Taiwan is not a member of many of the major international organizations such as the United Nations, the International Monetary Fund and the World Bank. Ergo the country is at a disadvantage since it cannot be a party to international conventions relating to anti-money laundering (AML) and combating the financing of terrorism (CFT). Taiwan, however, is a founding member of the Asia/Pacific Group on Money Laundering, which released its second mutual evaluation of Taiwan compliance with the Financial Action Task Force's (FATF) 40+9 recommendations and special recommendations on AML/CFT in 2007. Per the findings of the 2007 mutual evaluation, although Taiwan has some elements of a functioning AML/CFT regime, it still lacks significant laws and procedures that will allow it to fully comply with the FATF's requirements on AML/CFT. For example, Taiwan does not have a law criminalizing the financing of terrorism; it does not have proper rules to regulate Designated non-Financial Business and Professions from being used as conduits for money laundering and terrorist financing activities; and it does not have effective laws and procedures to confiscate and freeze terrorist funds or assets. According to a 2008 report by the U.S. Department of State (DoS), a Counter-Terrorism Action Law has been in the works since 2003. If passed, it would explicitly designate the financing of terrorism as a major crime. This proposed law, per the 2008 U.S. DoS report, is expected to allow relevant law enforcement authorities to seize terrorist assets even without a criminal case in Taiwan.

General Overview

In 2007, the Asia Pacific Group on Money Laundering (APG) released the findings of its mutual evaluation on Chinese Taipei's (Taiwan) observance of the Financial Action Task Force's (FATF) 40+9 recommendations and special recommendations on anti-money laundering (AML) and combating the financing of terrorism (CFT). The report observed that although Taiwan has in place some aspects of a functioning AML/CFT regime, it still lacks significant laws and procedures that will allow it to fully comply with the FATF's requirements on AML/CFT. For example, Taiwan does not have a law criminalizing the financing of terrorism; it does not have proper rules to regulate Designated non-Financial Business and Professions (DNFBPs) from being used as conduits for money laundering and terrorist financing activities; and it does not have effective laws and procedures to confiscate and freeze terrorist funds or assets. According to the 2007 APG report (also referred to as the 2007 mutual evaluation), Taiwan falls short on the FATF requirements on legal person and legal arrangements and is not party to the major United Nations (UN) conventions dealing with money laundering and terrorist financing as Taiwan is not a member of the UN. According to a 2008 report by the U.S. Department of State (DoS), a Counter-Terrorism Action Law (CTAL) has been in the works since 2003 that would explicitly designate the financing of terrorism as a major crime.

The main law criminalizing money laundering in Taiwan is the Money Laundering Control Act (MLCA) of 1997, which was amended in 2003 and 2007. The 2008 U.S. DoS report states that the MLCA's "major provisions include a list of predicate offenses for money laundering, customer identification and record keeping requirements, disclosure of suspicious transactions, international cooperation, and the creation of a financial intelligence unit (FIU), the Money Laundering Prevention Center (MLPC)." Legal provisions that provide for the confiscation, freezing, and seizing of proceeds of crime can be found in several laws, including the MLCA, the Criminal Code, the Criminal Procedure Code, the Statute for Narcotic Hazards Control, the Police Powers Act, and the Organized Crime Prevention Act. The MLPC is situated within the Ministry of Justice Investigation Bureau (MJIB) and investigates money laundering and terrorist financing cases. In this capacity it receives, analyzes, and disseminated suspicious transaction reports (STRs). According to the 2008 U.S. DoS report, in 2006, "the MLPC received 1,281 suspicious transaction reports and 689 of them resulted in prosecutions." The report further indicates as of November 2007, the MLPC received 2,953 reports. Other agencies that supervise AML/CFT activities in Taiwan are: the Ministry of Transportation and Communication, the Financial Supervisory Commission (FSC) located within the Ministry of Finance, the Ministry of Economic Affairs, the National Police Administration, the Coast Guard, and Taiwan's Central Bank. The financial sector regulator in Taiwan is the FSC. It monitors and regulates the banking, securities, futures and insurance industries.

Taiwan is a founding member of the APG and the MLPC is a member of the Egmont Group of FIUs. The 2007 mutual evaluation by the APG rates Taiwan as only partially compliant with recommendations relating to the UN Conventions and non-complaint with recommendations relating to international co-operation. However, the 2008 U.S. DoS report notes that the MJIB has actively engaged in international cooperation. The report further notes that over the past several years the Taiwanese authorities have undertaken various measures to improve its AML/CFT regime, however, the lack of a law criminalizing the financing of terrorist and the shortcomings in Taiwan's confiscation and forfeiture regime are major holes in the AML/CFT framework in the country.

The Principles

1. Legal Systems and Related Institutional Measures

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The 2007 mutual evaluation notes that Taiwan is only partially complaint with recommendation (R) 1 relating to the criminalization of money laundering since Taiwan money laundering offense lacks some of the elements required by the Vienna and Palermo Conventions. The report further notes that threshold for the definition of a serious offence is set too high. The MLCA is the main law criminalizing money laundering in Taiwan. As to R 2 on the mental element and corporate liability of the money laundering offence, the 2007 mutual evaluation identifies Taiwan as being partially compliant. Taiwan has not criminalized the financing of terrorism. Therefore it is rated as non-compliant with special recommendation (SR) II in the mutual evaluation. Per the 2007 APG report "a draft Counter-Terrorism Bill has been prepared but has not yet been tabled with the Legislative Yuan" (p. 3).

Taiwan is largely compliant with R 3 on confiscation and provisional measures per the 2007 APG report. The report notes that there is "no definition of property or property interests in the MLCA to ensure that offence of [money laundering] extends to all types of property" (p. 198). Legal provisions that provide for the confiscation, freezing and seizing of proceeds of crime can be found in several laws, namely the MLCA; the Criminal Code; the Criminal Procedure Code; the Statute for Narcotic Hazards Control; the Police Powers Act, and the Organized Crime Prevention Act. Taiwan, according to APG report, is non-compliant with SR III, since it lacks effective laws and procedures to confiscate and freeze terrorist funds or assets of designated entities as stipulated in the United Nations (UN) Security Council Resolutions 1267 and 1373. Per the 2008 U.S. DoS report, the proposed CTAL is expected to allow the National Police Administration, the MJIB, and the Coast Guard to seize terrorist assets even without a criminal case in Taiwan. Moreover, the 2008 U.S. DoS report also states that "assets and income obtained from terrorist-related crimes could also be permanently confiscated under the proposed CTAL, unless the assets could be identified as belonging to victims of the crimes."

R 26 relating to the FIU is rated by the 2007 APG report as compliant, and Taiwan is largely complaint with R 30 on resources, integrity and training of the FIU staff, and on R 32 on statistics disseminated by the FIU. According to the mutual evaluation, "the FIU of Chinese Taipei is embodied in the Money Laundering Prevention Centre (MLPC), which presents as a mature, well functioning and effective FIU" (p. 4).Taiwan is largely compliant with R 27 on law enforcement authorities and complaint with R 28 on the powers of competent authorities. The APG rates Taiwan largely compliant with R 27, as there currently are some restrictions on the measures used for money laundering investigations. According to the APG's 2007 mutual evaluation, some of the law enforcement agencies have issues in terms of adequate staffing resources, and the reporting of statistics in certain instances suffer from significant discrepancies. The APG adds that Taiwan is partially compliant with SR IX on cash couriers as there is a lack of resources available to Customs Service in terms of enforcement and the sanctions regime for non-compliance is deficient. According to the 2008 U.S. DoS report, a July 2007 legislation now requires individuals to report currency transported into or out of Taiwan in excess of Taiwanese Dollar (NT$) 60,000, US $10,000 in foreign currency, or gold worth more than US $20,000.

2. Preventive Measures - Financial Institutions

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The 2007 APG report states that the "Chinese Taipei [Taiwan] has implemented a system of generally comprehensive AML/CFT measures for financial institutions" (p. 4). However, the report notes that, in direct contrast to the FATF requirement stipulating the enactment of laws and regulations in applying and enforcing AML/CFT measures in the financial sector, Taiwan's regime instead provides guidelines to financial institutes. The APG report notes that Taiwan is partially compliant with R 5 on customer due diligence (CDD); non-compliant with R 6 on politically exposed persons; largely compliant with R 7 on correspondent banking; and largely compliant with R 8 on new technologies and face-to-face business. The report adds that the threshold for obligations on CDD is too high and financial institutions lack a clear requirement on identification of beneficial owners. Taiwan is compliant with R 4 and R 9 on financial institution secrecy, and third parties and introduced business, respectively.

According to the APG 2007 report, Taiwan is only partially compliant with FATF R 9 on record-keeping since "record-keeping requirements are inadequate in areas including records for non-cash transactions, records for cash transactions below NT$1 million ...and no requirement to keep account files or business correspondence" (p. 4). The report adds that Taiwan is largely compliant with SR VII relating to wire transfer rules. According to the report, Taiwan is partially complaint with R 11 regarding unusual transactions, since "with the exception of the banking sector, there are no specific obligations on financial institutions to monitor and keep record of complex, unusual large transactions, or unusual patterns of transactions, that have no apparent or visible economic or lawful purpose" (p. 4). The APG notes that Taiwan is non-compliant with R 21 on monitoring and paying special attention to higher risk countries.

According to the 2007 APG report, Taiwan is partially compliant with R 13 relating to suspicious transaction reporting, because there is no law "that requires a financial institution to report attempted transactions that are suspicious in nature" (p. 200). Taiwan is compliant with R 14 on protection and no tipping off, and R 19 on other forms of reporting. The APG adds that there is no clear establishment of guidelines under the MLCA, therefore rating Taiwan as partially compliant with R 25 Taiwan does not comply with the requirements of SR IV on suspicious transaction reporting relating to terrorist financing. According to the 2008 U.S. DoS report, in 2006, "the MLPC received 1,281 suspicious transaction reports and 689 of them resulted in prosecutions." The report further indicates as of November 2007, the MLPC received 2,953 reports.

The APG's 2007 mutual evaluation indicates that Taiwan is largely complaint with R 15 on internal controls and R 22 on the monitoring of financial institutes foreign branches and subsidiaries. According to the same report, financial institutions in Taiwan have in place comprehensive internal control, compliance and audit systems; however, the report notes that requirements in the securities sector do not cover the independent audit function fully. Taiwan does not have any explicit law on the prevention of the establishment and operation of shell banks, prompting the APG report to rate Taiwan as being only partially compliant with this R 18. However, the report also notes that there are restrictions on the operation of shell banks in Taiwan.

The financial sector regulator in Taiwan is the FSC, which monitors and regulates the banking, securities, futures and insurance industries. The 2007 APG report found Taiwan largely compliant with R 17 on the FSC's sanctions provisions; R 23 on the FSC's monitoring, regulatory and supervisory functions; and R 29 on the FSC's powers and resources. On R 23, the report notes that insurance agents and brokers are exempt from AML/CFT requirements; and on R 17 the report indicates that there are inadequacies in the type of sanctions imposed by the FSC for non-compliance with AML/CFT requirements by banks. The report found Taiwan largely complaint with R 30 and R 32, and some law enforcement agencies have issues in terms of adequate staffing resources. The reporting of statistics in certain instances suffer from significant discrepancies. The 2007 APG report adds that Taiwan is largely compliant with SR VI relating to AML requirements for money or value transfer services.

3. Preventive Measures - Designated non-Financial Business and Professions

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The 2007 APG evaluation states that "dealers in precious metal and stones are the only category of the DNFBP sector covered under MLCA Act and there are currently no specific AML/CFT requirements imposed on lawyers, notaries, real estate agents, accountants, or trust and company services providers" (p. 5). Therefore, Taiwan is rated as being non-compliant with: R 12 on CDD and record keeping; R 16 on suspicious transaction reporting; R 20 on other non-financial businesses and professions; and R 24 on the regulation, supervision and monitoring of DNFBP. The 2007 APG evaluation notes that there is no clear establishment of guidelines under the MLCA, rating Taiwan as only partially compliant with R 25.

4. Legal Person and Arrangements & Non-Profit Organizations

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Taiwan is partially compliant with R 33, per the APG 2007 mutual evaluation, which states that "there is no obligation to maintain and make available beneficial ownership information for legal persons" (p. 204). However, the report states that Taiwan uses central registration systems to maintain transparency of legal persons. The APG evaluation adds that Taiwan is also only partially compliant with R 34 regarding legal arrangements. The competent authorities have little powers to obtain timely and accurate information on beneficial ownership in the case of trusts. Taiwan is largely compliant with SR VII on monitoring and regulating AML/CFT activities in non-profit organizations. According to the 2008 U.S. DoS report, non-profit organizations "are required to register with the government and, like any other individual or corporate entity, are checked against list of names designated by the United Nations." The Ministry of Interior is in charge of supervising foundations and charities.

5. National and International Co-operation

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According to the APG 2007 mutual evaluation, Taiwan is largely compliant with R 31 on national co-operation. The report notes that there is extensive cooperation between national supervisory agencies, but shortcomings remain in terms of the dissemination of CFT measures between domestic agencies. Per the evaluation, Taiwan is largely complaint with R 32, as the reporting of statistics in certain instances suffer from significant discrepancies. Taiwan is rated partially compliant with R 35 on international conventions and non-compliant with SR I on the implementation of UN instruments. As Taiwan is not a member of the UN, it cannot be party to the Vienna, Palermo or Terrorist Financing Conventions. However, according to the 2008 U.S. DoS report, Taiwan has passed and implemented laws in compliance with the goals and objectives of the Vienna Convention, and has agreed to abide by the provisions of the UN's Terrorist Financing Convention. With regard to SR I, the APG mutual evaluation notes that Taiwan does not have the appropriate laws and procedures in place to implement UN Security Council Resolutions 1267 and 1373. The APG report also notes that Taiwan is compliant with R 37 on dual criminality, and largely compliant with R 36 and R 38 on mutual legal assistance (MLA) and MLA on confiscation and freezing, respectively. The report states that "for jurisdictions with no MLAA [mutual legal assistance agreement] with Chinese Taipei, they can only receive Mutual Legal Assistance (MLA) through court order or letters rogatory" (p. 6). Taiwan is non-complaint with SR V on international co-operation, per the APG report, and it is largely compliant with R 39 relating to extradition. The report states that "Chinese Taipei has no law or processes that requires it to cooperate with a requesting jurisdiction when it comes to prosecuting its own nationals under Article 4 paragraph 2 of the Extradition Law" (p. 7). Taiwan is partially compliant with R 40 on other forms of co-operation, because Taiwanese authorities have at their disposal a number of formal and informal arrangements to receive and disseminate information relating to money laundering and terrorist financing.