Scandals Sweep Through Taiwan Financial World

A series of multimillion-dollar scandals is sweeping Taiwan’s financial world as the government cracks down on speculation and fraud by some of the island’s wealthiest businessmen.

Authorities have charged one of the stock market’s biggest players with tax evasion, indicted a textile tycoon for document forgery and raided dozens of finance companies during operations against illegal trading in recent months.

A cabinet minister has resigned over a stock scandal, and dozens of company officials have been convicted of running an underground bank that illegally took $3.6 billion from depositors.

Securities analysts expect more scandals to surface in coming months as investigators extend the scope of their probes.

“We have scored major successes this year, and the operation will continue in the second half,” said an official of the Bureau of Investigation.

The investigations have had a significant effect in pushing down the stock market in recent weeks. Investors fear that the market could lose steam if some of its biggest speculators are put out of action by the probes, analysts say.

“The crackdown is good for the economy and the country as a whole, but it could well end up hurting the profits of the securities industry,” said Tom Yeh, vice president for research at National Securities, one of the biggest brokerages.

The Commercial Times, a leading newspaper, recently quoted a bureau report as saying that authorities uncovered 120 financial crimes involving $1.4 billion in June alone. Officials declined to comment on the report.

Financial crime multiplied during Taiwan’s economic boom of the late 1980s, when soaring stock and real estate markets fueled a wave of speculation and increasingly complex investment deals, officials and economists say.

In the absence of strict regulation, a vast underground financial industry sprang up to absorb profits from the speculation and recycle them back into the markets.

But the speculative bubble burst last year, when the stock market plunged nearly 80% in eight months. Since then, authorities have intensified efforts to curb speculation and ferret out white-collar crime.

Economists say Taiwan, now opening up its securities and banking markets to foreign institutions, must clean up its financial industry if it is to succeed in becoming an Asian financial center.

“The economy cannot develop in a healthy way if the financial system is not well-regulated,” a Finance Ministry spokesman said. “We are paying more attention to financial crime this year.”

In March, a court convicted 58 officials of the giant Hung Yuan underground bank, sentencing the chairman to seven years in prison. Other illegal banks have also been forced out of business, and economists say the industry has largely been crushed.

In July, textile tycoon Oung Ta-ming pleaded not guilty to charges of masterminding a fake sale of $22 million worth of insurance company stocks that allegedly netted him huge profits. The trial is continuing.

That scandal forced the resignation of Communications Minister Clement Chang in April after legislators accused his daughter of involvement. Officials did not press charges against the Changs on grounds that they were unaware of the sale.

Some of the stock market’s richest speculators are targets of the crackdown. In June, Chen Wen-chi, one of the biggest players, was charged with evading taxes on trading profits, along with 10 brokerage executives and dealers. The trial has not begun.

The most recent focus of the crackdown is “trading in the air,” an illegal gambling scheme in which speculators bet millions of dollars on the direction of the legal stock market. In July, police raided 31 finance companies and questioned more than 40 people in connection with the scheme.

The crackdown has alarmed some members of the business community. Business leaders have publicly called on authorities to deal with the scandals quickly.