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1. Introduction
1.1. Background and Motivation for the Study
Mega International Commercial Bank (Mega Bank) New York Branch was fined by the New York State Department of Financial Services (NYDFS) at a penalty of US$180 million (NT$5.7 billion, in equivalent) for violations of the Bank Secrecy Act and Anti-Money Laundering (BSA/AML) on August 19, 2016 (Mega Financial Holding Co., Ltd. 2016), which has reinforced the significance of a vigorous Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime. Additionally, the violation incident of Mega Bank New York Branch implied that Taiwanese banking industry has not yet well implemented the relevant regulations, reporting requirements, and compliance regimes of the BSA/AML, which not only undermined the brand image of Mega Bank itself but also deteriorated Taiwan’s international reputation (Ministry of Foreign Affairs, Republic of China (Taiwan), Taipei Liaison Office in the RSA).
Executive Yuan, Republic of China (Taiwan) mentions that Taiwan enacted the Money Laundering Control Act in 1996, which was the first dedicated law in Asia for the purpose of anti-money laundering and also became one of the founding members of the Asia/Pacific Group on Money Laundering (APG) in 1997. However, Taiwan’s efforts on combating money laundering became less effective over time since its subsequent amendments focused more on criminal prosecution than keeping up with international standards. Accordingly, Taiwan
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received positive reviews in the APG mutual evaluations in 2001, but then was downgraded to a follow-up watch list in 2007. Fortunately, Taiwan was taken off from the APG 10-member watch list on July 20, 2017 with its ongoing efforts over the past few years on both Anti-Money Laundering (AML) legislation and counter-measures. Taiwan will undergo the third round of the APG mutual evaluations in the fourth quarter of 2018. Confronted with the challenge of the third round of the Asia/Pacific Group on Money Laundering (APG) mutual evaluations held in the fourth quarter of 2018, both public and private sectors need to speed up the legislation and enforcement associated with AML/CFT to meet international standards and earn a better reputation through the mutual evaluation process (張迺佳 2016).
1.2. Methodology of the Study
A case study is adopted as methodology of this thesis. This thesis will discuss the currently deficient AML/CFT regime of Taiwanese banking industry through the case study of violation incident of Mega Bank New York Branch. Moreover, this thesis will discuss the impacts of AML/CFT on the operations of Mega Bank as well as the entire banking industry in Taiwan in order to meet the international standards and pass the third round of APG mutual evaluations in the fourth quarter of 2018. According to the Financial Action Task Force (FATF) Mutual Evaluation Report in September 2016, the FATF assessed that Singapore has a strong framework for AML/CFT in terms of the level of compliance with the FATF 40 Recommendations and the level of effectiveness of Singapore’s AML/CFT system through the on-site visit, which has made significant enhancements to its AML/CFT regime since its last FATF assessment in 2008 (Monetary Authority of Singapore (MAS); FATF and APG 2016).
Therefore, this thesis will undertake the AML/CFT regime in Singapore – the Association of
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Banks in Singapore (ABS) Guidelines on Anti-Money Laundering and Countering the Financing of Terrorism which is in compliance with the MAS’ Notice and Guidelines – as a benchmark to discuss the counter-measures to combat money laundering and terrorist financing (ML/TF) in Mega Bank as well as the whole banking industry in Taiwan.
1.3. Limitation of the Study
In general, Taiwanese banks do not establish an effective and vigorous AML/CFT program with little experience and insufficient guidance from the authorities concerned since AML/CFT issues have been neglected for far long in the past and are relatively new in Taiwanese banking industry. For this reason, the discussion of this thesis is based on the experience and related AML/CFT regime in Singapore. Furthermore, the author also encounters some difficulties in gathering the AML/CFT regulations, regimes, and guidance of other foreign countries, such as the United States, which is supposed to be the country with the highest standards and best practice associated with AML/CFT. Additionally, it is difficult to gather an effective AML/CFT program from a certain bank, especially foreign-owned banks since they treat their AML/CFT policy as confidential.
1.4. Framework of the Study
This thesis is divided into five chapters. Chapter one provides an introduction to the background and motivation for the study, methodology of the study, and the framework of the study
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respectively. Chapter two provides an overview of money laundering and terrorist financing, including the definition and cycle of money laundering, methods and typologies used in money laundering activities, the impact caused by money laundering, and the international organizations on money laundering, such as United Nations Office on Drugs and Crime (UNODC), Financial Action Task Force (FATF), Asia/Pacific Group on Money Laundering (APG), The Egmont Group of Financial Intelligence Units, and The Wolfsberg Group. Chapter three focuses on the governmental policy-making side, it looks at the legislation in association with AML/CFT in Taiwan. Chapter four focuses on the violation incident of Mega Bank New York Branch occurred in August, 2016 as a case study, which explains the role of banking industry involved in money laundering activities, discusses the deficient and inadequate AML/CFT program of Mega Bank, and explores the counter-measures to combat ML/TF based on the AML/CFT regime in Singapore and other international standards given that Taiwan is still at the beginning stage in AML/CFT field with insufficient regulations and guidelines provided by the authorities concerned. Chapter five provides the conclusion and policy recommendation to Mega Bank as well as the entire Taiwanese banking industry in the fight against ML/TF, particularly under the challenge of the third round of the APG mutual evaluations held in the fourth quarter of 2018.
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Figure 1: Framework Chart of the Study