Taiwan to become a model against money laundering

  • Date: 2017-03-29

I. Background
As money laundering crimes gain increasing attention worldwide, Financial Action Task Force, the global money laundering watchdog, has toughened international anti-money laundering standards and taken strong intervention and sanction measures against its member jurisdictions and regional organizations.

Countries and regions around the world are also strengthening money laundering control measures: Hong Kong has made significant changes to its Companies Ordinance, Germany has proposed major legislation changes to better combat money laundering, and Sweden has largely stopped handling cash in a move to become a cashless society. The U.S., Canada and the U.K. have begun conducting background checks on offshore companies and shell companies dealing in high-value real estate transactions, and insurance companies are now required to report suspicious transactions. These trends show that countries are keenly aware of the importance of managing the money flows.

Although Taiwan passed a Money Laundering Control Act in 1996, becoming the first country in Asia to have such legislation, since then, its regulatory mechanism has unfortunately fallen behind the times. In 2007, Taiwan was placed on a regular follow-up list by the Asia/Pacific Group on Money Laundering (APG) in the second round of mutual evaluations conducted by its member countries. Taiwan suffered another blow to its reputation when it was relegated to an enhanced follow-up list in 2011, creating another bottleneck in crime-fighting efforts.
Many factors have made Taiwan vulnerable to international crime rings seeking a place for money laundering. It lacks sufficient cooperation with other countries, making it difficult to investigate financial crimes committed overseas. Its law enforcement authorities lack experience tracking money flows, which has allowed shell companies and fraudulent accounts to grow unchecked. Taiwanese still prefer to use cash for financial transactions, and there are few regulations combating money laundering at the borders.

To address these issues, Taiwan has enacted and amended a raft of laws including the Criminal Code, the Code of Criminal Procedure (new provisions on illicit gain seizures came into force July 1, 2016), a terrorist financing prevention act (which came into force July 27, 2016), and the Money Laundering Control Act (amendments promulgated December 28, 2016 and came into force on June 28, 2017). As foreign financial institutions began reassessing the risks of doing business with Taiwan, news of the Money Laundering Control Act changes spread on international media. This major change in the legal regime has had a telling impact with the attention it has drawn.


II. Focus of money laundering control policies

A. Social order and financial order

Taiwan’s policy thinking has always focused on maintaining social order among its citizens. Criminal registries and crime prevention systems are all designed around people, and during criminal investigations, law enforcement officials are mainly concerned with whether crime ring members can be arrested and put in prison where they belong.

When it comes to money, however, there are fewer laws to dictate the proper financial order. Few regulations require registration or disclosure of substantive beneficial owners, or even transparency about shareholders and money flows at incorporated foundations. This has resulted in a high number of shell companies being created in Taiwan, and extensive money laundering going through them. To effectively combat these crimes, the government must consider policies that maintain both social order and financial order.

B. Promote anti-money laundering values and culture

As with the New Life Movement of the 1930s that promoted Confucian moral values of orderliness, cleanliness, simplicity, frugality, promptness and precision, Taiwan must nurture a cultural value system that opposes money laundering, one that will make Taiwan’s overall financial system more effective and better protect citizens from crime.

For a long time, few in Taiwan were fully aware of anti-money laundering controls or what constitutes a violation of law. It is not uncommon for one person to open an account in another person’s name, “borrow” an account or allow someone to use another person’s account to make transfers, or allow someone to set up a company in another person’s name. Financial institutions, attorneys and accountants are also focused on handling their clients’ transactions, so they often overlook the impact of these customary behaviors on overall money controls.

This lack of awareness and cultural values to support the fight against money laundering has damaged Taiwan’s financial reputation and diminished its international space, making it an easy target for criminals. The government’s challenge now is to change the public’s values from both a psychological standpoint and through educational efforts.


III. Policy objectives and future direction

Taiwan’s performance in the third round of APG mutual evaluations in 2018 could have a profound impact on its overall ability to conduct financial business worldwide. Having completed the core task of amending the Money Laundering Control Act, Taiwan is now drafting authorized secondary legislation, organizing licensing and money laundering control courses, and seeking participation in APG activities and opportunities for cooperation. Other measures and plans for building a comprehensive anti-money laundering system are described below.

A. Establish an Anti-Money Laundering Office

For the APG evaluations, evaluators will conduct on-site inspections of actual operations in addition to examining regulatory compliance. And since Taiwan must adjust many regulations and policies across many government agencies and private organizations, the Executive Yuan established an Anti-Money Laundering Office on March 16, 2017 to integrate the nation’s money laundering prevention policies and directions.

Staffed by experts from the public and private sectors, the office will prepare Taiwan for the APG evaluations, carry out money laundering control tasks, and work toward the chosen objectives in stages. It will improve the effectiveness of money laundering controls within Taiwan while creating more space for Taiwanese financial companies to operate internationally.

B. Revise laws and regulations

Though the work of money laundering prevention cannot be completed overnight, the APG evaluations present a fitting opportunity for the government to change laws and policies so that these tasks can be carried out faster and more effectively. Toward that end, the government will push for legislation on an international mutual judicial assistance law to promote reciprocal assistance with other countries, and an act governing incorporated foundations to bring greater financial transparency to foundations and nonprofit organizations. The Company Act is also being amended to require information on company establishment and operations in anti-money laundering disclosure statements.

C. Promote cashless transactions

While countries worldwide are increasingly promoting cashless transactions as a means of preventing money laundering, Taiwanese still favor using cash for financial activities. But since crime rings often launder their funds through real estate, Taiwan’s government is considering banning cash for individual transactions of NT$500,000 (US$16,308) or more relating to real estate, precious metals and luxury items. Creating this type of cashless environment may take some time but will help authorities follow the money trail. The government will also consolidate information on commodities at high risk of money laundering, and demand greater transparency from incorporated foundations and overseas companies.


IV. Conclusion

Money laundering prevention is all about controlling the rules of the game, and constructing an effective regime will lead to a sound financial environment. Though Taiwan’s past control measures fell short of the ideal, the government will take advantage of preparations for the third round of APG evaluations to thoroughly change the laws and address operational deficiencies. By demonstrating its financial excellence and contributions to global campaigns against money laundering and terrorist financing, Taiwan hopes not only to succeed in the evaluations but also become a shining example of money laundering prevention in the Asia-Pacific region.