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NEWS UPDATES Asean Affairs        26  May 2011

Indonesian banks have fraud holes

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Commercial banks in Indonesia are not prepared to deal with operational risks, including possible money-laundering practices, in their personal banking services, a Bank Indonesia official said on Wednesday.

Muliaman Hadad, the deputy governor in charge of banking regulation at the central bank, said Bank Indonesia would issue new regulations to prevent further bank fraud. His comments came after the central bank finished its study of services offered by 23 banks.

Earlier this month, Bank Indonesia imposed a one-month suspension on acquiring new premium clients on the country’s 23 commerical banks. The ban came in the wake of a fraud case involving Inong Melinda Dee, a Citibank premium relationship manager who allegedly embezzled Rp 20 billion (US$2.3 million) from the accounts of her clients.

“From our inspection of 23 banks, we found some of the innovative products and services were not matched with bank readiness to mitigate the operational risks, including the occurance of money-laundering,” Muliaman said in a hearing with House of Representatives Commission XI, which oversees financial affairs, on Wednesday.

Among the weaknesses found were a lack of reviews and periodic monitoring of policy by top management, consistency of standard operating procedures and internal controls.

Muliaman said weaknesses were found in human resources. He said banks had little understanding of their own employees and lacked implementation of “know your employees” principles. Another weakness was in information technology, where data on customers’ funds did not integrate with their investment portfolio.

“Such double recording creates a hole for fraud and makes it harder to supervise,” said Difi A. Johansyah, a spokesman for the central bank.

The final weakness was in banks’ internal controls and business processes.

“There are no surprise audits. A relationship manager can modify customers’ data and unauthorized fund withdrawals could go unnoticed,” Muliaman said.

In response to the findings, the central bank will issue new regulations that complement existing supervision rules and try to prevent more fraud cases.

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It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

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