Pacific Money | Economy | Southeast Asia
An investigation by the news magazine Tempo highlights the importance both of a free media and an empowered financial watchdog.
At the beginning of July, Tempo magazine, Indonesia’s long-time leader in investigative journalism, broke a blockbuster story with the English title ACT of Betrayal. ACT (Aksi Cepat Tanggap, or Fast Action Response) is a major charity that collects millions of dollars in donations every month. As reported by the team at Tempo, for years a lot of that was apparently being recycled back into the pockets of executives through a variety of scams. The story is thorough and well-reported, and worth the price of a subscription.
From 2018 to 2020, ACT collected an average of IDR 540 billion in annual donations (that’s about $36 million at the current exchange rate). Indonesian charities are only supposed to use a maximum of 10 percent of donations to cover their operating expenses, but ACT was taking almost double that to cover executive salaries and perks. This included IDR 250 million (over $16,000) per month for the organization’s chairman, Ahyudin, as well as three cars for his personal use. This is far more than the compensation received by executives in comparable organizations in Indonesia.
But the fleecing didn’t stop there. Companies owned by ACT were also making payments on houses and furniture for Ahyudin and his family which totaled hundreds of thousands of dollars. The scam was so brazen that Ahyudin agreed to sit for an interview with Tempo where he defended his actions by saying, “If I don’t have money, it’s allowed for me to borrow from the foundation, isn’t it?” It is not.
Other scams involved the building of boarding schools and other facilities with low-grade materials and sub-standard construction quality. These projects were presumably billed at a premium with the difference between the stated and actual costs skimmed away and pocketed. This scam was extended to the mismanagement of funds deposited with ACT by Boeing as part of the Lion Air JT-610 crash settlement. About IDR 135 billion ($9 million) was supposed to be used to build schools and other facilities according to the wishes of the victims’ families. But as reported by Tempo, ACT either didn’t build them or built them very shoddily.
Immediately after the story broke, the government revoked ACT’s license and it can no longer receive donations. Executives have been brought in for police questioning, and within days the Indonesian Financial Transaction Reports and Analysis Center (known by its Indonesian acronym of PPATK) announced it had been monitoring the organization for suspicious financial transfers to potential terrorist-linked groups. Bank accounts were frozen, and investigations are underway. With a scandal of this scope and nature and where the perpetrators have incriminated themselves in the pages of Tempo, I cannot imagine this won’t result in some serious legal consequences.
But the thing that jumps out in this whole mess is the critical importance of a free press that can do investigative journalism and hold powerful people and organizations accountable. Press freedoms have been under pressure in recent years, but I think it’s fair to say Indonesian media still has more space than some of its regional peers to do this kind of journalism. This story underlines the importance of fighting to preserve that space, and demonstrates that it is ultimately in the public interest to do so.
The other thing about this story is the role of the PPATK, and the regulatory oversight of charitable organizations more generally. According to follow-up reporting by Tempo, the PPATK claims it has been looking into patterns of suspicious financial activity at ACT for many years. Yet it appears that they were not able to take any concrete action until Tempo broke the story and got the ball rolling, at which point authorities moved pretty quickly.
This is because, despite what could be a key role in regulating illicit financial activity, the PPATK currently lacks strong investigative powers. It can monitor and make reports, but it is ultimately up to the relevant law enforcement agencies to act. As Indonesia seeks to deepen its capital markets and attract more financial flows, the potential for illicit financial activity, both domestically and across borders, also increases and requires a stronger watchdog.
Scandals like this, where regulators and law enforcement were slow to catch profligate financial chicanery (ACT’s financial statements were audited and signed off on by an accounting firm every year), pose long-term reputational risk. Aside from the immorality of misusing charitable donations for personal profit, there are larger systemic reasons why the role of media outlets such as Tempo and regulators like the PPATK need to be protected and strengthened in Indonesia. Hopefully this case will help get real support behind lasting reforms.
