty of misusing USD 71 million and gave him five years prison and a USD 250,000 fine (Ref B). -- From September to December 2005, the Anti-Corruption Court convicted three members of the Electoral Commission (KPU) on corruption charges (reftel E) handing out sentences from four to seven years. A fourth KPU member awaits trial; the KPK has summoned former KPU member and current Law/Human Rights Minister Hamis Awaludin for questioning. Over the last six months, the Anti-Corruption Court convicted four senior KPU staff members. -- In September 2005, the Anti-Corruption Commission (KPK) arrested five staff of the Supreme Court on bribery charges, and has launched a probe of Court justices. -- In February 2006, the Jakarta Prosecutors Office arrested the former Chairman of the Indonesian Bank Restructuring Agency (IBRA),Syafruddin Temenggung, as a corruption suspect regarding the disposal of a sugar factory in Gorontalo, Sulawesi. -- In January 2006, the Interagency Coordination Team for Corruption Eradication arrested South Jakarta District Court Judge Herman Alossitandi on extortion charges involving state pension fund Jamsostek. -- The AGO has arrested and convicted money launderers, with 18 people jailed to date. In Jakarta it recently initiated the first-ever prosecution in Indonesia combining corruption and money laundering charges in a single case. -- In April 2005, the Anti-Corruption Court sentenced Abdullah Puteh, the powerful former Governor of Aceh to ten years for graft (reftel D). -- In November 2005, the Nganjuk District Court in East Java sentenced the former chairman of the Nganjuk regency parliament (DPRD),Marmun, to two years after finding him guilty of stealing more than USD 200,000 in regency funds. -- In February 2006, the Sidoarjo District Court in East Java sentenced 11 former MPs of the Sidoarjo DPRD to 1-1.5 years in jail and ordered them to return most of the approximately USD 290,000 they were convicted of misappropriating. -- In October 2005, the Blitar District Court in East Java convicted the non-active regent of Blitar, Imam Muhadi after finding him guilty of illegally using state funds of USD 940,000. He received a prison sentence of 15 years; a fine of USD 40,000; and must return USD 367,000 to the GOI. -- In October 2005, the East Nusa Tenggara prosecutor's JAKARTA 00003490 006.2 OF 006 office declared Kupang Regent Ibrahim Agustinus and Deputy Regent Ruben Funay corruption suspects for the alleged misappropriation of USD 100,000 of DPRD funds. -- In October 2005, the Temanggung District Court sentenced the Regent of Temanggung, Central Java, Totok Ary Prabowo, to four years in jail and fined him USD 15,000. The court found Totok guilty of misappropriating 2004 general election funds amounting to USD 50,400. -- In December 2005, the Palu District Court began the trial of Andi Muhammad Abu Bakar, the non-active regent of Morowali regency in Central Sulawesi Province. He stands accused of misappropriating USD 290,000 for his personal use. -- In November 2005, the police arrested Andi Azikin, former acting regent of Poso regency in Central Sulawesi, together with three contractors and a broker for allegedly stealing USD 640,000 in Poso Humanitarian Assistance Funds. -- In January 2006, the Bali Prosecutor's Office began investigating 38 current and former members of the Bali DPRD for misappropriating USD 5.8 million of provincial funds from 1999 to 2004. Prosecutors also have begun investigating a Balinese member of the national Parliament. -- The North Sumatra Public Prosecutor Monitoring Institute reports that anti-corruption authorities in North Sumatra have investigated 28 cases of public corruption. Of those, five have resulted in charges including officials connected with the national electricity monopoly PLN. -- In June 2005, a district court in West Sumatra province convicted 43 of 55 members of the West Sumatra provincial legislature of graft for using their authority to steer funds to themselves and sentenced them to two years each. ¶19. (U) The Economic Section and Resident Legal Advisor jointly prepared this report. PASCOE