Indonesian Fulfills Aim for Firm, Nation
It made sense when USC asked Indonesian billionaire Mochtar Riady to become the first Asian member of its board of trustees in 1994, joining filmmaker Steven Spielberg and retired Hughes Aircraft chief Malcolm Currie.
After all, Riady, now 67, was a powerful symbol of Asian entrepreneurship, a former bicycle shop owner who controlled a multibillion-dollar empire stretching from Jakarta to Hong Kong to downtown Los Angeles.
While other ethnic Chinese business moguls quietly built their network of property holdings and influence around the world, the Riady family enjoyed a higher profile, befriending prominent U.S. business leaders and politicians and promoting U.S.-Indonesian relations.
Since then, the family’s ties to the United States, particularly its close relationship with President Clinton, have become a major source of controversy. To Republican critics of the president, Riady has come to represent a foreign billionaire’s corruption of the U.S. campaign system.
$475,000 in Donations
Riady family members and the U.S. subsidiaries and executives of the family’s company, the Lippo Group, have contributed more than $475,000 to the Democratic Party and its candidates since 1991. One Lippo executive, John Huang, became a high-ranking Commerce Department official in 1994, and then became vice chairman of the Democratic National Finance Committee, where he has become embroiled in disputes over the solicitation of campaign donations. And one of Riady’s enterprises hired Clinton confidant Webster L. Hubbell after he resigned from the Justice Department when he was charged with defrauding his Arkansas law firm.
With election day nearing, Republicans are calling for a federal investigation of Clinton’s ties to the Riady family. The Clinton administration has strongly denied any wrongdoing.
It is too early to know whether this political firestorm will harm the Riady family’s standing in the U.S. or U.S.-Indonesian relations, but back home, Muslim politicians, angered that the high-profile ethnic Chinese family may be shifting money off shore, have called for a criminal investigation.
Whatever the outcome, Riady has managed to achieve one of his longtime objectives, bringing the Lippo Group and his adopted homeland, the world’s fourth-most populous country, out of obscurity, albeit not in a way he intended.
While not the largest, the Lippo Group is certainly the most visible of the ethnic Chinese conglomerates that dominate the Indonesian economy. Lippo controls seven publicly listed companies, including Indonesia’s fifth-largest bank, Lippo Bank, and is the mastermind behind two giant real estate developments--Lippo Village and Lippo City--outside Jakarta, the Indonesian capital.
In Hong Kong, where the Lippo name adorns the prominent twin towers once owned by Australian magnate Alan Bond, Lippo Ltd. controls four listed companies. And the family has much more money in private investments throughout the world.
Tie to Arkansas Bank
In the United States, the Lippo Group has been known primarily through the Los Angeles-based Lippo Bank, formerly known as the Bank of Trade, which was purchased by the Riady family in 1984.
That year, the family also bought an interest in the Worthen Bank & Trust of Little Rock, Ark., which they owned with Arkansas businessman Jackson Stephens. It was through its investment in the ill-fated Worthen Bank that the Riady family became friends with then-Arkansas Gov. Clinton.
Over the years, the elder Riady has raised his visibility in the United States. He holds an honorary degree from Golden Gate University in San Francisco and is a founding member of the U.S.-Indonesia Society, an organization dedicated to improving bilateral relations.
At USC, Riady is one of 47 trustees who meet annually to guide the university’s development. Riady’s son, Stephen, 36, who heads Lippo’s operations in Hong Kong, is a graduate of USC’s business school.
Another son, James, 39, ran the family’s U.S. operations. After a stint in Arkansas, where his family became close with the Clintons, even joining them on picnics, he moved to Los Angeles, where he headed Lippo Bank’s U.S. subsidiary for several years.
In Southern California, James became a familiar face in Asian community circles, helped establish the Indonesian Business Society and hobnobbed with Democratic politicians.
At a 1992 Los Angeles fund-raiser for Clinton when he was campaigning for the presidency, prominent Asian community leaders were kept waiting at a Chinese restaurant for 30 minutes while Clinton chatted with James Riady in a private room.
In 1988-89, contributions from Lippo executives to state politicians totaled $66,839. James and his wife, Aileen, contributed at least $11,569 to various state candidates..
That put Riady over the $10,000 threshold for that year--requiring him to file a major donor statement. He did not do so until informed that he had to--almost two years after the report was due. A subsequent $7,090 fine was lowered to $250, by March Fong Eu, then California’s secretary of state. The Riadys also contributed $1,470 to Democrat Eu’s campaign, according to Legi-Tech, a firm that tracks campaign contributions.
Cited for Violations
In 1989, federal regulators cited Lippo Bank for a number of violations, including lax management and discrimination against non-Asian minorities in lending activities.
The Los Angeles bank, which has branches in Chinatown, Westminster, San Jose and San Francisco, continued business under the eye of federal regulators, but the bank lost money year after year.
In 1994, the faltering bank, assets of which are estimated at $110 million, took another hit when the Federal Deposit Insurance Corp. found evidence of violations of laws designed to prevent money laundering. As part of their agreement, the bank’s officers were told to keep better track of large cash transactions.
Lippo’s Hong Kong operations had also come under scrutiny in 1993, when Hong Kong stock market regulators criticized Lippo Securities involvement in a bidding war for a Hong Kong securities firm.
In Indonesia, the latest accusations against Lippo have barely made the front page of the newspapers.
The Riady family’s close ties to the Clinton administration are well-known in Indonesia. A visit to the office of James Riady, who returned to Jakarta in 1989 to oversee Lippo Bank, was a regular stop on the tours of visiting U.S. dignitaries.
The Riadys are perceived as relatively clean in corrupt Indonesia, where economist-analyst Christiano Wibisono estimates bribes add as much as 30% to the cost of a project.
Conglomerates routinely “contribute” millions of dollars to President Suharto during campaign time. Lippo’s donations to the Democrats are “not a big deal at all, compared to the corruption that occurs in Indonesia,” says politician Sri-Bintang. “And what can you get for that small amount? It’s nothing at all.”
Analyst Andreas Harsono calls the contributions to the Democrats “pocket money” for the Lippo Group. “If President Suharto asks companies to donate money, it is in the millions. A billion is not unheard of.”
Series of Setbacks
Of greater concern to many Indonesians, particularly shareholders in Lippo Group subsidiaries, is the health of the group, which had been buffeted by a series of financial setbacks even before the latest controversy.
Late last year, Lippo Bank suffered what one analyst described as a “mild bank run” after rumors that the groups’ two giant real estate projects were suffering cash-flow problems.
More recently, the Riady family has been criticized for engineering a controversial corporate restructuring that allowed them to take millions of dollars out of the family’s listed operations and increased the cross-ownership among Lippo’s bank, insurance firm and securities company.
In response to criticism that the family was secretly trying to move money out of the country, James Riady promised Lippo’s minority shareholders, who ended up approving the restructuring, that the family would reinvest its money in Indonesia.
Analysts in Jakarta said they still have reservations about the health of the listed companies.
China looms large on the horizon. The Riady family has moved aggressively into Hong Kong and southern China, where it has allied itself with one of Hong Kong’s most powerful real estate moguls, Li Ka-shing.
Like many ethnic Chinese who have prospered in Southeast Asia, the Riady family has adapted to its circumstances. In Indonesia, it is known by the Riady surname. In Hong Kong and Fujian, the family’s home province, they are known as the Lis.
The family has formed powerful alliances throughout Asia. In Indonesia, the elder Riady was formerly involved with Bank Central Asia, the country’s largest private bank, where he developed a close friendship with Liem Sioe Liong, the country’s wealthiest individual and a close friend of the president.
Lippo’s Hong Kong offices are headquartered in the former home of Australian magnate Alan Bond, a pair of gleaming silver towers near Central Hong Kong. that are designed to look like koala bears are clutching the sides.
The Riady family conglomerate has so far succeeded where corporate raider Bond failed, by carefully building ties with Chinese government interests and Hong Kong power brokers and cautiously investing in the mainland.
The Riadys bought the Hongkong Chinese Bank in 1984, using the now-defunct Worthen & and Trust of Little Rock. Hong Kong tycoon Li Ka-shing and Chinese government-backed China Resources are shareholders.
In addition to the bank, Lippo’s Hong Kong companies are involved in securities, real estate development, the travel business and merchant banking.
With an eye toward 1997, when Hong Kong returns to Chinese rule, Lippo has used Hong Kong as a base for its forays into China, particularly the family’s ancestral province of Fujian. The firm’s ambitious master plan for the province includes hotels, commercial property, a power plant, port and airport construction.
Iritani reported from Los Angeles and Farley from Hong Kong.
