pacific money | Economy | Southeast Asia
An investigation by the news magazine Tempo highlights the importance of both a free media and an empowered financial watchdog.
In early July, Tempo magazine, Indonesia’s long-time leader in investigative journalism, published a blockbuster story titled ACT of Betrayal. ACT (Aksi Cepat Tanggap, or Rapid Action Response) is a major charity that raises millions of dollars in donations every month. What reported by the Tempo teamFor years, much of that was apparently recycled into the pockets of executives through a variety of scams. The story is complete and well told, and worth the price of a subscription.
From 2018 to 2020, ACT raised an average of IDR 540 billion in annual donations (that’s about $36 million at current exchange rates). Indonesian charities are only supposed to use a maximum of 10 per cent of donations to cover their operating expenses, but ACT was taking nearly double that to cover executive salaries and benefits. This included IDR 250 million (over $16,000) per month for the organization’s president, Ahyudin, as well as three cars for his personal use. This is far more than the compensation received by executives of comparable organizations in Indonesia.
But the plucked did not stop there. ACT-owned companies were also making house and furniture payments for Ahyudin and her family totaling hundreds of thousands of dollars. The scam was so brazen that Ahyudin agreed to sit down for an interview with Tempo where he defended his actions by saying, “If I don’t have any money, I’m allowed to borrow from the foundation, right?” It is not.
Other scams involved building boarding schools and other facilities with low-quality materials and substandard build quality. These projects were allegedly billed at a premium and the difference between stated and actual costs skimmed and pocketed. This scam spread to mismanagement of funds deposited with ACT by Boeing as part of the Lion Air JT-610 accident settlement. About IDR 135 billion ($9 million) was supposed to be used to build schools and other facilities according to the wishes of the families of the victims. But as Tempo reported, ACT did not build them or built them very poorly.
Immediately after the story broke, the government revoked ACT’s license and it can no longer receive donations. The executives were taken in for questioning by the police, and within days, the Indonesian Financial Transaction Reporting and Analysis Center (known by its Indonesian acronym PPATK) announced that it had been monitoring the organization for financial transfers. suspected groups linked to terrorists. Bank accounts were frozen and investigations are ongoing. With a scandal of this scope and nature and where the perpetrators have incriminated themselves in the pages of Tempo, I cannot imagine that this will not result in serious legal consequences.
But what is obvious in all this mess is the critical importance of a free press that can do investigative journalism and hold powerful people and organizations accountable. Press freedom has come under pressure in recent years, but I think it’s fair to say that the Indonesian media still has more space than some of its regional peers do this kind of journalism. This story underscores 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 charities in general. According to monitoring report Per Tempo, PPATK claims that it has been investigating patterns of suspicious financial activity in the ACT for many years. However, it appears that they were unable to take any concrete action until Tempo broke the story and got things rolling, at which point the authorities acted rather quickly.
This is because, despite what could be a key role in regulating illicit financial activity, the PPATK currently lacks strong investigative powers. You can monitor and report, but it is ultimately up to the relevant law enforcement agencies to act. As Indonesia looks to deepen its capital markets and attract more financial flows, the potential for illicit financial activity, both domestically and across borders, is also increasing and requires a stronger watchdog.
Scandals like this one, where regulators and law enforcement were slow to detect wasteful financial hoaxes (ACT’s financial statements were audited and signed by an accounting firm every year), represent long-term reputational risk. In addition to the immorality of misusing charitable donations for personal gain, there are broader systemic reasons why the role of media outlets like Tempo and regulators like PPATK must be protected and strengthened in Indonesia. Hopefully, this case will help garner real support for lasting reforms.