Tue, Jul 06, 2004 - Page 8 News List

Scandal teaches profitable lessons

By Chen Tze-lung 陳志龍

When Procomp Informatics unexpectedly filed a restructuring proposal on June 14, its stock prices plummeted. Subsequently, trade in the stock was terminated and the company faced the prospect of being taken off the TAIEX. Investors face heavy losses if they cannot recover their investments. There are reports of NT$6.3 billion missing, but with chief executive Yeh Su-fei (葉素菲) now in custody and the case having come under investigation, it remains for the judiciary to pass judgment on the various persons involved.

Yet to avoid similar scandals in the future, it is essential to establish a system of financial supervision.

Major financial crimes usually involve the shifting of debt from one account to another or simply using false accounting reports to disguise the company's actual financial situation. A figure as large as NT$6.3 billion cannot simply have disappeared from the face of the earth without false accounting data having been used. What is more likely is that is that capital was "processed" or even "laundered" into oblivion.

When I refer to "laundering," I do not mean criminal money-laundering, which generally presupposes that the money was obtained as the result of criminal behavior, and that the laundering process is a way of making dirty money clean. In this case, tracing the crime from which the money was derived is the responsibility of the police. The laundering I am referring to is a process of transferring money to suck the capital out of a corporation.

This is therefore the responsibility of our financial supervisory agencies, for which monitoring of such laundering should be a high priority. Currently, our Money Laundering Control Law does not focus on monitoring procedures for money remitted overseas. This should be done if Taiwan is to have a comprehensive national financial structure.

Last year I had the opportunity to discuss this topic with Germany's top money-laundering investigators. This agency has four sections for investigations, supervision of domestic and international credit organi-zations, supervision of domestic and international insurance organizations and automated audit of account information. These tasks are similar to those involved in monitoring money-laundering by terrorists, and the priority is on monitoring financial transactions by underground organizations.

Looking at the situation in Taiwan, apart from the money flows within a single company, there are also cross-holdings between associated enterprises, companies with numerous branches and overseas shell companies. This makes the job of monitoring financial transactions designed to launder money even more difficult. Already the Bureau of Monetary Affairs, the central bank's Department of Financial Inspection and the Central Deposit Insurance Corp all have a mandate to monitor and prevent money-laundering, but when legal means are used to cover criminal behavior, they have difficulty in performing this function.

Once the companies' funds are laundered, the task of financial monitoring is even more arduous. From the perspective of financial supervisory agencies, the funds should be examined as if they were specially DNA-coded bodies -- the financial monitoring agency must observe the fund's nature and notice if a mutation has occurred. In the process, the agency should apply a similar "sequence comparison" to chart out the course of the fund's "mutation." At times, a method similar to genetic sequencing is needed to check the company's capital structure. Only by doing so can the flow of funds be monitored.

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