The Taiwan Banker

While Taiwan's Anti-Money Laundering Act has been in practice for years, there is a need to ensure that we pass the third round of APG evaluations and be seen as a leader in Asia in the fight against money laundering Money laundering has become a more serious problem in recent years, posing challenges to financial institutions, especially in the area of compliance. It has now been 20 years since Taiwan passed its Anti-Money Laundering Act. In November 2018, the Asia Pacific Group on Money Laundering (APG) will evaluate Taiwan for a third time. Ahead of this evaluation, the Anti-Money Laundering Office under the Executive Yuan, together with the Taiwan Academy of Banking and Finance (TABF) and the Chinese Financial Law Society held a seminar marking the 20th anniversary of the passage of the Anti-Money Laundering Act. This seminar offered instruction to financial institutions on how to build a robust compliance system and effectively abide by the Anti-Money Laundering Act. Huang Chongzhe, President of TABF, spoke at the beginning of the seminar. During his speech, Huang noted that when Taiwan passed the Anti-Money Laundering Act in 1996, the legislation was advanced for its time and became a reference for Taiwan's neighbors. However in the two decades since, new challenges have emerged for the financial industry, as evidenced by the September 11th terrorist attacks in New York City and the 2008-09 global financial crisis. Taiwan has not kept pace with all the changes occurring in the financial sector, which necessitates an active approach to reform now, he said. With that in mind, Taiwan's financial institutions are currently working hard to boost their anti-money laundering counter-terrorism capabilities and strengthen overall compliance. The seminar was divided into four parts:1. The Establishment and Prospects of the Anti-Money Laundering System 2. The Challenges Financial Technology faces in Money-Laundering Prevention and Control3. A Discussion on the Examination of Real Beneficiaries in Financial Institutions4. The Principle of Proportionality in the Responsibility of Financial Institutions in Money Laundering Prevention Develop a world-class anti-money laundering systemYu Lee-chen, the Executive Secretary of the Anti-Money Laundering Office, noted that Taiwan was a founding member of APG in 2001. During the first-round mutual evaluation by APG, Taiwan did well, as it was the first Asian country to pass anti-money laundering legislation and it also has financial-intelligence units (FIUs). However, Taiwan did not make a lot of progress combating financial crime in the following years and its second-round evaluation in 2007 was not especially good. In 2018, APG will evaluate Taiwan for the third time. Lee pointed out that Taiwan's GDP exceeds US$530 billion and it has an advanced economy. However, in APG's rankings, Taiwan is listed alongside developing countries like the Cook Islands, Indonesia, Nauru and Nepal. If Taiwan ends up on the follow-up list with Afghanistan, Laos, Myanmar, Papua New Guinea and the Maldives, it will "actually be quite embarrassing," she said. At the same time, she also mentioned that it was fortunate that Taiwan previously revised its Criminal Procedure Law and Money Laundering Control Act while also passing the Terrorism Financing Prevention Act. In July, last year APG removed Taiwan from its follow-up list. Taiwan is the only country to be removed from the list unconditionally.In the past, law enforcement focused on pursuing criminals, searching for evidence and then convicting them. From the standpoint of the law, it was not a priority to seize all the proceeds from a criminal operation. As a result, it is estimated that just 30% of the proceeds of criminal activity in Taiwan have entered the national treasury. The failure to seize this money has prevented police from tracking the monetary trail of illegal activity. This has allowed criminal organizations to proliferate. Why does Taiwan accept APG's rating? In fact, Taiwan is a founding member of APG and as such is obligated to accept the organization's evaluation of its money laundering control capabilities. Further, Taiwan must ensure that its own money laundering control system is in line with global standards. Taiwan must take these measures to ensure it is seen as a responsible, law-abiding country by other nations. In addition to financial institutions, APG's third-round evaluation also covers designated non-financial institution personnel or businesses such as lawyers, accountants, real estate brokers and land administration workers. As a result, the supervisory agencies in charge of preventing money laundering will expand to the Ministry of Economic Affairs, the Ministry of Justice and others. Coordination among different ministries will be more important then ever. Yu Lee-chen emphasized: "Taiwan has already lagged behind in money laundering prevention and control, but it is definitely not too late to catch up. If Taiwan can get onto the EU's white list for anti-money laundering and counter financing of terrorism equivalent jurisdictions (those countries which have AML and CFT capabilities equal to EU countries) it will absolutely be beneficial to the economy. How fintech can facilitate money-laundering control The priority is to control cash flow and boost transparency Only by following the relevant international financial laws and regulations, can we we reach a global standard in money laundering Control. Carol Lin, a vice president of National Chiao Tung University's School of Law and Su Wen-ji, an investigations officer in of Taipei Investigation Bureau of the Ministry of Justice, delivered a keynote speech on the "Challenges of Financial Technology in Money Laundering Prevention and Control." Carol Lin also pointed out that APG's third-round evaluation mainly focuses on whether a country has a sound rule-of-law foundation and if the rule of law is implemented effectively. The problem Taiwan now faces is that its most recent anti-money laundering legislation was completed hurriedly and there was not been much time to implement it. Today, the United States and most others countries not only regard money laundering as criminal activity to be curbed, but also see money laundering prevention and control as a means to control the flow of goods and information and prevent more serious crimes from occurring.In addition, in most nations, legal persons or unincorporated organizations can become criminal defendants and have certain rights. This is very different from Taiwan, where legal persons or unincorporated organizations can not enjoy natural rights as a defendant. If our country is not in line with global standards of money laundering prevention and control, our financial institutions will have difficulty meeting both our own standards and international standards when they expand overseas. For Taiwan's financial institutions, the key is to learn how to conform to global money-laundering control standards. The United States is one of the countries most aggressive in enforcing these controls. For instance, in January 2017, Deutsche Bank said it would pay $630 million in fines to U.S. and UK regulators because it did not prevent roughly $10 billion in suspicious trades which are believed to have been laundered out of Russia. Further, JPMorgan Chase agreed to pay US$264 to settle claims that its hiring of the relatives of powerful Chinese officials violated the United States' Foreign Corrupt Practices Act. Thus, it is imperative for Taiwan and its financial institutions to follow the U.S.'s lead in the battle against money laundering. If we do not, we risk putting ourselves at a large disadvantage in international finance. Meanwhile, strong money-laundering controls need not hinder financial innovation. Indeed, the advent of fintech regulatory sandboxes ensures that firms involved in the fintech segment can experiment with different business models without running afoul of consumer protection and anti-money laundering regulations. Su Wen-ji spoke about the impact on money-laundering controls on Bitcoin and other cryptocurrencies. He said that digital currencies are a reality, one which is consensus-based, transparent and credible. However, because governments do not yet regulate digital currencies, they generally are suspicious of them at this point. In Taiwan, digital currencies like Bitcoin are classified as highly speculative digital virtual goods. Investors in cryptocurrencies here face high risk because there are no corresponding regulations that cover transactions. Nor are there are regulations to protect investors from the general volatility of digital currencies. Additionally, since these currencies are digital, they are especially susceptible to hacking. Lack of government control over cryptocurrencies means they can also be used for drug trafficking, money laundering, smuggling and other illegal activities easier than paper currencies. Chien Shu-hsien, a former assistant manager in the Compliance Department of Hang Seng Bank, pointed out that the U.S.'s money-laundering controls have significant reach. In 2005, the U.S. Treasury Department accused the Macau bank Banco Delta Ásia of assisting North Korea with money laundering. Washington urged American businesses to stop doing business with Banco Delta Ásia, which prompted a run on Macau's banks. To safeguard the stability of the local financial system, the Macau government took over the bank. This example shows that any bank doing business with the U.S. could be accused of money laundering even if it doesn't have a branch in the U.S. The investigation of Banco Delta Ásia is long over, yet the bank never truly recovered from the incident. In 2005, the Macau government took over the bank, which was then barred from dealing with any American financial institution and effectively frozen out of the international banking system. In 2007, Banco Delta Asia was returned to its original owner. Yet because of Treasury sanctions, it remains unable to conduct operations using either U.S. or Hong Kong dollars.