Esi Ronaldi embraces a photo of her late husband, Irzen Octa at her home in Jakarta, Indonesia on May 20, 2011.
Photographer: Munshi Ahmed/Bloomberg Markets via Bloomberg.
In life, Irzen Octa ranked among the least significant of Citigroup Inc.’s 200 million customers. In death, the cash-strapped small-businessman from Jakarta has come to haunt the reputation of the world’s 8th-biggest bank.
At dawn on an overcast March morning, Octa, 49, left his modest $60,000 row house on the western outskirts of the Indonesian capital and rode off on his Yamaha motor scooter into the frenetic traffic and equatorial heat. His destination: a Citibank office in a smart downtown neighborhood known as the Golden Triangle, where he was to discuss a 48 million rupiah ($5,500) principal debt on his Citibank platinum credit card, Bloomberg Markets magazine reports in its August issue.
After dropping his younger daughter at school, Octa walked into Citibank’s credit card collection department on the fifth floor of the Jamsostek tower just after 10 a.m. Four hours later, he left the 25-story building slumped motionless in a wheelchair -- a victim of what police allege was a violent assault by debt collectors. Driven to a nearby hospital in a Citibank car, Octa was pronounced dead on arrival.
There are starkly conflicting versions of what happened inside the room, barely larger than a broom closet, where Octa spent most of the time from 10 a.m. to 2 p.m. on March 29.
Octa’s widow is suing Citigroup for $348 million, claiming her husband died inside Citibank’s offices after being beaten by debt collectors trying to extract the equivalent of $12,000 from him, including accrued interest.
Back in the Black
The case comes as Citigroup bets its future on booming emerging markets like Indonesia. The New York-based bank, which lost $27.7 billion in 2008, was saved from collapse during the global financial crisis only by a $45 billion U.S. government bailout.
Since then, Chief Executive Officer Vikram Pandit has focused on developing economies, which are growing on average at three times the pace of Western nations, according to the International Monetary Fund.
Last year, Citi’s strategy helped the bank surge back into the black as emerging economies delivered more than half of its $10.6 billion profit. Operating in more than 100 countries, Citigroup is now the world’s 16th-strongest bank, according to rankings published in Bloomberg Markets.
Indonesia, the world’s fourth-biggest country, with a population of 240 million and an economy that grew at 6.46 percent in the first quarter of 2011, is a prime target of Pandit’s strategy. Indonesians are getting richer faster than any other Asia-Pacific national group, according to a 2010 Credit Suisse Group AG report, which said average wealth per adult had jumped fivefold in 10 years to $12,212.
As the Octa case suggests, winning business in countries such as Indonesia exposes Citigroup -- and indeed other multinational banks -- to risks that would seem beyond the pale in the West. In Indonesia, it can be difficult to recover debts through the courts, so Citibank outsourced debt collection to two Indonesian companies.
Three collectors met with Octa in the Citibank office. Their attorney says they acknowledge that one of them “tapped” Octa on the shoulder, kicked his chair and thumped a table, but they claim the businessman died of natural causes. They say that brain damage identified in an autopsy was caused by a stroke and that Octa was still alive when he was taken to the hospital.
Shariq Mukhtar, who was Citigroup’s Indonesia country head at the time, said on April 5 that an internal investigation found no evidence Octa was physically harmed in its offices. The police, however, have jailed the debt collectors and say they may charge some of them with causing death by neglect.
Citigroup’s travails didn’t begin or end with Octa’s death. Days earlier, the bank was shaken by the disclosure of another lurid incident.
On March 23, police arrested a female relationship manager in Citibank’s Citigold wealth-management department. Inong Malinda Dee, 47, who oversaw accounts worth $14 million and drove to work in a red Ferrari, was charged with embezzling $1.9 million from three clients in 2009 and 2010.
The alleged offenses came to light on March 11 when one of the 236 customers Malinda looked after complained about missing funds to Citigroup, which in turn called in the police.
When they raided two homes owned by Malinda, detectives seized two Ferraris, a Hummer and a Mercedes-Benz 350 coupe, which have now transformed a police vehicle compound into something akin to a luxury automobile showroom. She denies the charges against her: money laundering, falsifying bank documents and violating banking laws.
Lured to Indonesia
In May, the central bank, Bank Indonesia, banned Citigroup from issuing new credit cards for two years and from taking on new wealth-management clients for a year. The bank was concerned enough to fly its vice chairman, Lewis Kaden, from New York to Jakarta and back to express regret. “Both matters are being treated with the utmost seriousness by our senior management,” he said in a statement on May 2.
Though Kaden didn’t appear in public during his 48-hour stay, he did meet with government officials to reinforce that message, according to Richard Tesvich, a Hong Kong-based Citigroup spokesman.
Five weeks later, Citigroup disclosed to staff in a memo obtained by Bloomberg that it was replacing Mukhtar, its country head since 2005, with locally born Tigor M. Siahaan, 40, who had previously been in charge of the bank’s institutional business.
Citigroup’s rivals haven’t escaped the fallout. On April 29, the central bank told another 23 local and international lenders, including HSBC Holdings Plc, Standard Chartered Plc and Deutsche Bank AG, to stop accepting new wealth-management customers for a month while the banks improved internal supervision and customer protection practices.
‘The Grace of God’
Citibank and its competitors have been lured to Indonesia by the country’s barely tapped potential. While only 7 million Indonesians use credit cards, the number of middle-class consumers has swelled by 50 million to 131 million during the past eight years, the World Bank reported in March.
Growth is the upside for the banks. The downside: the sometimes unconventional business practices. Most banks, rather than employ their own debt collectors, follow local practice and hire Indonesian companies to do the work, says Jim Castle, a governor of the American Chamber of Commerce in Indonesia. “It’s not just Citibank,” Castle says. “Every banker I have talked to who has a credit card business says, ‘There but for the grace of God go I.’”
That’s no excuse, says Halim Alamsyah, deputy governor of Bank Indonesia. He says he was taken aback by both Citi scandals. “It shocked me, and it shocked the board,” Alamsyah says, referring to his fellow central bank governors. “This is Citibank we are discussing -- the world-class bank.”
Citigroup’s troubles in Indonesia are also cause for alarm for investors, says David Hilder, a banking analyst at Bala Cynwyd, Pennsylvania-based Susquehanna Financial Group LLLP, which owns Citigroup shares worth $245 million, according to data compiled by Bloomberg.
Citigroup, which CEO Pandit proudly described in the 2010 annual report as “America’s only truly global bank,” is increasingly dependent on far-flung markets. Last year, Citi’s profits from consumer-banking units in Asia jumped 52 percent to $2.17 billion compared with a 17 percent drop at the U.S. business. On its website, Citigroup boasts that one-third of all Asian billionaires outside Japan are among its private-banking clients.
Stumbling in Foreign Markets
In Indonesia, Citibank has assets of $6.5 billion, ranks as the largest foreign bank and owns nearly a third of the credit card market. The bank’s net profit from all operations in Indonesia has doubled in five years, to $254 million in 2010. For all of its successes, Citigroup has a history of stumbling in foreign markets, most recently in India, where Citigroup said in January it would compensate investors who fell victim to a $67 million fraud allegedly carried out by a local employee.
Such missteps suggest that Citigroup’s burgeoning overseas business has far outpaced its back-office capabilities, Susquehanna’s Hilder says. Addressing that weakness could dampen the earnings Citi expects out of markets such as Indonesia, he says. “In turn, that could weaken the argument that Citi stock should enjoy a premium multiple because of its exposure to emerging markets,” Hilder says.
Citicorp’s Indonesian debt-collection system may be a case in point. Only after Octa’s death did Citigroup announce that it would hire 1,400 new staff to bring debt collection in-house.
Citigroup should operate in Indonesia as it does in the U.S., says Otto Kaligis, a Jakarta attorney who once represented the dictator Suharto and is suing the bank on behalf of Octa’s widow, Esi Ronaldi. “In America, debt collectors can’t use brutality because it is against human rights,” Kaligis says. “The same applies here in Indonesia.”
A Compassionate Offer
Citigroup declines to comment on the Ronaldi lawsuit. It says it has strict rules forbidding debt collectors from using violence or threats. The bank’s policy, it says, is to work with customers to help them through difficult times; in Octa’s case, that meant offering to deduct 40 percent from the principal debt.
Citi says it has made a compassionate offer to the family through the Indonesian Red Cross to set up a fund for the Octa children’s education and the family’s living expenses. “We are deeply saddened,” Kaden said in his statement. “I can assure you that it has always been our intention to handle this very sad matter with genuine compassion for Octa’s family, and if we have done anything to suggest otherwise, we sincerely apologize.”
Coup and Counter-Coup
The stories of Octa, Malinda and Citigroup’s Indonesian adventure are entwined with the country’s turbulent history. Citigroup opened its first branch in 1968, a year after Suharto became president on the back of a coup and countercoup that claimed some 500,000 lives. As the economy grew, so did Citi’s position. From 1987, the Indonesian economy expanded at the rate of 7 percent annually for a decade. In 1989, two years into the surge, Citigroup became the first foreign bank to issue credit cards in Indonesia.
Citibank stood its ground even when the good times came to a halt in 1997 as the Asian financial crisis devastated Indonesia’s economy and mass riots left Jakarta ablaze. While local banks collapsed, Citi opened new branches. As the turmoil receded, Indonesia began to grow again, spawning thousands of small-time entrepreneurs.
Among them was Irzen Octa, who had come to Jakarta from Padang on the island of Sumatra. In 1994, Octa, who ran a courier and import-export business, married a Padang woman, Esi Ronaldi. At first, Ronaldi worked for her husband. After their daughters, Grace and Citra, now 16 and 15, were born, she became a full-time housewife.
Ronaldi, 48, who wears the hijab favored by many women in predominantly Muslim Indonesia, says her husband never told her how much he earned. Every month, Octa gave her about $580 for housekeeping and school fees.
There were few obvious luxuries. The highlight of the children’s week was to sleep in their parents’ room at the weekend. “They were proud of their father, and they want him back,” Ronaldi says, speaking Indonesian and weeping softly as she clutches a portrait of her husband. “He was a responsible and modest man.”
Octa did possess one status symbol: a Citibank platinum credit card. According to his wife, Octa had been a cardholder as long as she can remember, graduating from silver to gold to platinum status.
Knock on the Door
With the onset of the 2008 financial crisis, Octa’s business took a turn for the worse. Ronaldi also says he was distracted from his business by his politics; as democracy took root in Indonesia, he had helped to found a small political party, the National Unity Party.
Late one night last October, Octa answered a knock on the door to find six debt collectors there, Ronaldi says. “I was so afraid, but Octa said to me to be calm,” she says. “They used impolite words, and they shouted.” To Ronaldi’s embarrassment, they spent the night on the porch. “My neighbors heard all the details,” she says.
Seven months later, on March 28, as the family was preparing for evening prayers, she says, two more debt collectors arrived at the house. Ronaldi says her husband told her he had been offered a deal to repay only part of the arrears. He would visit the collection center the next day to settle his debts.
The next morning, Octa called the family together. “Let’s pray I will sign a contract for a project today,” he said. He then straddled the Yamaha and, with Citra on the back seat, rode off. It was the last time his wife saw him alive.
Commuting in a Ferrari
Around that time, Malinda was already making headlines. The daughter of an official in Indonesia’s transportation department, she studied management at Jakarta’s private Trisakti University, joined Citigroup as a teller in 1989 and was promoted to Citigold Executive in 2001. Citigroup says her annual salary was in the $42,000-to-$98,000 range, excluding incentives. According to her lawyer, Batara Simbolon, Malinda earned more than $200,000 with bonuses, had outside business interests and had total assets of $7 million.
Until her photos were splashed across the tabloid pages, Malinda’s lifestyle didn’t attract undue attention at the bank. She owned a condominium next to the Ritz-Carlton Hotel and was building a four-story house in an upmarket suburb. Testifying before a parliamentary committee inquiry into the Octa and Malinda scandals, Citibank country chief Mukhtar said that while he knew Malinda came to work in a Ferrari, he didn’t investigate because her husband worked for a car dealership.
In 2009, her lawyer says, Malinda split from her husband and married Andhika Gumilang, a 22-year-old actor to whom she gave a Hummer. According to police, that was the year Malinda began her allegedly fraudulent activities.
Having swapped her designer wardrobe for an orange prison uniform, Malinda maintains her innocence and says she’s been betrayed by her former employers. “She feels she was stabbed in the back by Citibank,” her lawyer says. In May, she was transferred to a police hospital ward after her blood pressure soared to 250/150 and she suffered complications caused by silicone breast implants, says Ibnu Hadjar, chief of medical services at the Indonesia Police Hospital.
As the various investigations moved forward, Citigroup executives sought to minimize the impact of the controversies swirling around them. New country chief Siahaan argues that more than half of Citigroup’s Indonesian earnings come from its institutional business and will not be affected by the sanctions.
Shock to the System
He may have a point. Citigroup jumped from sixth to third among underwriters of Indonesian bonds in 2010, according to Bloomberg data. Citigroup has underwritten share offerings this year for PT Bank Mandiri and PT Garuda Indonesia, the country’s biggest airline, compared with just one offering in 2009 and 2010 combined. In May, Citigroup underwrote a $1 billion bond issue for PT Pertamina, Indonesia’s state-owned oil company.
Citigroup seems determined to ride out the latest crisis just as it did when Jakarta was burning 13 years ago. “Whenever there’s a crisis or a shock to the system, not only do we stay, we keep on investing,” Siahaan says.
The difference now is that Citigroup is far more dependent on markets such as Indonesia than it was in 1998. And with a grieving widow seeking damages in one court, debt collectors set to go on trial in another and a cosmetic surgery-enhanced, Ferrari-driving wealth manager in the dock in a third, it may find that a much more difficult task.