VZCZCXRO0884
RR RUEHGH
DE RUEHIN #0634/01 0800707
ZNR UUUUU ZZH
R 210707Z MAR 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 4534
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3624
RUEHBJ/AMEMBASSY BEIJING 6496
RUEHUL/AMEMBASSY SEOUL 8532
RUEHGP/AMEMBASSY SINGAPORE 6852
RUEHKO/AMEMBASSY TOKYO 8576
RUEHML/AMEMBASSY MANILA 9975
RUEHJA/AMEMBASSY JAKARTA 4023
RUEHKL/AMEMBASSY KUALA LUMPUR 3704
RUEHHI/AMEMBASSY HANOI 3256
RUEHBY/AMEMBASSY CANBERRA 4480
RUEHWL/AMEMBASSY WELLINGTON 1739
RUEHHK/AMCONSUL HONG KONG 7739
RUEHGH/AMCONSUL SHANGHAI 0897
RUEHGZ/AMCONSUL GUANGZHOU 0071

UNCLAS SECTION 01 OF 02 TAIPEI 000634 
 
SIPDIS 
 
SIPDIS 
 
STATE PLEASE PASS USTR 
STATE FOR EAP/RSP/TC, EAP/EP 
USTR FOR ALTBACH AND STRATFORD 
USDOC FOR 3132/USFCS/OIO/EAP/WZARIT 
TREASURY FOR OASIA/LMOGHTADER 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, NEW YORK FRB/MARA BOLIS AND SAN FRANCISCO FRB/TERESA 
CURRAN 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PINR TW
SUBJECT:  Taiwan Targets Insider Trading 
 
REF: (A) 06 TAIPEI 3126, (B) 06 TAIPEI 3771, (C) TAIPEI 0049, 
 
¶1.  SUMMARY:  Taiwan's prosecutors have come down hard on the 
all-too-common practice of insider trading, just as they have 
shaken-up politics-as-usual mixing of personal and private funds 
(refs A and B).  In the past three years, Taiwan's prosecutors begun 
investigations of 155 suspected insider trading cases referred to 
them by financial regulators.  In mid-March they searched offices 
and questioned senior executives at two large electronic companies. 
In the long run, an effective functioning regulatory system will 
help Taiwan's business sector and deepen its democracy, but in the 
short run, many top executives could get burnt.  END SUMMARY. 
 
The Democratization of Taiwan Law Enforcement 
--------------------------------------------- 
 
¶2.  Ref A report on democracy and corruption in Taiwan noted that 
Taiwan prosecutors are proud of the increasing number of 
prosecutions of high-level white collar criminals.  They view their 
newfound ability to prosecute powerful people as a sign of the 
increasing democratization of Taiwan.  The reach of the prosecutors 
is indeed impressive; some notable highlights include indicting the 
wife of the President for misuse of public funds, indicting the 
son-in-law of the President for insider trading, and indicting the 
head of the Financial Supervisory Commission Examination Bureau (a 
key financial crimes investigation agency) for discussing an 
investigation at a private dinner.  One Legislator has estimated 
that 3-4 thousand government officials could potentially be 
prosecuted for misuse of public funds and that an even higher number 
of company executives could potentially be prosecuted for insider 
trading.  In 2004, about 10 percent of Taiwan 700 district level 
prosecutors were themselves under investigation for corruption. 
However, prosecutors maintain that this is not because there is more 
corruption now, but because there is now more transparency, a more 
aggressive media, and private executives and public officials are 
now being held to high standards. 
 
Two Insider Trading Cases 
------------------------- 
 
¶3.  After China Rebar Pacific Group Chairman Wang You-theng was 
indicted for embezzling and laundering over US$1 billion (ref B), 
Taiwan's prosecutors accelerated investigation of other white-collar 
crime cases.  On March 13, the Prosecutor's Office (PO) in Taoyuan 
questioned eight senior executives of BenQ on insider trading. 
(BenQ is one of the largest personal computer suppliers in the 
world.)  Investigators searched BenQ offices and the eight senior 
executives' residences.  These executives were charged with selling 
BenQ shares just days before BenQ published heavy losses due to its 
failure in acquisition of Siemens' mobile phone plant last year. 
The PO in Taoyuan detained a senior vice president and released 
seven others on bails ranging from NT$200,000 (US$6,061) to NT$5 
million (US$151,510).  The PO in Taoyuan is still investigating 
whether BenQ Chairman Lee Kun-yao was involved in the insider 
trading. 
 
¶4.  On March 15, the Prosecutor's Office (PO) in Taichung launched 
an investigation of insider trading by PowerChip Chairman Frank 
Huang and his staff.  The PO in Taichung searched offices of 
PowerChip and Veutron (a subsidiary of PowerChip) and Chairman Frank 
Huang's residence.  Huang allegedly sold equity shares in Veutron 
before Veutron published 2001 losses (NT$3.06 billion or US$93 
million).  (PowerChip is one of the major semiconductor firms and 
Veutron is an image scanner and relevant products producer in 
Taiwan.) 
 
Results of Past Efforts 
 
TAIPEI 00000634  002 OF 002 
 
 
----------------------- 
 
¶5.  Exposure of the two insider trading scandals is a result of 
Taiwan authorities' heightened law enforcement efforts.  In the 
three years since the Financial Supervisory Commission was 
inaugurated in July 2004, the FSC Examination Bureau (EB) has 
conducted about 2,500 investigation cases and referred 155 cases to 
the prosecutor's office, according to FSC Chairman Hu Sheng-cheng's 
report to the Legislative Yuan.  On average, the EB has referred 50 
cases to the prosecutor's office every year. 
 
COMMENT 
------- 
 
¶6.  Taiwan prosecutors are aggressively going after business and 
official behavior that previously went unquestioned.  An efficient 
financial supervisory mechanism will help Taiwan build a system 
which will, in turn, protect the island against financial crisis, in 
the meantime, business people and officials are scrambling to change 
their behavior to meet the new, higher standards of accountability. 
 
YOUNG