Money On The Move

THE TWO SCANDALS BEDEVILING the Clinton administration, Whitewater and Donorgate, don't have much to do with each other. After all, one involves questions about an obscure Arkansas land deal in the early 1980s, and the other the financing of the 19 96 presidential campaign. But there's one suspected link between the two controversies: the Riady family of Indonesia. The founders of Lippo Group, a $6 billion banking, insurance and real-estate empire, reportedly paid $100,000 to former associate attorney general Webster Hubbell after his resignation from the Justice Department. And John Huang, who ginned up millions in Asian donations to the Democrats last year, is a former Riady executive.

The family denies any wrongdoing. And, in truth, no one knows how much the Riadys have to do with either scandal. What is clear, a NEWSWEEK investigation shows, is that moving cash around the globe in tangled webs of transactions has always been the Riady way. The arrangements involving Hubbell and Huang appear to fit a pattern of questionable Riady financial practices, such as lending their bank depositors' money to their own deals, or quietly draining out bank capital. Since the mid-'80s these practices have provoked official reprimands from Asia to Arkansas-- two regions not especially noted for regulatory stringency. And today they are provoking the curiosity of U.S. officials. NEWSWEEK has learned that congressional investigators are looking at evidence that a Riady shell company in Los Angeles, Hip Hing Holdings, was used as a conduit to move money from Indonesia to various American recipients, including Huang and possibly the Democrats; the company also bought Hubbell a United States-to-Jakarta plane ticket. Even so, no Whitewater or Donorgate investigator has been able to pin anything illegal on the family. Nor has any banking and securities regulator. ""The Riadys have always run very close to the law in various areas,'' says a Hong Kong securities analyst who has tracked some of the family's deals.

That's a complaint heard around the globe - especially in the United States. Mochtar Riady, the patriarch of the Lippo Group, set the tone when he joined with Stephens Inc. of Little Rock, an investment bank, in the 1980s to buy controlling stakes in the Worthen Bank, then Little Rock's largest. After Mochtar's son James became copresident, and Huang a top executive, the Riadys were warmly welcomed in the impoverished state - especially by its eager, investment-seeking governor, Bill Clin- ton. Bu t they quickly ran into trouble. Stephens backed out of the partnership when its officials suspected the Riadys of lending too much of Worthen's money to themselves. (Stephens may have been repelled, but Clinton wasn't; James Riady was reportedly the onl y foreign businessman invited to attend the president-elect's 1992 ""Economic Summit.'')

Information obtained by NEWSWEEK supports those suspicions. A February 1985 report by the Comptroller of the Currency sharply criticized James's stewardship for, among other things, ""only vague familiarity with regulatory guidelines and laws.'' A month later, U.S. bank examiners criticized both Mochtar and James for mak- ing millions in questionable Worthen loans to a company controlled by the patriarch.

At about the same time, the Riadys set up a U.S. company, Lippo Finance and Investment - an entity not unlike the one now at the center of the Whitewater probe - purportedly to lend venture capital to disadvantaged businessmen by getting Small Busi ness Administration loan guarantees. But documents obtained by NEWSWEEK indicate that Lippo Finance was a shareholder in a company to which it was trying to give a government-backed small-business loan, a California firm called Unipacific. The company th en intended to use the money to pay off debts it owed to a Hong Kong finance company that owned half of Lippo Finance. It is not clear whether the loan went through.

Trouble followed James Riady and his associate, Huang, out to the West Coast, where they took control of Lippo Bank California. Since 1990 the bank has been publicly reprimanded three times by the Federal Deposit Insurance Corporation. One confidential report on the bank's compliance with anti-money-laundering rules found that Lippo had consistently failed to prepare proper paperwork, creating what examiners considered to be an ""invitation for abuse by [a] criminal element.'' Just last March, a scathing cease-and-desist order noted that the bank had operated with inadequate management, equity capital and allowance for loan and lease losses.

Back in Jakarta, similar worries about Riady cash balances and self-dealing prompted a run on Lippo Bank two years ago. The run began when Lippo Land, the company through which James had invested billions in American-style malls and housing developments outside Jakarta, revealed in its 1995 annual report that it was heavily in debt. Lippo Bank depositors feared that much of the debt was owed to the bank. This time the Riadys' Chinese partner came to the rescue: China Resources, an investment company controlled by the Chinese Trade Ministry. China Resources, which has injected tens of millions of dollars in Lippo since 1993, plunked down $15 million to buy a 5 percent stake in Lippo Land-- an endorsement that attracted other major investors.

Another Riady brother, Stephen, has raised the ire of regulators in Hong Kong, home to the flagship Lippo Group. Two major Hong Kong government investigations in the early '90s explicitly challenged Stephen's credibility and business practices, alt hough they produced no allegations of illegality or regulatory violations. Stuart Crosby, an inspector appointed by the Hong Kong Financial Secretary, questioned whether Riady had joined with Hong Kong magnate Lee Ming Tee to improperly control a company called Asia Securities International. In a published report, Crosby noted ""inconsistencies in Mr. Riady's evidence'' and said he did ""not feel able to rely on those denials and claims.''

If regulators are unhappy, Lippo investors certainly aren't. In March the stock price of seven of nine Lippo-affiliated companies hit all-time highs on the Jakarta Stock Exchange, and overall shares in the Riadys' empire have nearly quadrupled in v alue in the last five years. The most recent stock run-up came after a complex restructuring last year, involving a dominolike series of share sales among various Riady companies. ""The Riadys are experts at jacking up their companies' share prices,'' sa ys one former Lippo employee.

Maybe so, but analysts have been left wondering exactly who owns what in the Riady empire - especially since the Chinese got involved - and what real value lies beneath the stocks. Later this year the Riadys will ask investors to pony up an additio nal $500 million or more to buy new shares the group is issuing largely to pay the Riadys for their stakes in Lippo Bank and Lippo Life, which they sold in last year's restructuring. Mochtar and James plan a ""road show'' to sell the issue. Says a PR man close to the group, ""They are masters of razzle-dazzle promotion.'' Good as they are at boosting their own shares, it's too bad the Riadys have the opposite effect on Bill Clinton's stock.

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