U.S. and Taiwan (2007)

U.S. Department of State

International Narcotics Control Strategy Report - 2007

Released by the Bureau of International Narcotics and Law Enforcement Affairs
March 2007

Volume II: Money Laundering and Financial Crimes

Country Reports

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Taiwan

Taiwan's modern financial sector and its role as a hub for international trade make it susceptible to money laundering. Its location astride international shipping lanes makes it vulnerable to transnational crimes such as narcotics trafficking and smuggling. There is a significant volume of informal financial activity through unregulated nonbank channels. Most illegal or unregulated financial activities are related to tax evasion, fraud, or intellectual- property violations. According to suspicious activity reports (SARs) filed by financial institutions on Taiwan, the predicate crimes commonly linked to SARs include financial crimes, corruption, and other general crimes.

Taiwan's anti-money laundering legislation is embodied in the Money Laundering Control Act (MLCA) of April 23, 1997, which was amended in 2003. Its major provisions include a list of predicate offenses for money laundering, customer identification and record keeping requirements, disclosure of suspicious transactions, international cooperation, and the creation of a financial intelligence unit, the Money Laundering Prevention Center (MLPC). In 2006, the Ministry of Justice began drafting another amendment to the MLCA, which would revise the scope of predicate crimes for money laundering, among other proposed changes.

The Legislative Yuan (parliament) amended the MLCA in 2003 to expand the list of predicate crimes for money laundering, widen the range of institutions subject to suspicious transaction reporting, and mandate compulsory reporting to the MLPC of significant currency transactions of over New Taiwan Dollars (TDW)1 million (approximately $30,000). Between August 2003, when the amended MLCA came into force, and May 31, 2004, the MLPC received over one million such reports on currency transactions-with 99 percent of them reported electronically. In 2005, the MLPC received 1,028,834 currency transaction reports. As a result of the 2003 MLCA amendments, the list of institutions subject to reporting requirements was expanded, to include casinos, automobile dealers, jewelers, boat and plane dealers, real estate brokers, credit cooperatives, consulting companies, insurance companies, and securities dealers, as well as traditional financial institutions.

Taiwan also set up a single financial regulator, the Financial Supervisory Commission (FSC) on July 1, 2004. The FSC consolidates the functions of regulatory monitoring for the banking, securities, futures and insurance industries, and also conducts financial examinations across these sectors. In mid-December 2005, the FSC began an incentive program for the public to provide information on financial crimes. The reward for information on a financial case with fines of TDW 10 million (approximately $300,000) or at least a one-year sentence is up to TDW 500,000 (approximately $15,000). The reward for information on a case with a fine of between TDW 2-10 million (approximately $60,000-$300,000) or less than a one-year sentence is up to TDW 200,000 (approximately $6,000).

Two new articles added to the 2003 amendments to the MLCA granted prosecutors and judges the power to freeze assets related to suspicious transactions and gave law enforcement more powers related to asset forfeiture and the sharing of confiscated assets. The proposed second amendment to the MLCA would prolong the permitted period of freezing the proceeds of money laundering from 6 months to 1 ｽ years. In terms of reporting requirements, financial institutions are required to identify, record, and report the identities of customers engaging in significant or suspicious transactions. There is no threshold amount specified for filing suspicious transaction reports. The time limit for reporting cash transactions of over TDW 1 million (approximately $39,000) is within five business days. Banks are barred from informing customers that a suspicious transaction report has been filed. Reports of suspicious transactions must be submitted to the MLPC within 10 business days after the transaction took place. From January to October 2006, the MLPC received 1,085 suspicious transaction reports and 443 of them resulted in prosecutions.

Institutions are also required to maintain records necessary to reconstruct significant transactions, for an adequate amount of time. Bank secrecy laws are overridden by anti-money laundering legislation, allowing the MPLC to access all relevant financial account information. Financial institutions are held responsible if they do not report suspicious transactions. In May 2004, the Ministry of Finance issued instructions requiring banks to demand two types of identification and to retain photocopies of the identification cards when bank accounts are opened upon request for a third party, in order to prove the true identity of the account holder. Individual bankers can be fined TDW 200,000-1 million ($7,800-$39,000) for not following the MLPA.

All foreign financial institutions and offshore banking units follow the same regulations as domestic financial entities. Offshore banks, international businesses, and shell companies must comply with the disclosure regulations from the Central Bank, Bureau of Monetary Affairs (CB), and MLPC. These supervisory agencies conduct background checks on applicants for banking and business licenses. Offshore casinos and internet gambling sites are illegal. According to Taiwan's Central Bank of China (CBC), from January to August 2006, Taiwan hosted 33 local branches of foreign banks, two trust and investment companies, and 67 offshore banking units.

On January 5, 2006, the Offshore Business Unit (OBU) Amendment was ratified to allow expansion of OBU operations to the same scope as Domestic Business Units (DBU). This was done to assist China-based Taiwan businesspeople in financing their offshore business operations. DBUs engaging in cross-strait financial business must follow the regulations of the "Act Governing Relations between Peoples of the Taiwan Area and the Mainland Area" and "Regulations Governing Approval of Banks to Engage in Financial Activities between the Taiwan Area and the Mainland Area." The Competent Authority, as referred to in these Regulations, is the Ministry of Finance.

Taiwan prosecuted 688 cases involving money laundering from January to October 2006, compared with 947 cases involving financial crimes during the same period of 2005. Among the 688 cases, 631 involved unregistered stock trading, credit card theft, currency counterfeiting or fraud. Among the 57 other money laundering cases, 11 were corruption-related and one was drug-related.

Individuals are required to report currency transported into or out of Taiwan in excess of TDW 60,000 (approximately $1,850); or $10,000 in foreign currency; 20,000 Chinese renminbi; or gold worth more than $20,000. When foreign currency in excess of TDW 500,000 (approximately $15,400) is brought into or out of Taiwan, the bank customer is required to report the transfer to the Central Bank, though there is no requirement for Central Bank approval prior to the transaction. Prior approval is required, however, for exchanges between New Taiwan dollars and foreign exchange when the amount exceeds $5 million for an individual resident and $50 million for a corporate entity. Effective September 2003, the Directorate General of Customs assumed responsibility for providing the MLPC on a monthly basis with electronic records of travelers entering and exiting the country carrying any single foreign currency amounting to TDW 1.5 million (approximately $58,500). Starting August 1, 2006, those who transfer funds over TDW 30,000 at any bank in Taiwan must produce a photo ID and the bank must record the name, ID number and telephone number of the client.

The authorities on Taiwan are actively involved in countering the financing of terrorism. In 2003, a new "Counter-Terrorism Action Law" (CTAL) was drafted, although as of July 2006 it was still under review by the Legislative Yuan. The new law would explicitly designate the financing of terrorism as a major crime. Under the proposed CTAL, the National Police Administration, the MJIB, and the Coast Guard would be able to seize terrorist assets even without a criminal case in Taiwan. Also, in emergency situations, law enforcement agencies would be able to freeze assets for three days without a court order.

Assets and income obtained from terrorist-related crimes could also be permanently confiscated under the proposed CTAL, unless the assets could be identified as belonging to victims of the crimes. Taiwan officials currently have the authority to freeze and/or seize terrorist-related financial assets under the MLCA promulgated in 1996 and amended in February 2003 to cover terrorist finance activities. Under the Act, the prosecutor in a criminal case can initiate freezing assets, or without criminal charges, the freezing/seizure can be done in response to a request made under a treaty or international agreement.

The Bureau of Monetary Affairs (BOMA) has circulated to all domestic and foreign financial institutions in Taiwan the names of individuals and entities included on the UN 1267 Sanctions Committee's consolidated list. Taiwan and the United States have established procedures to exchange records concerning suspicious terrorist financial activities. After receiving financial terrorist lists from the American Institute in Taiwan, BOMA conveys the list to relevant financial institutions. Banks are required to file a report on cash remittances if the remitter/remittee is on a terrorist list. Although as noted above Taiwan does not yet have the authority to confiscate the assets, the MLCA was amended to allow the freezing of accounts suspected of being linked to terrorism.

Alternative remittance systems, or underground banks, are considered to be operating in violation of Banking Law Article 29. Authorities in Taiwan consider these entities to be unregulated financial institutions. Foreign labor employment brokers are authorized to use banks to remit income earned by foreign workers to their home countries. These remittances are not regulated or reported. Thus, money laundering regulations are not imposed on these foreign labor employment brokers. However, if the brokers accept money in Taiwan dollars for delivery overseas in another currency, they are violating Taiwan law. It is also illegal for small shops to accept money in Taiwan dollars and remit it overseas. Violators are subject to a maximum of three years in prison, and/or forfeiture of the remittance and/or a fine equal to the remittance amount.

Authorities in Taiwan do not believe that charitable and nonprofit organizations in Taiwan are being used as conduits for the financing of terrorism, and there are currently no plans to investigate such entities further for terrorist financing. Such organizations are required to register with the government. The Ministry of Interior (MOI) is in charge of overseeing foundations and charities. In 2004 and in 2006, the MOI assigned public accountants to audit the financial management of nationwide foundations.

Article 3 of Taiwan's Free Trade Zone Establishment and Management Act defines a Free Trade Zone (FTZ) as a controlled district of an international airport or an international seaport approved by the Executive Yuan. The FTZ coordination committee, formed by the Executive Yuan, has the responsibility of reviewing and examining the development policy of the FTZ; the demarcation and designation of FTZs; and inter-FTZ coordination.

There are five FTZs in Taiwan which have opened since 2004, including Taipei Free Trade Zone, Taichung Free Trade Zone, Keelung Free Trade Zone, Kaohsiung Free Trade Zone, and Taoyuan Air Cargo Free Trade Zone. These FTZs were designated with different functions, so that Keelung and Taipei FTZs focus on international logistics; Taoyuan FTZ on adding value to high value added industries; Taichung FTZ on warehousing, transshipment and processing of cargo; and Kaohsiung FTZ on mature industrial clusters. According to the Center for Economic Deregulation and Innovation (CEDI) under the Council for Economic Planning & Development, by September 2006 there were 11 shipping and logistics companies listed in the Kaohsiung Free Trade Zone, seven logistics companies in Taichung Free Trade Zone, eight logistics and shipping companies in Keelung Free Trade Zone, one logistics company in Taipei Free Trade Zone, and 46 manufacturers and enterprises in Taoyuan Air Cargo Free Trade Zone. There is no indication that FTZs in Taiwan are being used in trade-based money laundering schemes or by the financiers of terrorism. According to Article 14 of the Free Trade Establishment and Management Act, any enterprise applying to operate within an FTZ shall apply to the management authorities of the particular FTZ by submitting a business operation plan, the written operational procedures for good control, customs clearance, and accounting operations, together with relevant required documents. Financial institutions may apply to establish a branch office inside the FTZ and conduct foreign exchange business, in accordance with the Banking Law of the ROC, Securities and Exchange Law, Statute Governing Foreign Exchange, and the Central Bank of China Act.

According to Taiwan's Banking Law and Securities Trading Law, in order for a financial institution to conduct foreign currency operations, Taiwan's Central Bank must first grant approval. The financial institution must then submit an application to port authorities to establish an offshore banking unit (OBU) in the free-trade zone. No financial entity has yet applied to establish such an OBU in any of the five free trade zones. An offshore banking unit may operate a related business under the Offshore Banking Act, but cannot conduct any domestic financial, economic, or commercial transaction in New Taiwan Dollars.

Taiwan has promulgated drug-related asset seizure and forfeiture regulations which provide that in accordance with treaties or international agreements, Taiwan's Ministry of Justice shall share seized assets with foreign official agencies, private institutions or international parties that provide Taiwan with assistance in investigations or enforcement. Assets of drug traffickers, including instruments of crime and intangible property, can be seized along with legitimate businesses used to launder money. The injured parties can be compensated with seized assets. The Ministry of Justice distributes other seized assets to the prosecutor's office, police or other anti-money laundering agencies. The law does not allow for civil forfeiture. In March, 2006, Taiwan authorities announced that they had confiscated $625 million, arrested 22 men and had frozen approximately NT$1.7 billion ($438 million), in the island's largest money laundering operation, A mutual legal assistance agreement between the American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office in the United States (TECRO) entered into force in March 2002. It provides a basis for the law enforcement agencies of the people represented by AIT and TECRO to cooperate in investigations and prosecutions for narcotics trafficking, money laundering (including the financing of terrorism), and other financial crimes.

Although Taiwan is not a UN member and cannot be a party to the 1988 UN Drug Convention, the authorities in Taiwan have passed and implemented laws in compliance with the goals and objectives of the Convention. Similarly, Taiwan cannot be a party to the UN International Convention for the Suppression of the Financing of Terrorism, as a nonmember of the United Nations, but it has agreed unilaterally to abide by its provisions. Taiwan is a founding member of the Asia/Pacific Group on Money Laundering (APG) and in 2005, was elected to the APG steering committee. The MLPC is a member of the Egmont Group of Financial Intelligence Units. The Investigation Bureau of the Ministry of Justice expanded information exchanges with various countries/jurisdictions from 17 jurisdictions in 2004 to 20 in 2005.

Over the past five years, Taiwan has created and implemented an anti-money laundering regime that comports with international standards. The MLCA amendments of 2003 address a number of vulnerabilities, especially in the area of asset forfeiture. The authorities on Taiwan should continue to strengthen the existing anti-money laundering regime as they implement the new measures. Taiwan should endeavor to pass the proposed Counter-Terrorism Action Law to better address terrorist financing issues. The authorities on Taiwan should also enact legislation regarding alternate remittance systems. Taiwan should enact legislation pending since 2003 that explicitly criminalizes the financing of terrorism.

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• Full report of the 2007 International Narcotics Control Strategy Report