by Brian Hioe
Photo Credit: Eoermmca/WikiCommons/CC
WITH THE Taipei High Administrative Court ruling that the dismissal of Mckinney Tsai from his position on the board of directors of Mega Bank by the Financial Supervisory Commission was illegal, this deals a blow to efforts aimed at fighting financial corruption in Taiwan. Namely, Tsai’s dismissal was the result of the Mega Bank scandal which erupted in September 2016 after Mega Bank’s New York branch was slapped with a 180 million USD fine by the New York State Department of Financial Services for not cracking down on money laundering following the Panama Paper revelations. The bank was accused of aiding or turning a blind eye to shell companies, as well as other possible wrongdoing.
The Taipei High Administrative Court ruled that the Financial Supervisory Commission misapplied Article 61 of the Banking Act. The relevant section of Article 61 would seem to be Article 61-1, which states that:
If there is a possibility that a Bank has violated laws and regulations, its Articles of Incorporation or disturbed the sound operation [of the financial system], the Competent Authority may, depending on the situation, take any of the following actions in addition to ordering correction or improvement by the Bank within a specified period of time:
1.Revoke resolutions of statutory meetings;
2.Suspend part of the Bank’s business;
3.Order the Bank to discharge managers or staff members;
4.Discharge directors and supervisors or suspend them from performance of their duties for a specified period of time; and/or
5.Other necessary measures.
The ruling by the Taipei High Administrative court, then, is that the Financial Supervisory Commission acted out of line in attempting to take disciplinary action against Mckinney Tsai as an individual, rather than as a Mega Bank official, as justified on the basis that the purpose of Article 61 of the Banking Act is to regulate banking institutions as a whole, rather than individuals. While Tsai would have originally been restricted from working in the financial sector for five years after his dismissal, the overturning of the ruling may mean that he can return to work in the financial sector right away.
McKinney Tsai would have been chairman of Mega Bank when much of the alleged wrongdoing by Mega Bank took place, leading Tsai to be restricted from leaving the country, and his home searched. Prosecutors eventually sought a prison term for Tsai of 12 years under charges of money laundering, forgery, and insider trading, as well as violating not only the Banking Act, but the Financial Holding Company Act, and Securities and Exchange Act. Tsai was accused of insider trading in selling stock from Mega Bank, as well as diverting money from the bank into private enterprises with the aim of setting up a business empire. Tsai still faces such charges.
Accusations of corruption on the part of Mega Bank proves a sensitive issue on several levels. Firstly, Mega Bank is Taiwan’s third-largest financial service provider on the basis of assets and the bank specializes in foreign exchanges. However, more significantly, Mega Bank was privatized in 1999 but remains one of the numerous murky institutions in Taiwan which are ostensibly private in nature, but partially or majority owned by the Taiwanese government and in that way still deeply wedded to the state. With 8.4 percent of share ownership by the Ministry of Finance, the Taiwanese government is the largest single investor in the bank, and the bank is generally thought of as government controlled. As the largest shareholder, the government occupies seven out of thirteen seats at the board of directors of Mega Financial.
As such, the government is not a neutral party in the matter of Mega Bank, but a key stakeholder. This may explain why prosecutors later reversed course in 2017, seeking to clear Mega Bank of wrongdoing with regards to money laundering accusations while still pursuing charges of insider trading against Tsai and other Mega Bank directors. At the time of the initial 180 million USD fine imposed on Mega Bank in September 2016, the Ministry of Finance also intervened in order to state that it viewed this fine as unfair. Even if the Financial Supervisory Commission is expected to appeal the ruling, this may explain why there could be pressure from the judiciary—which is itself susceptible to political influence—to let Tsai off the hook.
Some have also wondered whether it is that Tsai has friends in high places who have sought to help him out, such as in the judiciary system, or in the banking system. Tsai has in the past been been president of Taiwan Cooperative Bank, held senior positions at Chiao Tung Bank and the Taiwan Futures Exchange Corp. As a member of government, Tsai served as the Deputy Director of Division of International Banking, Domestic Banking and Planning & Regulation of Bureau of Monetary Affairs at the Ministry of Finance, and as Assistant Director of The Department of Control and Evaluation Research of the Development and Evaluation Commission of the Executive Yuan. Consequently, Tsai is a influential and well-connected figure in not only Taiwan’s banking industry, but in government.
It may remain to clarify both the practices of murky, partially state-owned but ostensibly private banks in Taiwan such as Mega Bank, as well as past acts of wrongdoing by Mega Bank officials, then.