3. Anti-Money Laundering Legislation in Taiwan
In response to the global trends for combating money laundering, Taiwan enacted the Money Laundering Control Act (MLCA) on October 23, 1996, which was the first dedicated law in Asia for the purpose of anti-money laundering, then revised in 2003, 2006, 2007, 2008, 2009, and 2016 respectively (Anti-Money Laundering Division, Investigation Bureau, Ministry of Justice). 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. As a result, APG deemed Taiwan’s AML system non-compliant with FATF standards in 2007, then Taiwan was downgraded to a follow-up watch list in the subsequent audit in 2011. After the audit in 2011, Taiwan remained on the APG follow-up watch list since some of the issues in the banking and regulatory system were fixed or partially fixed at more of a form instead of substance level (Executive Yuan, Republic of China (Taiwan);
TheNewsLens). Fortunately, Taiwan was taken off from the APG 10-member watch list on July 20, 2017 with its ongoing efforts in the fight against money laundering and terrorist financing – including legislation and counter-measures – over the past few years, which brought Taiwan into line with global standards (Executive Yuan, Republic of China (Taiwan); TheNewsLens).
Mega Bank New York Branch was fined by the New York State DFS Examination at a penalty of US$180 million (NT$5.7 billion, in equivalent) for violations of the BSA/AML on August 19, 2016 (Mega Financial Holding Co., Ltd. 2016), which has reinforced the significance of a vigorous 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
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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), which was caused by Taiwanese public sector’s insufficient legislation and surveillance. In light of the violation incident of Mega Bank New York Branch as well as to prepare for the third round of the APG mutual evaluations in the fourth quarter of 2018, Anti-Money Laundering Office (AML Office) was established under the Executive Yuan on March 16, 2017 to integrate Taiwan’s AML policies and directions staffed by experts from both public and private sectors. Moreover, the Anti-Money Laundering Division – part of the Ministry of Justice’s Investigation Bureau – is Taiwan’s financial intelligence unit (FIU), as required in the FATF 40 Recommendations serving as a national center for the receipt and analysis of suspicious activity reports (Focus Taiwan; International Financial Law Review (IFLR)).
Furthermore, International Financial Law Review (IFLR) mentions that the most significant amendments to the MLCA came into effect in Taiwan on June 28, 2017, which was approved by the Legislative Yuan on December 28, 2016 with a six-month period of preparation offered.
The newly amended MLCA consists of the following new requirements and mechanisms:
(1) Expansion of the Definition of Money Laundering
The newly amended MLCA expands the definition of money laundering to include broader types of ML activities in compliance with the FATF 40 Recommendations and other international standards.
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(2) Expansion of the Scope of Predicate Offenses
In line with the FATF 40 Recommendations, the newly amended MLCA was revised to include all predicate offenses punished by more than a six-month imprisonment under Taiwan Criminal Code and other criminal laws, which were not included in the old version of the MLCA.
(3) Adding the New Concept of Designated Non-Financial Businesses and Professions
The newly amended MLCA imposes the due diligence, record-keeping and reporting obligations not only on financial institutions (FIs) but also on designated non-financial businesses and professions (DNFBPs) – including jewelry retail businesses, attorneys, notaries, accountants, land administration/registration agents and real estate brokers – when providing certain services in accordance with the FATF 40 Recommendations. Additionally, the amendments were revised to include the financial leasing service provider in the scope of FIs.
(4) Introduction to the Concept of Politically Exposed Persons (PEPs)
The newly amended MLCA includes the concept of the PEPs as well as defined the scope of the PEPs to further monitor the ML activities of high-risk politicians. In addition, the “family members” and “close associates” of the PEPs are also subject to the same regulatory requirements as the PEPs.
(5) Customer Due Diligence (CDD)
In line with the newly amended MLCA, the FIs and DNFBPs are required to undertake CDD process – including identifying and verifying the identity of the customer as well as their substantive beneficial owners – when establishing a new business relationship with them and
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report any transactions above the reporting threshold, which is currently NT$500,000 (US$16,666, in equivalent) in Taiwan.
(6) New Confiscation Scheme
The amendments permit Taiwanese customs to confiscate the cash, securities, gold, items without the required declaration carried into/out of Taiwan exceeding certain thresholds, and suspicious items used for ML activities or above certain thresholds. Cross-border delivery of cash, securities, items via goods delivery, courier, and mailing service are also subject to the same confiscation requirements. Additionally, the amendments permit the customs and the court to confiscate such proceeds or instrumentalities without criminal conviction required.
(7) International Cooperation
In accordance with the newly amended MLCA, Taiwanese government may enter into treaties or agreements with foreign governments, institutions or global organizations on the reciprocity principle for the cooperation in the fight against ML activities. Moreover, the information regarding declarations, reports or investigation results collected under the MLCA may be also shared based on the reciprocity principle in response to request for assistance made by foreign governments, institutions or global organizations.
In addition, Taiwan also enacted the Terrorism Financing and Prevention Law, which came into effect on July 27, 2016 as part of its efforts in the fight against money laundering. The new law imposes penalties for the financing of terrorist activities, organizations, and individuals as well
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as emphasizes that those violations are classified as “serious crimes” under the MLCA (Executive Yuan, Republic of China (Taiwan); TheNewsLens). TheNewsLens states that combating money laundering and terrorist financing does not rely on government legislation only, it also calls for raising public awareness of ML/TF crimes and involves the public cooperation with the government in the fight against money laundering and terrorist financing.
In terms of the banking industry, The Bankers Association of the Republic of China also amended “Template of Directions Governing Anti-Money Laundering and Countering the Financing of Terrorism of Banks” and established “Guidelines to Banks on Money Laundering and Terrorist Financing Risks Assessment and Relevant Prevention Program” in accordance with the “ Money Laundering Control Act,” “Counter- Terrorism Financing Act,” and
“Directions Governing Internal Control System of Anti-Money Laundering and Countering Terrorism Financing of Banking Sector and Electronic Payment Institutions as well as Electronic Stored Value Card Issuers” to help Taiwanese banking industry to well develop an effective AML/CFT program to meet the international standards as well as to earn a better reputation through the APG mutual evaluations in the fourth quarter of 2018.
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Figure 8: Timeline for Anti-Money Laundering Legislation in Taiwan
Sources: Anti-Money Laundering Division, Investigation Bureau, Ministry of Justice;
Executive Yuan, Republic of China (Taiwan); IFLR; Mega Financial Holding Co., Ltd.