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Cablegate: Taiwan Targets Insider Trading

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

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