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Cracking down on money laundering

Illicit funds allow criminals to finance a range of additional criminal activities. According to one recent estimate, worldwide money laundering activity amounts to roughly US$1 trillion a year. The huge quantities of money laundering linked with organ-ized crime threaten not only the stability of financial institutions but also the democratic system and the rule of law.

The process of money laundering often includes the following illegal practices: securities forgery, human smuggling, the manufacture and trafficking of firearms, ammunition or drugs, the artificial manipulation of share prices, insider trading and underground banking.

In order to block money laundering furnishing the fuel for expanding criminal activities and launderers' use of financial institutions to erode the sectors, Taiwan has emerged as one of the world's most aggressive countries in the fight against international and domestic money laundering. After the Sept. 11, 2001 attacks on the US, made possible by terrorist financing, the establishment of legal and regulatory standards and policies to deny terrorists access to the world financial system has become an essential function of anti-money laundering efforts.

Money laundering abets corruption, aggravates social ills, distorts economic decision-making and threatens the integrity of financial institutions. The government fully appreciates that the prevention of money laundering is a weapon not only against criminals, but also to terrorists.

Money laundering is defined as the conversion of funds that proceed from illegal activities, such as drug trafficking, prostitution, kidnapping, gambling and skimming, into legal instruments in financial institutions that involve legal instruments (such as bank deposits, stocks, bonds, real estate, etc). The nature of money laundering is a synthesis of criminal activities that completes the illegal offense and produces substantial illicit profits. Money laundering plays a fundamental role in facilitating the ambitions of various illegal activities and is potentially devastating to social and economic ideals.

To address this problem, the legislature enacted The Money Laundering Control Act (MLCA, 洗錢防治法) on Oct. 3, 1996, which was signed by the president on Oct. 23. In accordance with Article 15 of the act, which required a six-month preparation period, the authorities began enforcement of the act on April 23, 1997. The preparation period allowed the government to create the Money Laundering Prevention Center (MLPC) to prepare financial institutions for the implementation of the act and to educate the public.

The act substantially complies with international anti-money-laundering guidelines, such as those put forth by the 1988 UN Convention Against Illicit Traffic in Narcotic Drug and Psychotropic Substances, the Financial Action Task Force on Money Laundering formed by the G7 and the Basle Committee on Banking Supervisory (Basle Committee).

The act attempts to prevent money-laundering by making it a crime punishable by a minimum of five years in prison, fines, reimbursement of laundered proceeds, or forfeiture and seizure of the launderers' assets. The government expects that harsh criminal punishments are likely to block those who plan money-laundering activities in advance.

By 2001, the MLPC had investigated 791 cases of suspicious financial transactions and charges were filed in 13 instances at the Taipei District Court while 172 cases were referred to appropriate authorities for further investigation. The center's efforts traverse the continual perversion of money laundering in the country.

The government's push against money laundering has gone international in a major way. For the past six years, in addition to combating domestic money launder-ing, the government has worked to facilitate progress in international cooperation to combat global money-laundering schemes. Taiwan became a member of the Egmont Group in June 1998 and an initial member of the Asia/Pacific Group on Money Laundering in February 1997. Through international cooperation, Taiwan is therefore striving to optimize the struggle against these cross-border offenses.

In reply to terrorist financing, major countries, regional trade organizations and international organizations have moved to ensure that the international community incorporates anti-terrorism into its anti-money laundering regimes. In addition to the US, the UN, the EU finance and economics ministers, and the G-7 finance ministers have all advocated extending the framework of measures already taken by the international community to com-bat money-laundering to oppose terror.

Last October, the Ministry of Justice drafted anti-terrorist

legislation that would simplify the process of freezing financial accounts and enhancing the use of compulsory measures such as prosecutors' powers to search, detain and summon suspects and witnesses. On Jan. 13, the legislature passed the amendment to the money-laundering law, which was signed by the president on Feb. 6.

The revised money-laundering law, which took effect on Aug. 6, expands the scope of financial institutions to include pawnshops, travel agents, car dealers and real estate brokers.

Since freezing identifiable assets is a first step in fighting the financial war, the revised law allows authorities to freeze assets related to money-laundering and terrorism. The revised law also toughens reporting requirements and penalties and authorizes the government to freeze suspicious bank accounts.

The revised law treats financial institutions as semi-agencies by requiring them to "know your customer." In light of the six-year implementation experience of the MCLA, the government has amended the act to extend the applicable crimes subject to the act and to adopt the American "suspicious report" model while still applying the British "keeping record" model.

In response to terrorist financing, Taiwan must provide across-the-board cooperation with international organizations and other countries to stop money laundering from damaging the nation's financial and social fabric.

Lawrence Lee is an assistant professor of law at Ming Chuan University and department visiting scholar at the New York University of Law.
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