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Cross-border monetary transfers and Taiwan's anti-money laundering and terrorist financing compliance laws

  • Insights 2019/11/16

By  Dr. Andrew Du Boulay and Hung Ou Yang

 

With the need for more international monetary transfers for both corporate and private purchases, ordinary people have become active participants in the free movement of capital around the world. But remember, only a few short decades ago international monetary transfers were usually limited to central banks, banking and multi-national corporations plus some high net-worth individuals. However, with the advent of the world wide web, real time gross settlements, internet banking  and mobile commerce, today private citizens in most parts of the world can buy, sell, swap and transfer a myriad of financial assets across the world from the convenience of their smart phone.

 

The international movement of capital not only involves the buying of one currency and the selling of another, it also extends to crypto-currencies, purchasing precious metals like gold, silver, platinum and lithium, acquiring stocks or shares on foreign stock exchanges all the way down to buying a book about international financial law on Amazon. And the beauty is, almost everyone with a bank account and a mobile phone can do business with someone else throughout the world.

 

Another trend with globalisation is the ease with which people are more transient with international travel for work, education and immigration. Millions of people around the globe live, work or study in foreign countries as temporary residents while others often acquire property in favourable destinations. All these activities have exponentially multiplied the amount of money being transferred around the world which adds to the complexity of the international monetary system and regulatory oversight. The sheer size of monetary transfers also complicates the process of domestic financial reporting, cross-border tax collection and money laundering activities. 

 

To preserve the dominance of the state and regulate the activities of the people, national governments have co-operated with each other to put in place mechanisms to track the movement of capital to ensure they have control over several activities. First, all governments like to collect tax, knowing who they can tax and how much they can tax them is the most favoured method of raising revenue for the state. The next motive for tracking capital movements is to provide data for the management of the national economy. Maintaining a balance of the optimum level of currency in circulation allows the central bank to control inflation and regulate the pace of economic activity; having vast amounts of foreign capital flood the market or quickly withdraw from the national economy can devastate multiple countries just as it did during the Asian Meltdown of the late 1990s. The third reason why governments like to monitor capital transfers is for surveillance reasons, intelligence gathering and national security. As a measure to reduce or restrict the funding of terrorists, strict laws have been implemented which require domestic financial institutions to report all monetary transfers above a certain value to their government authority. 

 

So taking into account the reasons why your privacy may be invaded and your international monetary transfers recorded, this paper will now explain some of the laws which apply to citizens who wish to transfer money into, and out of Taiwan.

 

Going back in time, the Central Bank of the Republic of China ("CBC") introduced extensive reforms and relaxed its foreign exchange regulations in 1987. Major reforms at that time included allowing authorized banks (with minor approval from the CBC) to determine their own foreign exchange positions. In 1996, the CBC completely opened-up the foreign exchange market to forex related derivatives including futures, currency forwards, swaps and options. Currently, capital movements into and out of Taiwan have very few restrictions in terms of the size and purpose of funds being transferred but they are becoming increasingly monitored to curtail illicit activity.

 

Inward and outward remittances related to foreign trade in goods and services, direct investments and portfolio investments approved by the competent authority, are only restricted under certain circumstances. A single remittance not exceeding US$100,000 by a non-resident may proceed directly through authorized banks with supporting documents; over that amount requires CBC's approval. A single remittance not exceeding US$ 500,000 by a natural person and a single remittance not exceeding US$1 million by a corporation (juristic entity) may proceed directly through authorized banks with supporting documents; over those amounts require CBC’s approval. Further to this, total annual accumulated remittances not exceeding US$5 million by a natural person and total annual accumulated remittances not exceeding US$50 million by a corporation (juristic entity) may proceed directly through authorized banks but remittances or transactions exceeding the prescribed amounts in a given year requires CBC's approval. A foreign investor in Taiwan's equity market is free to choose any authorized foreign exchange bank to conduct foreign exchange transactions but again, all transactions over the prescribed amount must be reported by the bank to CBC which works closely with Taiwan's Financial Supervisory Commission ("FSC").

 

The main goals of Taiwan's FSC are to: ensure safe and sound financial institutions; maintain financial stability; promote the sustainable development of Taiwan's financial markets; create a sound, fair and efficient internationalized environment for Taiwan's financial industry; and strengthen safeguards for consumers and investors. To those ends, in 2017 the FSC launched their Financial Information Sharing and Analysis Center with the purpose to collect cyber security information from the financial services industry.

 

International banking standards now require financial institutions to carry out client identification processes, including verifying the identity of customers, their background, transaction purposes and in some cases, even the source of their funds. The "alleged" reason for justifying this encroachment upon individual privacy is supposedly to help expose illegal elements laundering money or financing terrorism through financial institutions. The argument presented by government for the inquisition into the activities of citizens' financial transactions is to identify and prevent crime while simultaneously protecting the safety of the public and society. It is a noble cause at least, yet it is still an invasion of privacy.

 

Pursuant the Financial Technology Development and Innovative Experimentation Act, in May 2019, the Financial Supervisory Commission and the Ministry of Justice implemented the Regulations Governing Anti-Money Laundering and Countering Terrorism Financing. Subsequently Taiwanese financial institutions must now comply with the provisions of anti-money laundering and counter terrorist financing laws. That means Taiwan's financial institutions must monitor transactions, keep relevant records and report suspicious transaction to the Ministry of Justice's investigation Bureau.

 

Article 7 of Taiwan's Money Laundering Prevention Act requires financial institutions to conduct customer identification procedures that follow thorough "Know-Your-Customer" steps. In accordance with international standards, financial institutions must positively identify customers by requesting relevant documents plus confirm the purpose and nature of the client's business dealings. The Terrorism Financing Prevention and Money Laundering Control laws apply equally to crypto-currency exchanges platforms. However, at this moment, the definition of crypto-currency exchanges platforms is still not clear so that the relevant controls may be further extended to more legal entities than we can anticipate by FSC's orders or the Ministry of Justice's orders. If that invasion of privacy wasn't enough to understand the business dealings, the financial institution may also ask clients to explain the source of their funds and wealth resources.

 

Under Article 14 of the Regulations Governing Anti-Money Laundering and Countering Terrorism Financing, financial institutions must file a suspicious transaction report ("STR") as quickly as possible with the Investigation Bureau when they deem a transaction exhibits an irregularity regardless of the amount of the transaction. The financial institution should notify the Investigation Bureau by fax or other feasible means and follow up with a written report.

 

The outcome of these new financial rules unfairly places the burden of identifying suspicious monetary transactions onto financial institutions, including those entities which may be involved as crypto-currency exchanges platforms. Henceforth, the financial services industry must now bear the extra cost of this new reporting requirement without compensation, yet at the same time shoulder the responsibility of perhaps making incorrect value judgments about their client's behaviour. Could falsely considering a clients' behaviour as suspicious or illicit and reporting their financial transactions to the Investigative Bureau lead to the possibility of defaming the client's reputation? If that type of information was leaked or escaped to the public arena, there could be potential defamation suits on the horizon.

 

As an example of the overburdensome laws, Article 6 of the Taiwanese Money Laundering Control Act stipulates that each financial institution must establish its own internal control and audit system against money laundering, provide regular on-the-job training to its staff for money laundering prevention, designate responsible personnel for co-ordinating and supervising the implementation of the system, prepare regular updates of risk assessment audits and report back to the Financial Information Sharing and Analysis Center which will also conduct regular inspections of the financial institution checking on the implementation and standard of the prescribed control system. Failure to have adequate money laundering identification and reporting systems in place could result in a fine of NT$10 million for the financial institution.

 

The task of detecting money laundering or terrorist activity clearly falls within the ambit of national security and state responsibility, yet governments over the world have already shifted the burden of protecting the interests of the state onto the financial services industry. In this respect, for financial institutions, there is no remuneration whatsoever for all that extra work, although the lawyers can get paid by the clients. Additionally, in Taiwan, it has already created a situation where financial institutions could face harsh penalties for not correctly identifying suspicious financial transactions within a timely manner (if at all) which could ultimately launder money or finance terrorism.


AUTHOR: Dr. Andrew du Boulay
 

Counsel
Taipei

+886-2-2707-9976
andrew.duboulay@btlaw.com.tw

 

 

Authour: Hung Ou Yang

Managing Attorney
Taipei
+886-2-2707-9976
mark@btlaw.com.tw

 

Copyright Brain Trust International Law Firm

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.