Singapore Wishes Indonesian Investigation into Corruption Wasn't Happening

Not everyone is pleased that something is finally being done about cronyism
Life's daily drama that is modern Indonesia can be boiled down to an arm-wrestle between goodies and baddies. The reformist goodies are gathered under the moral and electoral authority of the President, Susilo Bambang Yudhoyono, now a year into a second five-year term and as popular as ever. Reform is sclerotic, but it is happening and Indonesians are starting to believe that democracy delivers not just a vote, but credible institutions. The baddies are the remnants of the Suharto era, wealthy political and business cronies and their heirs who loved the old Indonesia, where business was corruptly transacted in kretek-laden shadows, where justice was for sale to the highest bidder. Indonesians often ruefully joke they have the best legal system money can buy. And the tax system is the stuff of comedy skits.

Rarely has that been better exposed than in the scandal that has gripped Indonesia and which neighbouring Singapore, with its squeaky-clean image, must wish wasn't happening. The case centres on a whistleblowing cop, Susno Duadji, once Indonesia's most senior detective, who, after being picked up for questioning at the airport, began telling tales of institutionalised corruption. They included the story of a mid-ranking tax department official, Gayus Tambunan. Susno is accused of trying to destroy Indonesia's anti-corruption authority, while Gayus allegedly accepted black money from some of Indonesia's wealthiest people in return for favourable tax rulings - this in a country where the tax take is about 15 per cent of what's due.

There's complex domestic politics in all of this, not least the apparent hand in the machinations of SBY's political opponents, led by the country's richest man, Aburizal Bakrie, the head of Suharto's old political fief, the Golkar party. He seemed intent on destroying SBY's star cabinet performer, the Finance Minister, Sri Mulyani, but has been thwarted in that aim with Mulyani's move to be one of the World Bank's three managing directors. It is telling in the context of Indonesia trying to become reliable for foreign investment after 60 years of corruption and in the fact it is being aired, and throws a spotlight on aspects of Singapore's connection to Indonesia.

The bulk of the money in Singapore's vaults is clean. But some is not - one reason that despite the Association of South-East Asian Nations' famous unity, Indonesia and Singapore have no extradition treaty. In 2006, Merrill Lynch calculated that Singapore hosted about 20,000 Indonesian millionaires, fuelling a property and retailboom. Singapore's private bankers like to tell indiscreet anecdotes over Friday night cocktails along Boat Quay of nameless clients who gamble millions in foreign exchange bets, after accumulating fortunes doing public service jobs paying barely $2000 a month in Jakarta.

These financiers were known as ''briefcase bankers'', for the delectable array of investment products in their attaches, as they made the weekly run to service clients in Jakarta. But since the financial crisis, such ''exotics'' have become unfashionable (if not illegal) in some jurisdictions, and the bankers' flights from Changi Airport are not nearly as full as they were. Singapore could lose if dodgy deposits were pursued by Indonesian legal authorities, forcing account holders to send their cash elsewhere - say to Hong Kong, Singapore's competitor. And there are influential Indonesians, such as too many of its parliamentarians, who would not welcome an intrusion into their affairs in their weekend bolthole. So the extradition treaty deal does not get done.

But the Gayus case has changed that dynamic. Hiding in Singapore, he was ''persuaded'' by Indonesian investigators to return to Jakarta, where he is disgorging ''tip-of-the-iceberg'' revelations about corruption in the tax department, police force and judiciary, and explaining how he came to have $3 million in a Singapore account (he was supposed to have dealt with 150 companies).

Does this mean the Indonesian authorities will now march on Singapore and seize wrongdoers? No, because the serious money remains protected by expensive lawyers and influential patrons. Still, Gayus is being prosecuted for money-laundering and, in a continuing hearing, gave evidence that the money in his account was from a businessmanseeking help in paying taxes. What is sinking in is that the Indonesian bureaucracy is genuinely changing, and the tax models it is embracing are American, where Washington's Internal Revenue Service is zealous about pursuing evaders. As for the singing, sleazy cop Susno, fingered by the anti-corruption agency for trying to destroy it with bogus investigations on behalf of a person or persons still unknown, where did he head when the heat started? When detained by officials, he was about to board a flight to Singapore.

By Eric Ellis south-east Asia correspondent for Fortune magazine.