Four banks probed over KKM scheme

The repercussions from the Karangasem Development Cooperative (KKM) scheme continue to surface as Bank Indonesia's Denpasar office announced Tuesday it was opening an inquiry into four banks where the cooperative had stashed its members' money.

BI Denpasar head Viraguna Bagoes Oka said the central bank's supervisory team was going through the accounts and funds opened by the KKM in the four banks to look for any discrepancies.

"We're looking at whether the opening of the accounts and the flow of funds was done within procedure, and if the sources of the money can be identified and tracked down and so on," Viraguna told reporters.

He refused to name the banks involved, saying only that his supervisory team was "keeping a close eye" on them.

Bali Police closed down the KKM on Friday after it was suspected of running a Ponzi scheme. The cooperative, which started up in 2006, offered a ludicrously high interest rate of 150 percent on deposits made by members.

The practice is believed to have cost KKM members more than Rp 210 billion (US$17.5 million) in losses.

The police have detained KKM director I Putu Gede Kertia and manager I Nengah Wijanegara. Both are charged with violating Article 16 of Law No. 10/1998 on Banking, for running banking operations without a license from BI. They face a maximum sentence of 15 years in prison and Rp 15 billion in fines.

Police are questioning both suspects to figure out how to recover the members' money, much of which was placed in several banks across the island under numerous accounts.

When asked whether the banks would be persecuted for storing the KKM's money, Viraguna said this would depend on BI's findings.

"Sanctions will be meted out in accordance with the offence, whether it's a simple procedural mistake or something that may result in a criminal indictment," he said.

He also said BI Denpasar was keeping watch over small banks that may have lent money to the KKM or its investors, pointing out this could be detrimental to the rate of nonperforming loans (NPL).

When asked whether the KKM had broken banking regulations, Viraguna refused to comment because cooperatives did not come under the central bank's authority.

However, he said BI still needed to act because investors could be using money borrowed from banks to invest in the KKM, and because of the funds placed by the KKM in the four banks.

He also lamented that so many people had participated in the scheme. The KKM has an estimated 62,000 members.

"I have relatives in Karangasem who have fallen victim to this scheme," he said.

Viraguna also denied rumors the KKM had deposited funds with BI Denpasar.

"That's a complete lie. There are no such funds at our bank," he said, urging the public not to believe rumors linking the KKM with BI.

He added his office was ready to cooperate with the Bali Police to explain banking regulations, but admitted he had yet to be contacted by the police.

"Which is why we can neither announce nor do anything yet, so as not to interfere with the police investigation. All we can do is wait," he said.

Wasti Atmodjo , The Jakarta Post , Denpasar | Thu, 02/26/2009 1:59 PM | Bali