U.S. and Taiwan (2009)

United States Department of State
Bureau of International Narcotics and Law Enforcement Affairs

2009 International Narcotics Control Strategy Report (INCSR)

February 27, 2009

Volume II: Money Laundering and Financial Crimes

March 2009

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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. Taiwan's location astride international shipping lanes makes it vulnerable to transnational crimes, such as narcotics trafficking, trade fraud, and smuggling. There has traditionally been a significant volume of informal financial activity through unregulated nonbank channels, but in recent years Taiwan has taken steps to shift much of this activity into official, regulated financial channels. In November 2008 China and Taiwan reached an agreement to facilitate direct remittances across the Taiwan Strait. Taiwan will now allow direct remittances from China as of February 16, 2009. For remittances to China, Taiwan is allowing a growing number of postal savings outlets to provide this service. 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 most commonly linked to SAR reporting 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, 2007, and 2008. 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 (FIU), the Money Laundering Prevention Center (MLPC).

The MLPC, a law enforcement-style FIU, is located within the Ministry of Justice Investigation Bureau (MJIB). The FIU receives, analyzes, and disseminates suspicious transaction reports, currency transaction reports and cross-border currency movement declaration reports. The MLPC also assists other law enforcement authorities to investigate money laundering and terrorist financing cases. MLPC staff has law enforcement status.

The 2003 amendment expanded the list of predicate crimes for money laundering, widened the range of institutions subject to suspicious transaction reporting, and mandated compulsory reporting to the MLPC of significant currency transactions in excess of New Taiwan dollars (NT $) 1 million (approximately U.S. $29,600). The Asia/Pacific Group on Money conducted a mutual evaluation of Taiwan in 2007. Following the recommendation of the mutual evaluation report (MER), in November 2008 the Financial Supervisory Commission changed the requirements to include transactions in excess of NT$500,000 ($14,800) to be reported. These amounts are comparable to levels for Singapore and Hong Kong. In 2007, the MLPC received 1,190,753 currency transaction reports. The 2003 amendments further expanded the scope of reporting entities beyond traditional financial institutions to include: automobile dealers, jewelers, boat and aviation dealers, real estate brokers, credit cooperatives, consulting companies, insurance companies, and securities dealers.

In July 2007, the MLCA was amended to expand its coverage to include a new agricultural bank, trust companies, and newly licensed currency exchanges as well as hotels, jewelry stores, postal offices, temples, and bus/railway stations, essentially all entities that may be involved in currency exchange. The list of predicate offenses was expanded to include offenses against the Public Procurement Law, Bills Finance Management Law, Insurance Law, Financial Holding Company Law, Trust Law, Credit Cooperative Association Law, and Agriculture Financing Law. The number of agencies with money laundering responsibilities was expanded from the Ministry of Justice, the Ministry of Transportation and Communication, and the Ministry of Finance to include also the Financial Supervisory Commission (established in July 2004), the Ministry of Economic Affairs, the Council of Agriculture (supervising a new agriculture bank and the credit departments of farmers' and fishermen's associations), and Taiwan's Central Bank (monitoring currency exchanges). The amended law also authorized Taiwan agencies to share information obtained from the MLCA with law enforcement agencies in countries that have signed a mutual legal assistance agreement (MLAA) with Taiwan and on a reciprocal basis with other countries. Following the MER recommendations the MCLA was again amended in June 2008 to include embezzlement from business firms in the list of major crimes subject to money laundering regulation.

Taiwan established 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 NT $10 million (approximately $290,000) or at least a one-year sentence is up to NT $500,000 (approximately $14,800). The reward for information on a case with a fine of between NT $2 million and $10 million (approximately $58,000 and $290,000) or less than a one-year sentence is up to NT $200,000 (approximately $5,900).

Two new articles added to the 2003 amendments to the MLCA grant prosecutors and judges the power to freeze assets related to suspicious transactions and give law enforcement more powers related to asset forfeiture and the sharing of confiscated assets. The 2007 amendment to the MLCA permits the freezing of proceeds of money laundering for up to one year. 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 NT $1 million (approximately $29,600) is five business days. Banks are barred from informing customers ("tipping off") that a STR has been filed. Reports of suspicious transactions must be submitted to the MLPC within 10 business days. In 2007, the MLPC received 1,741 STRs and 31 of them resulted in prosecutions based on the MLCA. Of these 31 cases, nineteen are related to financial crimes, four to corruption, one to narcotics, and seven to other miscellaneous crimes. This represents a significant drop from prior years due to a change in the MLCA in mid 2007, which called for only cases involving amounts in excess of NT$ 1 million (approximately $29,600) to be handled under the MLCA. The rest are handled under other laws. A total number of 1,190, 755 Cash Transaction reports (CTRS) were filed by financial institutions in 2007. Additionally, as recommended in the MER, the threshold for occasional cash transactions that triggers a Customer Due Diligence (CDD) obligation and CTR obligation was lowered from NT$1 million (approximately $29,600) to NT$ 500,000 (approximately $ 14,800)

As recommended in the MER, Taiwan Customs was required to start reporting foreign currencies and negotiable securities, including bearer shares, carried by passengers in excess of U.S. $10,000. The number of such cases reported to the MLPC in 2007 was 5,157, including 2,654 outbound involving NT$6,928.4 million (U.S. $210 million) and 2,503 inbound involving NT$6,460 million (U.S. $196 million). Customs also became a member of the Customs Asia Pacific Enforcement Reporting System and has signed MOUs with counterparts in the U.S., Australia, and the Philippines for sharing customs information.

Institutions are also required to maintain records necessary to reconstruct significant transactions. Bank secrecy laws are overridden by anti-money laundering legislation, allowing the MLPC 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 presented when bank accounts are opened on behalf of a third party, to prove the true identity of the account holder. Individual bankers can be fined NT $200,000 to $1 million (approximately U.S. $6,060 to $30,300) for not following the provisions of the MLPA. Starting in August 2006, the Financial Supervisory Commission required banking institutions to collect, verify and store information about any banking customer who makes any single cash or electronic remittance above NT $30,000 (approximately U.S. $ 890).

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, the Banking Bureau of the Financial Supervisory Commission, 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 the Central Bank, as of September 2008, Taiwan hosted 31 local branches of foreign banks, one trust and investment company, and 63 offshore banking units.

On January 5, 2006, legislation was ratified to allow expansion of offshore banking unit (OBU) operations to the same scope as Domestic Business Units (DBU). This was done to assist China-based Taiwan businesspeople in financing their 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 Financial Supervisory Commission (FSC).

Taiwan prosecuted 31 cases involving money laundering in 2007, compared with 689 cases involving financial crimes in 2006. Among the 31 cases, nineteen involved unregistered stock trading, credit card theft, currency counterfeiting or fraud. Among the twelve other money laundering cases, four were corruption-related and one was drug-related. In July 2007, the MCLA was amended so that only cases involving amounts exceeding NT $5 million (approximately $148,000) were covered under the MLCA, while the rest were handled in accordance with other laws. The number of indicted subjects in 2007 was 122 persons. Figures are not yet available for 2008.

To comply with Financial Action Task Force (FATF) Special Recommendation Nine on bulk cash smuggling, the July 2007 legislation required individuals to report currency transported into or out of Taiwan in excess of NT $60,000 (approximately $1,780), U.S. $10,000 in foreign currency, 20,000 Chinese Yuan (approximately $2,930), or gold worth more than $20,000. When foreign currency in excess of NT $500,000 (approximately $14,800) is transferred into or out of Taiwan via the Taiwan banking system, the transfer must be reported 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 currency when the amount exceeds $5 million for an individual resident or $50 million for a corporate entity. Those who transfer funds over NT $30,000 (approximately $890) 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.

Prior INSCR reports indicated that a "Counter-Terrorism Action Law" had been pending with the Legislative Yuan since 2003 which would explicitly designate the financing of terrorism as a major crime and give law enforcement agencies broad powers to seize suspected terrorist assets without a criminal case. In emergencies, they could also freeze assets for up to three days without a court order. The current administration, which came into office in 2008, has put forward new legislation which would provide less sweeping police powers. Financing of terrorist activities in Taiwan is already a criminal office under Taiwan law, but the draft law would extend the law to explicitly criminalize financing and money laundering in support of such activities overseas.

Although Taiwan does not criminalize terrorist financing as an autonomous offense, under the MLCA Taiwan officials currently have the authority to freeze and/or seize terrorist-related financial assets. 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 Banking Bureau of the FSC circulates the names of individuals and entities included on the UN 1267 Sanctions Committee's consolidated list, as well as names designated by the U.S. Treasury, to all domestic and foreign financial institutions and relevant government agencies. Banks are required to file a report on cash remittances if either of the parties involved are 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, after obtaining a permit from the Central Bank, are authorized to act on the behalf of foreign workers to use banks to remit income earned by foreign workers to their home countries. These brokers may not start the remittance services before they obtain a bank guarantee for the involved funds. They are required to sign and retain a standard remittance service contract with foreign workers and establish remittance records for each contracting foreign worker. There were 39 foreign labor employment brokers as of October 2008. If brokers accept money in Taiwan dollars for delivery overseas in another currency, they are violating Taiwan law. It is illegal for retail outlets 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 financing terrorism. Such organizations are required to register with the government and, like any other individual or corporate entity, are checked against a list of names designated by the United Nations or the U.S. Treasury as being involved in terrorist financing activities. The Ministry of Interior (MOI) is in charge of overseeing foundations and charities. Every three years the MOI assigns public accountants to audit the financial statements and also has management specialists assess the overall operations of nationally-chartered 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, all of which have opened since 2004, including the Taipei Free Trade Zone, the Taichung Free Trade Zone, the Keelung Free Trade Zone, the Kaohsiung Free Trade Zone, and the 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 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, as of November 2007 there were thirteen shipping and logistics companies listed in the Kaohsiung Free Trade Zone, 21 logistics companies in Taichung Free Trade Zone, five logistics and shipping companies in Keelung Free Trade Zone, two logistics companies in Taipei Free Trade Zone, and ten logistics and shipping companies and 24 manufacturers in Taoyuan Air Cargo Free Trade Zone. Shipments through these FTZs in 2007 surged 289 percent to NT$ 59.9 billion (approximately $1.7 billion), and the value of shipments in the first nine months of 2008 was NT$ 86.6 billion ($2.57 billion). While these increases are in indeed sizeable, this accounts for only 0.65 percent of Taiwan's two-way trade in the same period.

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 inventory 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 that stipulate 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. Between January 2007- June 2008, drug-related seizures totaled NT $18,300,000 (approximately $543,150)--a dramatic increase from the NT $1,100,000 (approximately $32,650) the previous year. 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. 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 Taiwan and U.S. law enforcement agencies 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, therefore, 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, but it has agreed unilaterally to abide by its provisions. Taiwan is a founding member of the Asia/Pacific Group on Money Laundering (APG). The MLPC is a member of the Egmont Group of financial intelligence units.

Taiwan continues to improve and implement an anti-money laundering regime that largely comports with international standards. Taiwan should pass legislation currently before the Legislative Yuan to criminalize terrorism and terrorist financing as an autonomous crime. It should exert more authority over its nonprofit organizations. The MLCA amendments of 2003, 2007, and 2008 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 abolish all shell companies and prohibit new shell companies of any type from being established. Taiwan should enhance implementation of legislation regarding alternate remittance systems and Taiwan law enforcement should enhance investigations of underground finance and its links to trade fraud and trade-based money laundering.

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