VZCZCXRO8717
RR RUEHGH
DE RUEHIN #2387 1950628
ZNR UUUUU ZZH
R 140628Z JUL 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 1102
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3332
RUEHBJ/AMEMBASSY BEIJING 5412
RUEHUL/AMEMBASSY SEOUL 7927
RUEHGP/AMEMBASSY SINGAPORE 6505
RUEHKO/AMEMBASSY TOKYO 7823
RUEHML/AMEMBASSY MANILA 9755
RUEHJA/AMEMBASSY JAKARTA 3884
RUEHKL/AMEMBASSY KUALA LUMPUR 3523
RUEHHI/AMEMBASSY HANOI 3093
RUEHBY/AMEMBASSY CANBERRA 4241
RUEHWL/AMEMBASSY WELLINGTON 1525
RUEHHK/AMCONSUL HONG KONG 6618
RUEHGH/AMCONSUL SHANGHAI 0232
RUEHGZ/AMCONSUL GUANGZHOU 9413

UNCLAS TAIPEI 002387 
 
SIPDIS 
 
SIPDIS 
SENSITIVE BUT UNCLASSIFIED 
 
STATE PLEASE PASS USTR 
STATE FOR EAP/RSP/TC, EAP/EP 
USTR FOR ALTBACH 
USDOC FOR 3132/USFCS/OIO/EAP/WZARIT 
TREASURY FOR OASIA/LMOGHTADER 
TREASURY PLEASE PASS TO OCC/AMCMAHON 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON TW
SUBJECT: Bank of America Questioned about FX Manipulation 
 
 
¶1.  (SBU) Summary:  Taiwan's Central Bank of China (CBC) is 
currently questioning the Bank of America (BOA) branch in Taiwan 
about its dumping of U.S. dollars to manipulate the NTD:USD exchange 
rate on the morning of July 13.  CBC has decided it will penalize 
BOA, but has not announced the penalties.  End summary. 
 
Manipulating Exchange Rates by Dumping USD 
------------------------------------------ 
 
¶2.  (SBU) Just before 11:00 a.m. (Taipei time) on Thursday July 13, 
BOA dumped 175 million US dollars in a shallow market in Taipei, 
instantly driving the foreign exchange (FX) rate from NT$32.547 per 
USD to NT$32.451 per USD.  Soon afterward, BOA bought back some USD 
on the inter-bank market to drive the FX rate back to NT$32.55 
levels.  According to Deputy Director General Hsu Chung-I of the CBC 
Foreign Exchange Department (FED), BOA benefited from the sudden 
change in the exchange rate by settling its non-physical delivery 
forward (NDF) contracts at exactly 11:00 a.m., while the NT$32.451 
per USD rate was in effect.  Our BOA contact confessed to AIT/T that 
BOA profited from the transaction and that some other banks suffered 
losses.  (Note.  According to the practice in Taipei, settlement of 
NDF and other financial derivative contracts is based on the FX rate 
at 11:00 a.m.  End note.) 
 
Disturbing FX Market 
-------------------- 
 
¶3.  (SBU) The fluctuation in the NTD:USD exchange rate at 11:00 a.m. 
on July 13 surprised not only FX traders in the Taipei inter-bank 
market, but bank officers and bank customers in the FX retail 
market.  Several banks in Taiwan and Hong Kong suffered losses and 
complained to the CBC.  Some traders indicated that they were unable 
to trade in USD at the NT$32.451/USD level because BOA quickly drove 
the rate back to NT$32.54/USD level.  In the retail market, some 
customers complained to banks that they found that the NTD:USD 
exchange rate changed in the few minutes while they filled out 
transaction forms. 
 
Penalties 
--------- 
 
¶4.  (SBU) CBC Hsu criticized the BOA actions as unethical and said 
he suspected that BOA did not exercise proper internal controls. 
According to Hsu, regulatory authorities in the United States and 
Japan would have quickly imposed severe fines on BOA if this 
incident had taken place in either of those two countries. 
 
¶5.  (SBU) CBC FED Director General George Chou summoned BOA (Taipei) 
President Lin Ching-chong to his office on the afternoon of July 13 
and questioned Lin about the incident.  According to Hsu, Lin must 
report the CBC's questioning to U.S. regulators.  Although details 
are not available, additional penalties could include a request for 
BOA to improve its internal controls, a censure, or suspension of 
BOA privileges to do some FX business, according to Hsu. 
 
YOUNG