Editorial: Prompt financial reform essential

The prosecution of a series of high-profile corporate scandals and accounting abuse cases in the last two years -- involving technology firms such as Procomp Informatics Co, Infodisc Technology Co, Summit Computer Technology Co and Pacific Electric Wire and Cable Co -- initially shattered investor faith in management integrity and corporate governance in Taiwan. But after a few months, many investors became complacent that the markets had survived yet another blow. They shrugged off complaints about huge losses and went back to check on their other stocks, betting more money on seemingly unaffected companies.

A major issue, however, is that few investors considered whether the corporate fraud cases that came to light were endemic -- the tip of the iceberg rather than a few "bad eggs." No one bothered to ask if the financial misdealings at the bad eggs had an affect on the general health of financial markets and the government's supervisory mechanism.

And then came the prosecutors' charges in July against President Chen Shui-bian's (陳水扁) son-in-law, Chao Chien-ming (趙建銘), on insider trading with Taiwan Development Corp shares. After that, prosecutors last month raided Chinatrust Financial Holding Co and China Development Financial Holding Co in search of evidence relating to the two companies' alleged wrongdoings in their respective takeover bids for Mega Financial Holding Co and Taiwan International Securities Corp.

While investors looked on in concern, Lin Chung-cheng (林忠正), a policy-making member at the Financial Supervisory Commission (FSC), was last week placed under detention for allegedly taking bribes. He became the third senior FSC official to be investigated on corruption charges since the unified financial regulator was established in July 2004.

No doubt this spate of incidents will further destroy investor confidence in management integrity and corporate governance. The most recent cases are also likely to hurt the authority of Chen's administration and the credibility of the Democratic Progressive Party in the run-up to the mayoral elections next month -- a scenario exacerbated by Friday's announcement that first lady Wu Shu-jen (吳淑珍) had been indicted in a probe into alleged misuse of state funds. Prosecutors suspect Chen of committing the same crimes, but are unable to pursue the matter because of presidential immunity.

But investors should realize that the corporate fraud cases and the corruption charges against government officials are inevitable. They might appear to be isolated events, but the problems have been going on for so long now that it is more accurate to think of them as systemic. They are part of the nation's flawed financial system, as well as a reflection of the developing culture of arrogance and greed among corporate executives and political figures. Those who broke the law were both wealthy and well educated, but they didn't feel satisfied with what they had; they just wanted more.

A fast and effective prosecution of financial crimes is one of the ways to help get this derailing train back on track. Other reform measures such as legislation on party assets and lobbying, as well as amendments to the laws governing political donations and public functionary assets disclosure are also desperately needed to ward off possible wrongdoing.