Features: Dealing With Dirty Money
Taiwan's anti-money laundering efforts, despite some progress, have been hindered by some major obstacles-the widespread use of underground remittance channels and banking institutions' indifference.
by Brian L. Kennedy>
A chain is only as strong as its weakest link. That old proverb tells a truth that applies to many human events, including the fight against money laundering. Taiwan has made progress in many aspects of its anti-money-laundering campaign. These efforts however are being stymied by a number of weak links that undermine the struggle. The recent release of the Anti Money Laundering Yearbook by the Ministry of Justice Investigative Bureau (MOJIB) provides a good opportunity to examine the areas that need improvement. The United Nations defines money laundering as "the process that disguises illegal profits without compromising the criminals who wish to benefit from the proceeds." As a 2001 UN report explains, "There are two reasons why criminals - whether drug traffickers, corporate embezzlers, or corrupt public officials - have to launder money: the money trail is evidence of their crime and the money itself is vulnerable to seizure and has to be protected." The report identifies a dynamic three-stage process: placement (moving the funds away from direct association with the crime), layering (disguising the trail to foil pursuit), and integration (making the money once again available to the criminal with its occupational and geographic origins hidden from view). This "process" is a crime in and of itself, separate from the crime that generated the illegal money. The scope of the problem worldwide is difficult to pinpoint "because of the clandestine nature of money laundering," the UN report notes. "Estimates of the amount of money laundered globally in one year have ranged between US$500 billion and $1 trillion. Though the margin between those figures is huge, even the lower estimate underlines the seriousness of the problem."
As to how much money is laundered in Taiwan, no rational criminologist would even attempt to speculate. The only possible answer is "a lot of money." Anybody trying to set a dollar amount on how much money is laundered through Taiwan is simply making a wild guess. Given the existence of an underground remittance system, combined with lax accounting practices, true estimates of the amount of money laundered are impossible and all guesses are "wild." Regarding the types of crimes that account for the money laundered through Taiwan, according to the U.S. State Department's International Narcotics Control Strategy Report released in March 2000: "Taiwan is at major risk for money laundering, because Taiwan individuals are involved in narcotics trafficking in Southeast Asia. However, money laundering in Taiwan is primarily a problem due to the smuggling of normal commercial products (especially agricultural goods) from the People's Republic of China to evade current restrictions. Other sources of money laundering proceeds include fraud, insider trading, tax evasion and other financial crimes." Taiwan's anti-money laundering efforts began with the passage of the Money Laundering Control Act (MLCA), which became law in April 1997. Earlier the MOJIB had established a preparatory office called the Money Laundering Prevention Center (MLPC), which was transformed into a permanent agency when the MLCA came into force. The Center has six major responsibilities: developing strategies for prevention of money laundering, processing Suspicious Activity Reports (SARs), analyzing intelligence, assisting with domestic law enforcement, conducting liaison with foreign counterpart agencies, and maintaining databases on money-laundering activities. As part of the first of these responsibilities, the MLPC each year prepares an Anti Money Laundering Yearbook. The most recent edition details seven specific deficiencies that need to be remedied. Among the problems are failure to pass important amendments to the MLCA, lack of cooperation by law enforcement agencies in investigating money laundering, the continued existence of the underground remittance system, and the emergence of new money laundering channels. Other shortcomings relating specifically to financial institutions are the lack of vigilance by bank employees, weaknesses in banks' internal auditing practices, and the ability of criminals to use fictitious accounts. Two of these stand out as particularly troublesome - links so weak as to effectively cripple Taiwan's anti-money-laundering efforts. These are the underground remittance system and what the Yearbook refers to as the "need for improved anti-money- laundering practices by bank employees."
An instructive parallel can be drawn between Taiwan's problem with its criminal justice system in general and the difficulties faced by its anti-money-laundering efforts. In both cases the weak link is "street level enforcement." For the criminal justice system as a whole, "street level enforcement" means the police. For the anti-money- laundering effort, "street level enforcement" means bank tellers and their immediate supervisors. As long as banks and other financial institutions governed by the MLCA approach the issue of money laundering in a lackadaisical fashion, then Taiwan's efforts to curtail money laundering will have disappointing results. Bank officers are the front-line soldiers in the war on money laundering. How effectively they carry out their duties under the MLCA will largely determine the effectiveness of Taiwan's anti-money- laundering program. But banks want to maintain good relations with their customers, especially their frequent, high-volume customers. Questioning customers, especially questioning them too closely, or appearing to be quick to file SARs on customer transactions is not conducive to "good customer relations." Beyond that general business concern, bank tellers, like most other people, "don't want to get involved" and/or "don't want to cause a problem." And nobody wants the headache of filling out extra government forms, and then perhaps having to answer questions from MOJIB agents. In addition, few people in the banking industry or the general public tend to view money laundering as an important concern. Since money laundering is usually viewed as the ultimate victimless crime, it is difficult for law enforcement officers to get much serious cooperation from either the public or the banking sector.
An even more fundamental problem is that many banking institutions, in particular many of the fishermen's or farmers' credit associations, are already largely controlled by organized crime. If the board of directors of Farmers' Credit Association "X" includes hoods and/or their wives and sons, then that institution's approach to cracking down on money laundering is likely to be half-hearted at best. To strengthen this weak link, in the words of the Anti Money Laundering Yearbook, "financial institutions should take the initiative to implement internal auditing, intensify on-the-job training for both new and experienced bank employees, and standardize the practice of confirming new account holders' identity, keeping on file transaction vouchers, and filing SARs with the regulatory agencies."
Besides this "street enforcement" problem, the other crippling weak link in countering money laundering is the massive underground banking system that operates in Taiwan. The MOJIB's Annual Report describes the "alternative remittance system" as the "swiftest and most covert channel for money laundering" and notes that "it is difficult for anybody to track, as it leaves no trace of any transaction." In its most common and most direct form, the underground remittance system consists of couriers physically carrying large amounts of cash from business "A" to business "B," oftentimes across borders. The complex cross-Strait relationship, with its large volume of trade and other economic activity, makes this a particular problem in Taiwan. The MOJIB report calls the "abnormal phenomenon of courier businesses carrying huge sums of foreign currency in and out of Taiwan" a reaction to the rigorous controls on financial remittances imposed by the authorities on both sides. Put a little less delicately, both Taiwanese and Mainland businessmen prefer to rely on couriers rather than put up with the red tape, bureaucratic hassles, and sticky fingers of government officials (on both sides of the Strait) that would be part of any "legitimate" cross-Strait banking transaction. The report further notes that money-laundering cases brought to prosecution have all involved charges of violating the Company Law, the Banking Law, or both. In-depth investigations are not conducted into the sources of funds to determine whether the transactions were related to any major crime. "As a result, it is very difficult to effectively stop the operation of the underground remittance syndicates and the traffic of the courier business carrying huge sums of foreign currency," the report concludes. I applaud and agree with the MOJIB's honest assessment of the situation. The solution put forward by the MOJIB is the right one. The bureau calls for intensified investigation of the underground remittance channels as a means to stop money laundering. It advises the courts to levy heavier penalties on those convicted, and it suggests that prosecutors and police devote the manpower and time needed in each case for an "all-out concerted investigation into the source of funds to determine whether or not the transaction involves a major crime."
Regrettably that advice will most likely fall on deaf ears. Most of the emphasis on criminal justice reform in Taiwan in recent years has been focused on the wrong end of the system. A nation's criminal justice system can be viewed as a continuum that starts with crime prevention and then includes crime detection and investigation, largely the purview of the police agencies. Next the case proceeds to the prosecutors for review, presentation of charges, and organization of the evidence, after which the defense bar also comes into play. The case then goes on to trial, which involves the judiciary, and finally to sentencing, involving the corrections and prison systems. The Judicial Yuan, the driving force for most reform efforts, has concentrated entirely on reforming the trial stages of this continuum, while blithely ignoring the beginning and ending phases. In particular, no attention is paid to the role of the police, the foundation upon which the rest of the criminal justice system sits. If the foundation is weak, as it is here in Taiwan, then the whole system is weak. This misplaced focus becomes apparent when one considers what really stops criminals, be they money launderers, software pirates, or drug dealers. Taiwan's attempts to curb money laundering overlook how deterrence really works. Most modern criminologists agree that three things deter criminals - the severity, certainty, and celerity of the punishment.
Severity is the factor most frequently discussed, but most experts in criminal justice regard it is the least important one. Certainty, which can be viewed as a kind of "risk assessment" by potential criminals, is far more important as it trumps the severity factor. If a criminal is fairly sure he will not be caught, then the harshness of the punishment is largely irrelevant. Celerity refers to the elapsed time between commission of an offense and the administration of punishment. In a sense, it is linked to certainty. If something may not happen for a long time, then its eventual occurrence becomes less certain. Celerity is a major factor in many white-collar crimes, including money laundering, because the criminal thinks that by the time the the misdeed is discovered, he will be living the good life far away - and that if he does gets caught, it will be twenty years later when he is an old man. All three factors are part of what is called the general deterrence effect. Besides severity, there must be certainty and celerity. And it is those latter two elements that are missing from Taiwan's battle against money laundering. They are absent in that the chances of ever being prosecuted are practically nil. In 2001, only sixty-two cases of money laundering were prosecuted in Taiwan. Assuming the ridiculously low number of 1,000 incidents that year, that gives the criminal money launderer odds of just one chance in sixteen of being "inconvenienced" by prosecution. That is neither certainty nor celerity. Despite the very real, very daunting problems with money laundering in Taiwan, that battle is not hopeless. The hope comes from the dedication, professionalism, and initiative of the agents of the MOJIB. While I generally have a fairly dim view of Taiwan's law enforcement agencies, the Investigative Bureau is an exception. Based on my contacts with them, I have been quite impressed with their level of law enforcement professionalism and expertise. And that competence is the factor that may allow Taiwan to make significant strides against money laundering. But first the bureau will need to spend much time reforging and replacing a number of critically weak links.
Brian Kennedy, an American attorney resident in Taiwan, writes and teaches on criminal justice and human-rights issues.
