Taiwan seeks jump from worst to first in anti-money laundering

Officials in Taiwan hoping that international monitors will this week upgrade its rating for anti-money laundering may have to thank one of its worst corporate scandals of the past decade for the achievement.

Taipei-based Mega International Commercial Bank Co., the island’s third-biggest bank by assets, was in 2016 fined a record USD180 million by authorities in New York, who described its anti-money-laundering compliance program as a “hollow shell.” The comments and punishment sent a shock wave through Taiwan’s official circles just as legislators were considering new regulations to combat such financial crimes.

“It really was a blessing in disguise,” Yu Li-chen, executive secretary of the government’s Anti-Money Laundering Office, said in an interview. “During deliberations in the legislature, everyone was asking if there was another Mega Bank out there. I told them that if they passed the revised law as it stood then, I couldn’t guarantee something like this wouldn’t happen again.”

Fear of a similar scandal pushed lawmakers to pass a stronger framework that was implemented in June 2017, strengthened further this month, and which is currently being evaluated by the Asia Pacific Group on Money Laundering. The government is hoping that a favorable assessment by APG will guarantee Taiwan’s status as one of the best jurisdictions for anti-money-laundering rules, alongside Macau and Indonesia. APG last year, in a previous round of reviews, raised the island’s ranking from one of the worst.

Over the course of the two-week appraisal, APG’s evaluators interviewed around 16 representatives, chosen from among Taiwan’s financial institutions, as well as lawyers, accountants, real estate agents, financial regulators and the coast guard. The result will be announced today.

“If you get listed as a non-compliant country, then sanctions are leveled against you,” former deputy justice minister Tsai Pi-chung, who led the government’s efforts to tighten the regulations over the past two years, said in an interview in September. “And if you get sanctioned, your country crashes. Getting bad marks on the evaluation is a serious issue.”

Formally recognized as a country by just 17 nations around the world, Taiwan has few opportunities to actively participate in international organizations. But the island was a founding member of the APG in 1997, even though it was once among the organization’s lowest-ranked countries. Lack of regulations that clearly ban terrorist financing was one area of particular concern in the APG’s evaluation report in 2007.

Wellington Koo, chairman of Taiwan’s Financial Supervisory Commission, said in an interview earlier this year that Taiwan’s financial companies and officials had fallen into “box-checking culture” until the Mega Bank fine provided a wake-up call. Evidence of being shaken out of the stupor is the 256-fold increase in fines leveled against banks, insurers and securities firms that year for money-laundering violations, according to FSC data.

Banks have chafed against some of the changes. The toughened know-your-customer rules meant firms had to cut ties with long-standing clients unwilling or unable to comply with the new regime. The stricter procedures have also affected banking customers. It now takes two forms of identification and a specified purpose to open a personal bank account. Corporate accounts require the company’s registration documents and shareholding structure. The FSC is in the process of mandating checks on all transactions of over NTD500,000 (USD16,000).

Politicians have also had to reckon with more paperwork when dealing with their own banking. In a recent legislative hearing, lawmaker Liu Jian-guo from the ruling Democratic Progressive Party complained to Koo about the additional burdens.

Whatever grade the APG ends up giving Taiwan, no one is under any illusions about the scale of the challenge ahead. PwC Taiwan partner Liang Hung-lieh, who helped institutions prepare for the evaluation, said it could take two to three years to build up the necessary data to establish usable customer risk profiles.

In the meantime the APG’s assessment, along with last year’s new law, created work for those under scrutiny, such as Tsai Chao-chen, an accountant at Tianxia Certified Public Bookkeeping, who underwent an APG evaluation this week.

“This process has forced us to get to grips with these new rules faster and in more detail than some others,” he said. “Some business peers have canceled plans to travel overseas for this period and they don’t even know if they will be called upon.” Miaojung Lin & Samson Ellis, Bloomberg