Ruling in Favor of Indonesia Against Century Owner

Setting a Decision: ‘Justified’ bailout within the discretion and authority of the government, according to international tribunal

Jakarta Globe, Muhamad Al Azhari, Dec 18, 2014

A closed sign is put in front of the Bank Century office in Jakarta on Nov. 21, 2008.
THe bank now has been renamed Bank Mutiara. (JG Photo/Jurnasyanto Sukarno)

Jakarta. An international tribunal ruled in favor of the government of Indonesia in a case involving the controlled takeover of Bank Century from Saudi businessman Hesham Al Warraq, a law firm representing Indonesia said in a statement on Thursday.

“The Tribunal’s award follows a 2013 decision against Al Warraq’s partner, Rafat Ali Rizvi,” KarimSyah Law Firm said on Thursday.

KarimSyah represented Indonesia in the arbitration in conjunction with the Attorney General’s Office. The law firm also provides outside assisting counseling to Indonesia.

KarimSyah has brought victory for Indonesia in other international cases, including Indonesia one against US mining giant Newmont Mining over divestment of the miner’s Indonesian unit.

The Bank Century case began in November 2008 — at the height of the global financial crisis. Indonesian regulators bailed out the ailing lender through a Rp 6.7 trillion ($536 million) injection in an attempt to prevent systemic banking failure, which could pose risks to the economic stability of the nation.

After the bailout, the government, through Indonesia’s deposit insurance agency, known as LPS, took over the control of Bank Century, which has since been renamed Bank Mutiara.

Indonesian prosecutors brought criminal charges under Indonesia’s anti-corruption and anti-money laundering laws against previous owners Al Warraq and Rizvi, who accused them of draining more than $300 million out of the bank.

Neither investors appeared for the trial, but both were convicted in Indonesian court in absentia.

Al Warraq brought a claim through the Organization of the Islamic Conference Investment Agreement against the government of Indonesia in 2011.

He sought for compensations over what he defined as an expropriation of his shares in Bank Century.

The court favored Indonesia, saying: “It is the view of the Tribunal that the bailout was within the discretion and authority of the government and was completely justified, particularly since Bank Century … could have caused a systemic risk to the entire Indonesian financial system.”

The tribunal also rejected Al Warraq’s claim that he was not afforded fair and equitable treatment in Indonesia.

For the embezzlement charge, the court called for different dispute resolution processes.

Bank Mutiara is now controlled by J Trust, a Tokyo-listed financial institution, which acquired a 99 percent stake in the Indonesian lender from LPS for Rp 4.41 trillion.