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The Riadys' Persistent Pursuit of Influence

By Sharon LaFraniere, John Pomfret and Lena H. Sun
Washington Post Staff Writers
Tuesday, May 27, 1997; Page A01

The Lippo Group

The basics on Mochtar and James Riady and their controversial conglomerate.

Q: What is Lippo Group?

A: The Lippo Group is a giant Jakarta-based conglomerate involved in banking, finance and other enterprises. Its flagship, Lippo Ltd., listed $3.6 billion in assets in 1995. The firm owns only one small bank in the United States but has extensive interests in Indonesia, Hong Kong and China. It was founded by Mochtar Riady, an ethnic Chinese born in Indonesia.

Q: What is the Riadys' relationship with President Clinton?

A: The Riady family bought a bank with Arkansas financier Jack Stephens in the early 1980s. One of Mochtar's three sons, James, was dispatched to Little Rock to help run the operation. A Stephens family member says James Riady met Bill Clinton for the first time at one of Stephens's weekly lunches at the bank. The White House has said Riady is one of Clinton's many friends and political supporters, and Riady sometimes offers his views on issues involving Asia.

Q: How did James Riady get into the White House, and how often did he go?

A: Riady made at least 20 visits to the White House since Clinton was elected in 1992. He met privately with the president three times. The first visit, in the Oval Office study, was scheduled as a photo opportunity for Riady, Lippo's John Huang and an associate, Mark Grobmyer. The second time, Huang asked for Clinton's approval to move from the Commerce Department to the Democratic National Committee. On a third visit, Riady urged Clinton to push trade with China. Mark E. Middleton, a White House aide who served as a liaison to the business community, cleared in Riady about six times. It is not clear with whom Riady met on other occasions.

Q: How much has Lippo given to the Democrats?

A: James Riady masterminded a giving campaign of Lippo executives to the Democratic Party, beginning in 1988. Federal Election Commission records indicate Riady, Lippo executives and business executives contributed more than $700,000 to the Democratic National Committee since 1991.

Q: Is what they did illegal?

A: Foreign contributions to U.S. campaigns are against the law. Investigators are examining whether Lippo executives were given money that they in turn passed on to the Democratic Party. The Democratic Party returned a $450,000 contribution from the Wiriandatas, the family of Mochtar Riady's longtime business partner, because it could not confirm whether the Wiriandatas had paid their taxes or question them about the source of funds.

April 19, 1993, was a tense day at the White House. After a lengthy standoff, the FBI planned to pump tear gas into the Branch Davidian compound near Waco, Tex. At stake were the lives of dozens of federal agents and the nearly 80 men, women and children holed up inside. The White House situation room was on full alert.

It was not too busy, however, for President Clinton to spend some time with James Riady and John Huang of Indonesia's Lippo Group conglomerate. The two had been cleared in that morning for their fifth White House visit in a week. Riady, Huang and an associate, Mark Grobmyer, chatted with Clinton in his study just off the Oval Office shortly after 5 p.m., while in the background Clinton's television replayed scenes of the failed FBI raid that led to scores of deaths.

Riady later told government ministers back home in Jakarta about his chat with the preoccupied president that breezy afternoon, saying that Clinton even showed him the situation room. Such anecdotes helped Riady create the impression, true or not, that his family had a direct pipeline to the Oval Office, and that perception seems to have enhanced Lippo's prestige in the eyes of at least some government officials in Asia.

To the Riadys, that was worth all the money and effort they spent cultivating official Washington, according to former Lippo executives, Indonesian government officials and others who know the family and the massive conglomerate they own. And that could answer a question that has dogged investigators ever since the controversy over Democratic fund-raising practices broke last fall: What did the Riadys stand to gain from their remarkable courtship of an American president and his political party?

Without the link to Clinton, the Riadys were prominent businessmen, but they were also ethnic Chinese in a country that deeply mistrusts the Chinese. As successful as they were, therefore, they had little chance of gaining admittance to President Suharto's inner circle, and that limited Lippo's chance to win billions of dollars in contracts he hands out to friends and family members.

The Clinton connection changed all that. It put the Riadys in the category of a potential back channel to the White House should the Indonesian government – or the Chinese government – ever desire it. "Riady's goal was to sell his relationship with Clinton to two governments, Indonesia and China," said one former Lippo executive, who asked not to be identified.

Rarely has a foreign-based corporation cultivated a U.S. president so aggressively. The Riadys, who got to know Clinton in the early 1980s during a Little Rock business venture, did all they could to strengthen that relationship once Clinton was elected. They and their business associates contributed more than $700,000 to the Democratic Party since 1991, including a $450,000 contribution from a business partner's family that was returned last year as possibly illegal. The Riadys also hired one of Clinton's closest friends. They hosted events for three groups of U.S. commerce and trade officials who traveled to Jakarta. In the National Portrait Gallery sits a life-size bronze bust of Clinton donated in the Riadys' honor. Typical of their efforts was an offer to fly a Little Rock contingent to the 1994 economic summit in Indonesia's capital city in case Clinton "would like to see some Arkansans while he was over there," a White House aide has said.

If the Riadys hoped to use their ties to Clinton to gain direct benefits from the U.S. government, however, the evidence is well hidden. In contrast to Asia, where Lippo has extensive dealings with government officials at every level, the firm's U.S. operations are minor. In fact, the Midas touch that Lippo patriarch Mochtar Riady displayed in Indonesia, Hong Kong and China seems to have failed him here. The firm has floundered in its effort to develop a U.S. bank specializing in international trade, and while it has teamed up with some U.S. companies on Asian business ventures, they require little U.S. government aid.

Indonesia is another story. In Jakarta, Lippo has approached the Suharto regime for almost everything from critical building permits to outright financial bailouts. And in China, where Lippo is investing heavily, the firm is equally if not more dependent on official support because government ministries own the companies that are Lippo's partners.

When Clinton was elected president, the Riadys saw a chance to gain more leverage with the governments in Beijing and Jakarta, according to associates of the family. One former executive recalled James Riady's pitch when Lippo hosted a delegation of Chinese officials in Jakarta in 1993. "James told them if they ever needed a special word passed to the White House, he or his father would be happy to do it," the executive said.

In their contacts with Clinton, the Riadys pressed the views of the Chinese and Indonesian governments. In early 1993, Mochtar Riady sent the president a four-page letter, urging him to renew China's trading privileges and to support Suharto in his desire to attend the Group of Seven economic summit later that year. Clinton recalls that James Riady also tried to persuade him to meet Suharto at the 1993 Tokyo summit – a meeting Clinton granted after his top foreign policy advisers recommended it. And in a 1996 Oval Office meeting, James Riady urged Clinton to stick to his policy of separating the issue of China's trading privileges from human rights concerns.

The Riadys offered others as messengers too, including Mark Grobmyer, with whom Lippo worked closely, and Webster L. Hubbell, who was paid $100,000 by Lippo after leaving the Clinton Justice Department. In early 1993, James Riady arranged for Grobmyer, a Little Rock lawyer and longtime friend of Clinton, to spend 1 1/2 hours with Suharto in Jakarta. An official with Indonesia's Foreign Ministry said Riady insisted that Grobmyer "had the ear of President Clinton."

"He said the meeting would give us special access to the White House. Suharto's people were interested in this access so they met with him," the official said.

After his trip, Grobmyer wrote Clinton about Suharto's desire to address the economic summit. He noted that the Riadys had scheduled meetings for him with top Indonesian officials and attached a thank-you letter for Clinton to send James, describing Grobmyer's insights as "very helpful." Clinton didn't send it, but James Riady gave Suharto's aides a copy of Grobmyer's letter to Clinton as proof of his family's influence, according to the Foreign Ministry official.

The Riadys also promoted Hubbell at Suharto's presidential palace as someone "influential with Bill Clinton," said another Indonesian official. After Hubbell resigned from the Justice Department amid allegations of fraud, James Riady arranged for him to tour Indonesia.

Riady made sure that Hubbell, like Grobmyer, visited the former Portuguese colony of East Timor, where Indonesian security forces have been accused of widespread human rights abuses. Riady "said letting a friend of Clinton's see Timor might help change U.S. policy. So naturally we thought it was a good idea," the official said.

Indonesian officials who traveled to Washington saw tangible proof of Lippo's White House access. In April 1993, James Riady escorted the governor of Jakarta to the East Wing for a meeting on which the White House can provide no details. He also took Wardiman Djojonegoro, the Indonesian minister for education, to the Oval Office in September 1994 to hear Clinton give his radio address. About that time, Djojonegoro's ministry granted Lippo a license to operate an international school at one of its property developments.

And Riady accompanied Hartarto Sastrosoenarto, Indonesia's coordinating minister for production and one of Suharto's most influential advisers, to the White House for a September 1995 lunch. Joining them was John Huang, who had left Lippo for the Commerce Department the previous year, and Mark E. Middleton, a former mid-level presidential aide who continued to use the White House Mess to entertain clients and friends. Two months later, the Indonesian government arranged for a group of private companies to rescue Lippo during a financial crunch.

"These trips helped Lippo improve their ties to the Suharto regime," said the former Lippo executive. "As a result, Suharto helped rescue them when they needed help."

Neither the Riady family nor their representatives would comment for this article.

U.S. officials insist that neither the Indonesians nor the Chinese needed Riady as a backdoor emissary because diplomatic and other official channels were wide open. Suharto's powerful aide, Hartarto, for example, has little trouble getting on the schedule of U.S. Cabinet secretaries. "I don't think the Indonesian government found any need to use the Riadys as intermediaries to the U.S. government," said Robert Barry, an appointee of President George Bush who served as U.S. ambassador to Indonesia from 1992 through mid-1995.

Still, Suharto was seeking greater recognition in the world, and the U.S. government was signaling that problems like Indonesia's human rights abuses and poor treatment of workers stood in the way of better relations. U.S. officials acknowledge that the perception that James Riady had special access to Clinton could be of great value to Lippo. "From the Asian perspective, personal relationships are more important than anything else," said one senior administration official.

Said another former administration official who dealt extensively with Indonesia "I think James Riady had a particular cachet that other people didn't have."

The Family Empire

The Lippo logo – two bright red infinity signs – is ubiquitous in Indonesia. Besides the banks and financing firms at Lippo's core, the company manufactures textiles and electronic products. It mines coal, sells insurance and builds shopping centers, housing developments and hospitals. Lippo's flagship, Lippo Limited, publicly discloses assets of $3.6 billion. In Jakarta, locals joke that Lippo stands for Lama-Lama Indonesia Pun Punya Oe, meaning: In the long run, even Indonesia will be mine.

Mochtar Riady, a charmingly genial man with an easy dignity, built the Lippo empire over four decades, beginning with a single bank. Now 68, he laid out his business philosophy in a 1984 interview with an Arkansas magazine: "Every network has to have its foundation laid on special, personal, human connections," he said. "What I am looking at is what my partners can offer in personal contacts and business connections."

The result of those connections today is a complex network of joint ventures with others from Suharto's half-brother to Wal-Mart. One count puts the number of Lippo's subsidiaries at 143. Its intricate structure, typical of Asian conglomerates, means "no one can really put the pieces together," said Stephen Chipman, former Asia director for the accounting firm of Grant-Thornton. "Probably the only people on this planet who really have a handle on the whole thing are the Riady family."

James Riady's estate outside Jakarta, one of at least three lavish homes he owns, is testimony to the success of his father's philosophy. A southern-style plantation manor in the middle of a Lippo-owned golf course, it is three stories tall, with soaring French windows and Greco-Roman columns. Inside is a multimillion-dollar art collection. Outside is a lake and pad for Riady's helicopter – all ringed by a moat.

For all the Riadys' wealth, however, they are not in the top tier of politically connected Indonesian firms. A half-dozen or so others are closer to Suharto, and therefore more likely to benefit from his government's largess. Suharto has ruled Indonesia's 17,500 islands for 31 years, and his control of the world's fourth most populous nation is absolute. His relatives are some of the biggest beneficiaries of his power over commercial enterprises: Every television owner, for example, must pay a tax to a company owned by Suharto's oldest son.

Suharto's relatives are involved in some Lippo businesses, but Mochtar Riady's main contact with the Indonesian president is through his longtime patron, Liem Sioe Liong. Like much of Indonesia's business elite, Liem and Riady are ethnic Chinese, and they face the prejudice and resentment of the indigenous Indonesians known as pribumi.

Liem, sometimes described as Indonesia's richest business tycoon, has the advantage of a close, long-standing friendship with Suharto. But Mochtar Riady, who shed his Chinese name of Lee Mo Tie to fit in better with the pribumi, is "in the outside circle, trying to move inward," said one former administration official who specialized in Indonesia.

The Riadys may need good relations with the Suharto regime now more than ever because their financial empire appears not quite as secure as it once was. In late 1995, Lippo Bank's failure to make an inter-bank interest payment caused a run on the bank. Panicked depositors yanked out funds, and a group of private companies, at the behest of the state-owned Central Bank of Indonesia, came to Lippo's rescue.

That was followed by a financial restructuring last September that allowed the Riadys to pump $373 million into Lippo's ailing real estate development operations. Lin Che Wei, a financial analyst in Jakarta, sees Lippo as a carefully balanced house of cards, held up partly by the Riadys' practice of gobbling up shares of Lippo stock to drive up the price. "Riady is a master of this kind of game," said Lin, an analyst at Deutsche Morgan Grenfell. "He understands what investors want – a rising share price."

At the same time the Riadys are trying to maneuver closer to Suharto, the family is positioning itself with the Chinese government. In 1993, for instance, Riady and Huang arranged a trip to Atlanta so a high-ranking Chinese Communist Party official involved in Beijing's bid to host the Olympics in 2000 could meet the team that put on the 1996 games.

The Chinese government has responded favorably to Lippo's overtures: China Resources, a wholly owned enterprise of China's Ministry of Foreign Trade and Economic Cooperation, is now an equal owner with Lippo in Hong Kong Chinese Bank in Hong Kong. When Lippo was desperate for cash to bolster a struggling real estate development outside Jakarta, the Chinese firm came up with $26 million.

Lippo is setting up banks, building hotels, stores and offices and investing in cement factories in a half-dozen Chinese cities. In Fujian province, the ancestral home of Mochtar Riady's parents, Lippo plans a major development, an island temple dedicated to Mazu, the goddess of fishing. Lippo's plan calls for a vast office, tourist and industrial park, complete with food malls and golf courses.

U.S. Operations

The Riadys came to know Clinton by happenstance. When Mochtar Riady decided in the late 1970s to shop for a U.S. bank, Stephens Inc., a prominent investment banking house based in Little Rock, provided advice. Jack Stephens and Mochtar Riady hit it off, and the two families bought a controlling interest in Little Rock's Worthen Bank.

Mochtar Riady installed his confident and energetic middle son, James, as Worthen's co-president. The younger Riady, then just 28, didn't care much about politics, but "he was interested in people who were important because they were important," said a former Worthen executive who worked for him. A Stephens family member said Riady met then-Gov. Clinton for the first time over corn bread and grits at one of Jack Stephens's regular lunches at Stephens Inc. When Clinton traveled to Hong Kong in 1985, the Stephens and Riady families arranged a cruise of Hong Kong harbor, a dinner, a shopping trip and a cocktail reception.

Riady bought a house in a prestigious Little Rock neighborhood, where he entertained frequently, and seemed eager to pick up American customs – an enthusiasm that occasionally led to improbable scenes. One ex-Worthen official recalls that at 10 one night, Riady showed up on his doorstep with a half-dozen Asian employees in shorts and black socks. They wanted to be taught basketball.

To the Riadys' disappointment, the Stephens partnership fell apart in 1986 after a New Jersey investment firm that owed Worthen $52 million went bankrupt. That spelled the end of the bank's international division. Bank examiners said it involved too much risk, and they criticized a number of insider loans to entities controlled by the Riadys and the Stephenses. The examiners found more than $40 million in loans or lines of credit to businesses in which the Riadys were either owners or investors.

Once he packed up in Little Rock, James Riady concentrated on a small, troubled retail bank in California that he bought in 1984. He spent $946,000 for a house in an exclusive Los Angeles neighborhood and commuted from Jakarta.

But the Riadys were not much more successful in California than they were in Little Rock. Lippo Bank, as it is now called, has steadily lost money, staying afloat only because James Riady has poured in $26 million. Meanwhile, regulators have issued three "cease and desist" orders in the past seven years, citing sloppy management and questionable transfers of funds.

In 1990, bank examiners requested a criminal investigation after discovering that a 21-year-old teller made more than 900 suspicious wire transfers totaling $7 million to accounts at the Hong Kong Chinese Bank, owned by Lippo and China Resources. According to an examiner's memo, the teller routinely wired amounts of just under $10,000, the threshold at which transfers must be reported. Almost all the transfers were booked under phony names and initialed by a supervisor, according to congressional investigators. There is no indication that the bank's top echelon knew of the practice.

Roy Tirtadji, managing director of the Lippo Group, suggested in an interview last year that Lippo Bank suffered from neglect. "We didn't really pay much attention to the California bank," he said. "It was so small."

What did interest James Riady, increasingly, was developing U.S. political contacts. His representative was John Huang, who ran the Los Angeles-based bank. Huang and Maria Hsia, an Asian American fund-raiser in California, began raising money for the Democratic Senatorial Campaign Committee in the late 1980s. In an April 1988 memo sent to Hsia, Riady listed six senators he wanted to invite to Indonesia, Hong Kong and Taiwan. He offered private dinners or luncheons hosted by his family.

Riady also specified the need for senators to urge Taiwan to loosen its banking regulations and allow Asian American banks, or at least his bank, to open branch offices there. It was one of the few times Riady seemed to be seeking a specific benefit from U.S. officials.

But Riady's efforts to play on the U.S. political scene in those years paled in comparison to the push his family made once Clinton was elected president in 1992. In a typical overture, Mochtar Riady flew to Little Rock to see Hillary Rodham Clinton receive an "Arkansan of the Year" award from the March of Dimes. He donated $50,000 on the spot.

Riady said in early 1993 that he was working closely with Grobmyer, the longtime Clinton friend who accompanied Riady on the first three of some 20 visits to the White House. Another contact was presidential aide Middleton, who cleared Riady to the Executive Mansion a half-dozen times. The Riady family's strongest connection to the administration was Huang, who moved from the Commerce Department to the Democratic National Committee after meeting with Clinton and James Riady in the Oval Office in September 1995.

With Huang's fund-raising activities now the subject of numerous investigations, the Riadys have lost the White House entree they worked so hard to win. But ironically, the controversy may have done more to enhance the family's reputation back in Asia than all the White House visits ever did.

"The interesting thing about this huge scandal is that it's giving them great face in Indonesia," said an American financier who works with an Asia-based firm. "It's working in the favor of the Riadys. People are saying, "It shows you how influential they are, how close they are to the seat of power.' "

Staff writer Steven Mufson in China and researchers Alice Crites and Nathan Abse contributed to this report.

© Copyright 1997 The Washington Post Company

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