Letters of credit (L/Cs) feature prominently in two separate fraud cases in Indonesia where prosecutors are calling for tough sentences for those found guilty of defrauding banks.

Three former bank officials from the state-owned Bank Rakyat Indonesia (BRI) have been sentenced along with two company executives for frauds against that bank that are said to have cost the Indonesian taxpayer the equivalent of around US$32 million.

Meanwhile the trial continues of some of those suspected of perpetrating the massive US$200 million fraud that last year rocked Bank Negara Indonesia (BNI), the country's oldest bank (DC World News, 20 November 2003).

Bank Rakyat Indonesia

Two company executives have recently been sentenced to 15 years in jail each for their parts in frauds at BRI that resulted in the pair fraudulently obtaining around US$19.9 million from the bank.

The judge said Yudi Kartolo and Hartono Cahyajaya had in 2003 colluded with the heads of three BRI branches to defraud the bank, including through the issuance of L/Cs based on fictitious collateral and by using accounts belonging to third parties without their knowledge.

Bank meetings

The business executives used a company known as Delta Makmur Eksperindo as a vehicle to take money from the three branches.

They met at least four times with the branch heads and other conspirators before the illegal transactions were made, according to the judge.

Bank officials sentenced

All three former branch heads have been handed down jail terms for their roles in the BRI frauds.

Asep Tarwan, former head of the BRI branch in Surya Kencana, Bogor, south of Jakarta, was sentenced to 17 years in jail. Deden Gumilar Saputra, former head of the BRI branch in Segitiga Senen, Central Jakarta, was sentenced to 16 years; Agus Riyanto, former head of the BRI branch in Pasar Tanah Abang, Central Jakarta, was sentenced to 6 years.

Lack of trust

The judge said the defendants' actions had reduced public trust in the banking sector, hindered Indonesia's economic recovery and undermined the government's anti-corruption campaign.

The BRI case worsens international as well as domestic perceptions of Indonesian banks that were significantly damaged at the end of 2003 when news emerged of the massive US$200 million bank fraud at BNI, another Indonesian state bank.

Consequently prosecutors and the judiciary seem prepared to press for and hand down stiff sentences for those found guilty of defrauding banks.

Life sentence

At the ongoing BNI trials where some of those allegedly involved in frauds against that bank are facing charges, prosecutors recently recommended a life sentence for Edi Santoso, a key suspect in the scandal.

Public prosecutors also recommended that a second suspect, Kusadi Yuwono, be sentenced to 17 years in jail.

Bank officials

The two defendants are accused of swindling funds from BNI's branch in Kebayoran Baru, South Jakarta, through the issuance of fictitious L/Cs to two private companies from late 2002 to mid-2003.

Santoso is the former head of the branch's foreign customer service division, while Kusadi Yuwono is the former head of the branch.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.