The insider-trading scandal surrounding a Financial Supervisory Commission official may be a blow to the commission's effort to combat business fraud, but it will be a real retrogression if the regulator was stripped of its quasi-judicial powers because of this single case, analysts said.
The Cabinet-level commission, established in July last year, was bestowed with the quasi-judicial power by the Organic Act of Financial Supervisory Commission, Executive Yuan (金管會組織法), which means the commission can raid listed companies and financial institutions and seize accounting records or related evidence.
"The system is right," said Charles Yeh (
The design of the system was inspired by the US Securities and Exchange Commission, which has even more authority than Taiwan's financial regulator.
In May, the Ministry of Justice assigned Hsu Yong-chin (
As a result, recent discord between the commission and prosecutors' office led to discord between the people in charge, and not a flaw in the system itself, Yeh said.
Under the current system, the Examination Bureau could audit listed
companies and financial institutions and raid on problematic firms to gather
and preserve evidences, which is expected to expedite the prosecutions and
enhance the odds of convictions.
The concern over whether the commission would see its quasi-judicial powers taken away came after prosecutors late last month accused Lee Chin-chen (李進誠), the director general of the commission's Examination Bureau, of involvement in illegal insider trading in Power Quotient International Co (勁永國際) shares.
Lee, who used to be a prosecutor, was the one who suggested including district attorneys in the commission. But some of his aggressive moves after assuming the post -- like demanding to keep duplicates of any data the prosecutors requested from the commission and sending the bureau's staff to assist in probes -- have reportedly caused discontent under prosecutors.
"The implementation of any new system requires a certain period of time for adaptation, especially when the new system to some extent encroaches the power of other authorities," Yeh said.
The professor said the current system has actually offered more advantages than disadvantages, in terms of the efficiency and effectiveness to fight financial offenses.
He noted that a US district court convicted former chief of WorldCom of fraud and sentenced him to 25-years imprisonment since the scandal broke in 2002, while Taiwan's drawn-out trial of fraud committed in 1998 by Tong Lung Metal Industry Co (東隆五金) -- the world's third largest locksmith -- has yet to reach a conclusion.
A few years ago, investigation of illegal trading or financial offenses took a long time because the document traveled to and from the financial regulators including the Taiwan Stock Exchange, the Gretai Securities Market and Securities and Future Bureau before handing the cases to prosecutors. Sometimes, police officers and investigators even passed inadequately-prepared or fabricated materials on to prosecutors, and the prosecutors in turn passed most of these cases over to the courts.
As a result, the number of cases piled up in court and led to a low conviction rate. "It was not the judges' incompetence, but the lack of evidence that led to such a dissatisfactory result," Yeh said.
But there surely is some room for improvement to the system, another analyst said.
"The overlap of investigating powers between the two agencies should be redefined more clearly," People First Party Legislator Christina Liu (劉憶如) said, citing ambiguous regulations in this part of the organic act that was hastily passed in 2003.
It is necessary to specify the boundaries of the commission's powers, especially relating to the severity of offenses, the amount of money involved and the span of investigation, Liu said.
The regulator has been ambitious to crack down the financial crimes since
its establishment, especially the insider trading which the commission’s
vice chairman Lu Daung-yen (呂東英) said has constrained Taiwan’s ranking
uprise in the Swiss IMD’s national competitiveness assessment.
However, while the commission vowed to continue its mission despite the
impact posed by the scandal and infighting, it would need to seriously think
about improving its coordination with the prosecution in practical
implementation as pundits suggested in case of the backfire of their
efforts.
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