Strengthening anti-money laundering measures and meeting international standards

  • Date: 2017-01-23

I. Background 

Money laundering is the process by which criminals convert illegally obtained proceeds into legitimate funds or property in order to conceal criminal activity and evade investigation. Given the negative impact that money laundering has on a nation’s financial stability and economic development, countries worldwide have enacted anti-money laundering legislation.

Recognizing the importance of preventing money laundering, Taiwan in 1996 enacted the Money Laundering Control Act, the first dedicated law in Asia for this purpose. Taiwan also became a founding member of the Asia/Pacific Group on Money Laundering (APG) in 1997, showing its resolve to be part of a sound international financial system and combat criminal activity.

In the two decades since, the Money Laundering Control Act was amended several times to keep pace with constantly evolving forms of money laundering. Since the amendments focused more on criminal prosecution than alignment with international standards, however, Taiwan’s anti-money laundering efforts became less effective over time. Taiwan received positive reviews in mutual evaluations conducted by APG members in 2001, but was relegated to a follow-up watchlist in 2007, and will undergo a third round of evaluations in 2018.

To shore up Taiwan’s anti-money laundering regime, the government in 2013 began pushing to amend the Act to harmonize with international regulations. After the high-profile Mega Bank case in August of 2016, where the bank’s New York branch was fined for failing to comply with U.S. anti-money laundering laws, the public became more concerned about money laundering, which indirectly accelerated the amendment process. Those amendments subsequently cleared the Legislature on December 9 and were promulgated on December 28, 2016. The changes, which become effective on June 28, 2017, will strengthen enforcement of domestic anti-money laundering efforts while restoring the reputation of Taiwan’s financial system.

 

II. Improve money-laundering prevention regime, re-establish orderly money flows, align with international standards

Taiwan made the latest round of amendments to join the global fight against money laundering and harmonize with international standards. The sweeping changes—including stronger judicial practices to fight cross-border telecommunications fraud, cash smuggling and other forms of money laundering—reinforce Taiwan’s prevention capabilities and signal its determination to combat financial crime. Key points of the amendments are as follows:

A. To align Taiwan’s definition of a money laundering crime with international regulations, the Act now stipulates that allowing another person to use one’s name or bank account to engage in shell company or real estate transactions is considered a crime.
 
B. The threshold for serious crimes has been lowered from crimes punishable by a minimum of not less than five years imprisonment, to crimes punishable by a minimum of not less than six months imprisonment. The scope of serious crimes has also been broadened by eliminating the minimum threshold on proceeds obtained from the commission of a crime.

C. To increase transparency in money flows, financial institutions are obligated to perform customer due diligence, keep records and report suspicious transactions, and also apply a risk-based approach when performing due diligence on politically exposed persons and substantive beneficial owners. Financial lease businesses and nonfinancial businesses and professions (such as lawyers, accountants, notaries, closing agents, real estate agencies, and trust and company service providers) are also required to perform customer due diligence.

The current law also authorizes the competent authority of the central government to conduct the relevant audits and investigations, and empower local governments or other relevant authorities to perform these functions.

D. To better control borders and track the flow of money, the Act now requires customs declarations for New Taiwan dollars and gold over a certain value, and other objects that may potentially involve money-laundering. Items mailed or sent by express delivery must also be declared.

 

III. Preparations for the third round of APG evaluations

A. APG mutual evaluations assess a country’s regulatory system, financial systems and law enforcement with respect to anti-money laundering and counter-terrorist financing efforts. After the 2007 evaluation, Taiwan was placed on a watchlist for follow-up procedures because its anti-money laundering laws lacked a counter-terrorist financing mechanism, did not fully comply with the latest international regulations, and its criminal prosecution of and convictions for money laundering offenses were insufficient.

B. To rectify these deficiencies, the Ministry of Justice (MOJ) in 2015 announced preparations for the third round of APG mutual evaluations in 2018. The ministry has thus already amended the Money Laundering Control Act, added new provisions to the Criminal Code regarding the confiscation of criminal proceeds, and established a law to control the financing of terrorists. Efforts are also underway to pass draft laws regarding incorporated foundations and international mutual judicial assistance.

C. Having amended the Money Laundering Control Act, the MOJ is drafting the relevant authorized secondary legislation, raising public awareness and organizing training seminars. Taiwan will also actively seek to participate in APG activities and opportunities for cooperation to ensure it passes the third round of mutual evaluations.

D. The Financial Supervisory Commission (FSC) has revised anti-money laundering and counter-terrorist financing guidelines for banks after identifying disparities between domestic and international standards. The new guidelines promote a compliance-oriented corporate culture by strengthening the supervisory functions of boards of directors, tightening internal controls using three lines of defense, and increasing personnel education and training. Given how important implementation effectiveness will be in the third round of APG evaluations, the FSC will intensify financial institution inspections and monitoring to improve compliance capabilities and effectiveness.

 

IV. Conclusion

As a responsible member of the international community, Taiwan must align its laws and regulations with international standards to join the global fight against money laundering. Both the public and private sectors must adjust their methods and approach to this issue and abide by internationally accepted standards. While the latest amendments to the Money Laundering Control Act show the government’s determination to fight money laundering, legislation alone is not enough. The public must also become more aware of these crimes and join forces with the government. By working together, Taiwan will showcase the excellence of its financial structure, contribute to anti-money laundering and counter-terrorist financing efforts worldwide, and build its reputation as a global financial hub.