SUHARTO-LINKED FOUNDATION FOUND LIABLE FOR $110

C O N F I D E N T I A L SECTION 01 OF 02 JAKARTA 000640

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E.O. 12958: DECL: 04/01/2018
TAGS: PGOV KJUS KCOR KMCA ID
SUBJECT: SUHARTO-LINKED FOUNDATION FOUND LIABLE FOR $110
MILLION

REF: A. JAKARTA 433

B. 07 JAKARTA 2974

Classified By: Pol/C Joseph Legend Novak, reasons 1.4(b+d).


1. (C) SUMMARY: An Indonesian court ruled on March 27 that
the Suharto family-linked Supersemar Foundation had diverted
state funds. The court ordered the Foundation to pay $110
million. The court ruled, however, that the Suharto family
was not liable. It is positive that the Indonesian legal
system is trying to get at some of the Suharto network's
ill-gotten wealth. That said, years of legal maneuvering
probably lie ahead before even a rupiah is collected. END
SUMMARY.


2. (SBU) BACKGROUND: The Supersemar Foundation was
established at the order of the Suharto government in 1975 in
order to provide scholarships to poor students, athletes and
foster children. In 1976, the GOI mandated that all
state-owned banks give five percent of their profits to the
fund. The Foundation also received other financial support,
particularly from "private" donations (made basically thanks
to arm-twisting by the Suhartos and their cronies, especially
of wealthy Chinese Indonesians). After dropping an earlier
criminal suit against Suharto regarding the Foundation and
how its funds were used, prosecutors launched the current
civil suit in 2007.


3. (SBU) The suit alleged that the illegal diversion of
funds donated by GOI institutions resulted in the loss to the
state of approximately $440 million. The case has drawn
widespread attention due the involvement of the Suharto
family in the matter. The Court earlier ruled that the legal
case had not ceased when former president Suharto died in
early 2008. The case is one of several that the GOI is
pursuing in its attempt to recover some of the billions of
dollars that were stolen from public coffers during the
Suharto regime (see ref A).


4. (U) THE RULING: The South Jakarta District Court ruled
on March 27 that the Supersemar Foundation had illegally
diverted millions of dollars in fund proceeds to private
companies with links to the Suharto family. The Court agreed
with the prosecution's claim that the diverted funds totaled
some USD $440 million, but held that the source of those
funds remained unclear. Since the prosecution was unable to
provide definitive proof of exactly how much of the money
came from government--as opposed to private--sources, the
court decided the foundation should re-pay a flat 25 percent
of the total, or approximately $110 million, back to the
State. The Court also noted that it did not want to harm the
Foundation by assessing the full amount demanded by
prosecutors because the Foundation continued to do some
charitable work.


5. (U) The court also ruled that the Suharto family was not
personally responsible for the diversion of funds. Due to
this ruling, they were not assessed to pay anything.


6. (SBU) APPEALS TO COME: Lawyers for the foundation said
they would appeal the decision. This means likely
consideration by both the Appeals and the Supreme Courts
before a final decision is reached, a process which could
take years. Defense lawyers claim the arbitrary 25-percent
compensation formula is proof of the government's inability
to document its case. They also claim that the money given
to Supersemar by private donations made up a larger portion

JAKARTA 00000640 002 OF 002


of the funds, whereas the government can only seek the return
of public funding.


7. (U) The prosecution has also announced that it may appeal
on two bases: First, because the Suharto family was not held
liable; and, second, because the requested amount of damages
put forward by the prosecution had been slashed to a fourth
of the total.


8. (C) A SOLOMONIC RULING: It is positive that via this
ruling the Indonesian legal system is trying to get at some
of the Suharto network's ill-gotten wealth. That said, years
of legal maneuvering probably lie ahead before even a rupiah
is collected. If nothing else, the court's ruling on the
foundation's liability basically confirms what most
Indonesians have long suspected--the Suhartos used
foundations like Supersemar to rack up public money and dish
it out to themselves and their cronies. The exoneration of
the Suharto family, however, was a bit galling. The case
provides yet another example of the apparent reluctance of
Indonesian courts to sanction the late president and his
family, even after his death (ref B).

HUME