Jakarta. The disgraced regent of Meranti Islands regency in Riau has mortgaged government buildings and lands to get Rp 100 billion ($6.7 million) in loans, officials said on Monday.

The scandal added to mounting controversies surrounding Regent Muhammad Adil, who is currently being detained by the Corruption Eradication Commission, or KPK, for allegedly taking billions of rupiah in bribes.

KPK Deputy Chairman Nurul Ghufron said the commission is investigating reports that the regent has mortgaged local government assets, raising questions about why Bank Riau agreed to disburse the loans in the first place.

“Because in case of default, the bank cannot seize state assets or local government assets,” Nurul said.

The commission is carefully studying whether mortgaging government assets amounts to corruption because it has never dealt with such a case before, he said.

However, public policy expert Agus Pambagio said using state assets to get bank loans is a blatant act of corruption, citing a law to support his argument.

“State assets cannot be used as collateral by anybody including state officials. Bizarrely, the bank accepted that collateral. It should have said ‘we can’t accept the collateral because it belongs to the state’," Agus said.

He pointed to the 2004 State Treasury Law which strictly bans the use of state assets and properties as collateral. State assets and properties can only be sold, swapped, or given as grants under the approval of the House of Representatives and the local legislative council.

The law also bans the use of state assets to pay government bills at national and local levels, let alone mortgaging them, he said.

Agus said he believed the regent and Bank Riau management are aware of the regulation but the deal was made anyway because “it’s simply a corruption case”.

He said the investigation into the case should be easy because all the KPK needs to do is find signatories of the unprecedented deal including those from the bank management.

Prior to his arrest, Adil drew controversy by calling Finance Ministry officials “Satan" for refusing to accommodate his demand for a significant rise in central government funding and suggested that the regency be handed to the "neighboring country" during a heated budget hearing last December.

He also made verbal threats against the central government over dissatisfaction with the amount of oil revenue sharing and state funding, saying he considered “taking up arms” against Jakarta unless the district was given a bigger share of oil revenues.

Adil was arrested 10 days ago with the KPK saying he was caught red-handed accepting bribes from businesses as he was collecting funds for his gubernatorial aspiration in the upcoming election.

Acting Meranti Islands Regent Asmar confirmed the mortgage report and said the local government will ask the bank to explain.

According to Asmar, the deal was made last year and so far only half of the loans were disbursed for road construction in the regency, which shares a maritime border with Malaysia. He said the local government has to repay Rp 3.4 billion in monthly installments.

Earlier on Saturday, a Bank Riau executive said the assets mortgaged by Adil included buildings and lands of the regency’s Public Works and Landscape Department.

The executive, who introduced himself only as Ridwan, claimed that a number of districts in Riau also took loans from the bank.

The lending agreement with Meranti Islands is based on a “mutual financing program” but the bank needs collateral because the regency’s budget was in a deficit, said Ridwan, the head of Bank Riau’s Selatpanjang branch in the province.

The Rp 100 billion loans are meant to finance several road projects, he said.

“So far the repayments of debts and interests have been on schedule,” Ridwan said.