Taiwan: International Cooperation in Fighting Financial Fraud
| DOI | https://doi.org/10.1108/eb025971 |
| Date | 01 March 2000 |
| Published date | 01 March 2000 |
| Pages | 93-95 |
| Author | Philip W. Ong |
| Subject Matter | Accounting & finance |
Journal of Financial Crime — Vol. 8 No. 1 — International
Taiwan:
International Cooperation in Fighting
Financial Fraud
Philip W. Ong
INTRODUCTION
The financial crisis that started in South-East Asia is
still making its sweeping power felt by many coun-
tries.
Interestingly, located in the middle of the
turmoil, Taiwan seems to have fared better than
most of its neighbours. The performance of Taiwan's
financial markets has therefore attracted the attention
of the international media. Among commonly asked
questions, the one most frequently raised has been
how Taiwan could have weathered the storm rela-
tively unscathed. Many reasons have been given,
such as a strong economic base, private businesses'
desire to maintain a low debt ratio, liquid and effi-
cient financial markets, carefully managed capital
flow control and so on.
The quotation below comes from a paper entitled
'The Financial and Currency Turmoil in Asia:
Origins, Contagion and Policy Responses' prepared
by the Asian Development Bank in February this
year. The paper emphasised that Taiwan 'has been
the least affected by the contagion spreading from
the affected APEC economies due to its sound banking
system characterized by strong banking regulation and
supervision'. According to the paper, 'bankers, inves-
tors,
lenders, and managers have all been encouraged
to act prudently.' In comparison with neighbouring
economics, the paper continued to say that:
'although large banks in Taiwan are government
owned, directed lending is on a small scale and
determined more by commercial criteria than by
policy. The banking sector has also strengthened
following the problems in the early 1990s when
the real estate bubble burst. A few banks were
allowed to fail but most were taken over and the
government recapitalized some failed banks. The
banks'
foreign debt exposure is low because capital
account restrictions make it difficult for banks to
borrow abroad or speculate. It is also difficult to
build up a large speculative position.'
In other words, the ADB attributed the performance
of Taiwan's financial market mainly to its prudent
and effective financial regulation. The financial
markets have been able to operate normally, without
a single case of bank failure or bankruptcy of securi-
ties houses. Though the economic growth rate in
1999 has fallen short of the targeted 6.7 per cent, a
conservative 5 per cent has been achieved, with the
unemployment rate kept at under 3 per cent. Gener-
ally speaking, in the midst of the financial turmoil,
Taiwan's economic performance and financial stabi-
lity have been maintained at relatively acceptable
levels.
THE PREVENTION OF FINANCIAL
CRIME IN THE ROC
In 1993 and 1995, several financial incidents occurred
due to insufficient internal control and auditing.
Fortunately, they were independent and separate
incidents that did not result in systemic risk. The inci-
dents prompted the financial authorities to undertake
a series of financial reforms.
On the banking side, measures taken include
encouraging the merger of local cooperative banks
whose operations are in difficulty, the strengthening
of the deposit insurance system, the implementation
of an early warning system etc. On the securities
side,
measures include strict disclosure requirements,
a book-entry system, a mandatory depository
system for major shareholders, online computer
monitoring of trade, separation of funds and securi-
ties,
and so on. On both fronts, measures were
adopted to prohibit transactions between or loans
to related personnel and to implement the capital
adequacy rules for banks and securities firms.
In a way, the experiences in handling these
financial incidents prepared both the financial regula-
tors and market operators for more severe tests, such
as the Asian financial turmoil. This is perhaps why the
ADB pointed out Taiwan's 'sound banking system
with strong regulation and supervision' as a major
factor. Most of these financial incidents resulted
from poor internal management. Strictly speaking,
they were not organised financial crimes, which are
very rare in Taiwan. Most of the cases reported are
fraud, racketeering, pyramid schemes or investment
Journal of Financial Crime
Vol.
8 No.
1,
2000, pp. 93-95
© Henry Stewart Publications
ISSN 0969-6458
Page 93
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