TAIWAN: 2004-2005 INTERNATIONAL NARCOTICS

UNCLAS SECTION 01 OF 03 TAIPEI 000115

SIPDIS

STATE PASS TO AIT/W

STATE ALSO FOR EAP/RSP/TC

JUSTICE FOR OIA AND AFMLS

TREASURY FOR FINCEN

E.O. 12958: N/A
TAGS: KCRM PTER KSEP SNAR KTFN TW
SUBJECT: TAIWAN: 2004-2005 INTERNATIONAL NARCOTICS
CONTROL STRATEGY REPORT (INSCR) PART II, MONEY
LAUNDERING AND FINANCIAL CRIMES

REF: 2004 STATE 254401


1. AIT 2004-2005 PART II INCSR Responses follow:


2. Taiwan is not considered an important regional or
offshore financial center. Money laundering in Taiwan is
not generally related to narcotics trafficking. Most
illegal or unregulated financial activities are done to
avoid taxes or conceal financial flows to and from third
countries. There is no indication that local drug
trafficking organizations or terrorist groups control money-
laundering proceeds.


3. In 2004 Taiwan experienced an increase in financial
crimes involving graft by some company executives in high-
tech industries. There is no indication that contraband
smuggling generates funds laundered through the banking
system. There has been no indication of Taiwan policy,
official encouragement, or facilitation of laundering
proceeds from illegal drug transactions or terrorist
financing. It is unlikely that Taiwan's legal financial
institutions would engage in currency transactions involving
international narcotics trafficking proceeds.

Money Laundering/Terrorist Financing Laws and Regulations
-------------- --------------


4. Money laundering is a criminal offense under Taiwan's
Money Laundering Prevention Law (MLPL). MLPL covers
counterfeit securities, counterfeit credit cards, fraud and
usury, underground banking, bankruptcy fraud, embezzlement
from banking institutions, corrupt government contracting
and procurement, insider trading, and manipulation of
securities trading, trafficking of children, abduction,
weapons manufacture and sale, smuggling, and drug
trafficking. Banks and other financial institutions are
required to record and report the identity of customers
engaging in transactions of NT$ 1 million (about US$30
thousand) or more. Financial agencies are required to keep
records of all significant transactions for five years.


5. According to Taiwan's Financial Supervisory Commission
(FSC),financial institutions are required to report all
cash transactions of at least NT$ 1 million and any cases
where there are indications of money laundering to the Money
Laundering Prevention Center (MLPC). Such reports are
confidential and protected by specific provisions in the

SIPDIS
MLPL. MLPC officials are authorized to require domestic and
offshore financial entities to disclose client and ownership
information. Individual bankers can be fined NT$ 200,000-
NT$ 1 million (about US$ 6,000-30,000) for not following the
MLPL.


6. The money laundering controls also apply to trust and
investment companies, credit cooperative associations,
credit departments of farmers' and fishermen's associations,
postal savings systems, insurance companies, securities
firms, and consulting companies, futures brokers, jewelry
stores, casinos, automobile dealers, aircraft dealers,
merchant ship dealers and real estate brokers.

Crime Statistics
--------------


7. From January-September 2004 (the most recent figures
available),Taiwan investigated 505 cases of possible money
laundering. Among these cases, 442 were economic crimes,
seven involved government corruption, and seven were
narcotics-related crimes. Total money laundering January-
September amounted to NT$ 1,244 million (about US$ 38
million). Of the 505 cases investigated, 287 cases involved
money laundering via bank transactions, 213 cases via postal
remittances and savings banks, and one case via a credit
union. Taiwan's financial institutes and banker
associations, political parties, and other affected
organization have not expressed any objection to the money
laundering prevention laws.


8. Taiwan's draft "Counter-Terrorism Action Law" (CTAL),
which designates terrorism financing as a major crime is
still pending legislative approval. Under CTAL provisions,
the National Police Administration, the Ministry of Justice
Investigation Bureau (MJIB),and the Coast Guard are able to
seize the suspected terrorist assets even before criminal
charges are made. In emergency situations, law enforcement
agencies would be able to freeze assets for three days
without a court order. Assets and income obtained from
committing terrorist crimes could be confiscated permanently
unless such assets and income can be identified as belonging
to the victims of the crimes. Taiwan officials have the
authority to freeze and/or seize terrorist-related financial
assets.


9. The Bureau of Monetary Affairs (BOMA) of the FSC has
circulated lists of individuals and entities identified by
the UN 1267 Sanction Committee and provided by the U.S. to
domestic and foreign financial institutions in Taiwan.
Taiwan and the U.S. have established procedures to exchange
records concerning suspicious terrorist financial
activities. After receiving financial terrorist lists from
AIT, BOMA conveys the list to relevant financial
institutions.


10. Domestic and international financial information
including terrorist and money laundering lists are available
on the MLPL internet website. Banks are required to file a
report on cash remittances of at least NT$ 1 million or if
the remittor/remittee is on a terrorist list. Foreign labor
brokers are authorized to remit income earned by foreign
workers via banks to their home countries. These
remittances are not regulated or reported, and money-
laundering regulations are not imposed on these foreign
labor brokers. At present, there are no plans to probe
charitable or non-profit entities to see if they serve as
conduits for financing of terrorism. These entities must
register with official agencies.


11. Taiwan is not a party to the 1999 International
Convention for the Suppression of the Financing of
Terrorism, but complies with its provisions.

Offshore Financial Centers
--------------


12. All foreign financial institutions and offshore banking
units follow the same regulations as domestic financial
entities. All offshore banks, international business
companies, and shell companies need to comply with the
disclosure regulations from Taiwan's Central Bank of China
(CBC),BOMA, and MLPC. These supervisory agencies will
conduct background checks on applicants for banking and
business licenses. Offshore casinos or internet gambling
sites are illegal.

Free-Trade-Zones
--------------


13. Taiwan's only free trade zone began operation in Keelung
on October 1, 2004. Entities wanting to operate in the free
trade zones must submit applications to the port
authorities. Entities can conduct simple processing of
commodities in the zone and re-export them without
inspection by customs. There is no indication that the zone
is used in money-laundering schemes or by financers of
terrorism. Keelung port authority has a panel composed of
members from various enforcement agencies to conduct checks
of commodities, transportation, and accounting. According
to Taiwan's Banking Law and Securities Trading Law, in order
for financial institutions to conduct foreign currency
operations Taiwan's Central Bank must first approve the
institution to conduct foreign-currency operations. The
financial institutions must then submit an application to
port authorities to establish an offshore banking unit in
the free trade zone.

International Cooperation
--------------


14. Taiwan is not a member of the United Nations and
therefore cannot be a party to the UN International
Convention against Illicit Traffic in Narcotic Drugs and
Psychotropic Substances or other UN agreements and
conventions. However, Taiwan abides by the provisions of
those conventions. Taiwan is a member of the Egmont Group
and the Asia/Pacific Group on Money Laundering (APG) adheres
to regulations/recommendations from other international
groups including the Financial Action Task Force on Money
Laundering (FATF). Where necessary, Taiwan has amended its
regulations to meet international standards.

15. The Taipei Economic and Cultural Representative Office
(TECRO) and the American Institute in Taiwan (AIT) signed a
Mutual Legal Assistance Agreement (MLAA) in March 2002.
This agreement remains the primary avenue of law enforcement
cooperation in regards to investigations of narcotics
trafficking, counter-terrorism issue, including terrorist
financing, and other transnational crimes.

Asset Forfeiture and Seizure Legislation
--------------

16. Taiwan has established drug-related asset seizure and
forfeiture regulations, which state that according to
treaties or agreements Taiwan's Ministry of Justice shall
share seized assets with foreign official agencies, private
institutions or international parties who provide Taiwan
with assistance in investigations/enforcements. 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. 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.


17. In January-September 2004, total seized assets reached
NT$ 20 million (about US$ 660,000). To prevent money
laundering and other serious crimes, Taiwan works with the
financial intelligence units of other countries on asset
tracing, freezing, and seizure. Taiwan's banking community
and public have been supportive of Taiwan authorities'
enforcement efforts.

PAAL