Money Laundering Prevention in Taiwan: What Institutions Need to Know

6 mins

Money laundering is the process of concealing the proceeds of illegal activities and making them appear as if they came from legitimate sources. This can have a severe impact on a country's financial system and economy, as it can distort the market and undermine the rule of law. Money laundering can be used to finance criminal activities such as drug trafficking, terrorism, and human trafficking, and can also be used to evade taxes and sanctions.
Preventing money laundering is crucial for maintaining the integrity of the financial system and economy in Taiwan. Money laundering can destabilize financial institutions, damage investor confidence, and ultimately affect the overall economy. To combat money laundering, financial institutions in Taiwan are required to implement strong anti-money laundering (AML) programs and comply with relevant laws and regulations.
This guide provides financial institutions in Taiwan with an overview of money laundering prevention, including the key laws and regulations, the challenges and risks involved, and best practices for preventing money laundering. By following these guidelines, financial institutions can reduce the risk of financial crimes and protect their clients, the financial system, and the economy as a whole.

Types of Money Laundering in Taiwan

Money laundering in Taiwan takes on many forms. The three most common methods are structuring, smurfing, and trade-based money laundering.

Structuring, also known as "smuggling cash", involves depositing cash in smaller amounts to avoid reporting requirements. The launderer typically separates large sums of money into smaller amounts, usually below the reporting threshold, and deposits them into different accounts or institutions to avoid detection.

Smurfing, also known as "structuring on a micro-level", is a method of structuring in which launderers use many individuals to deposit small amounts of illicit money. This allows the launderer to evade reporting requirements and avoids arousing suspicion.

Trade-based money laundering involves using trade transactions to move value and launder money. The most common forms of trade-based money laundering in Taiwan include over- and under-invoicing, multiple invoicing, and phantom shipping. These methods are used to misrepresent the price or quantity of goods being imported or exported, or to create non-existent trades to move illicit funds.

Recent cases of money laundering in Taiwan include the Dream Company ponzi scheme wherein the company illegally raised more than USD 80 million from investors and a large chunk of the amount was remitted to its overseas branch. In another case, wife of a former Taiwan president was found to have laundered USD 2.2 million out of the country and forged documents.

It is important for financial institutions in Taiwan to be aware of these types of money laundering and to take necessary measures to prevent and detect them. Failure to comply with anti-money laundering regulations can result in heavy fines and reputational damage.

Regulatory Environment in Taiwan

In Taiwan, the Anti-Money Laundering Act (AMLA) and the Counter-Terrorism Financing Act (CFTA) are the two primary laws that aim to prevent money laundering and terrorist financing activities. The AMLA requires financial institutions, including banks, securities firms, and insurance companies, to establish effective internal controls and risk management systems, and to report any suspicious transactions to the relevant authorities. Meanwhile, the CFTA requires financial institutions to screen their clients against lists of sanctioned individuals and organizations.

Additionally, Taiwan's Financial Supervisory Commission (FSC) has issued guidelines for financial institutions to prevent and detect money laundering and terrorist financing activities. Financial institutions are required to establish and implement risk-based internal control systems, policies and procedures, and to perform customer due diligence and ongoing monitoring of their customers. They must also report suspicious transactions to the relevant authorities, including the Investigation Bureau, the Ministry of Justice, and the FSC.

Challenges and Risks for Financial Institutions

As the regulatory environment in Taiwan becomes increasingly complex and criminals find new ways to launder money, financial institutions face a variety of challenges and risks. One major challenge is keeping up with changing regulations and criminal tactics. Financial institutions must be able to adapt quickly to new compliance requirements while also staying ahead of the latest money laundering techniques.
Efficient and effective compliance programs are essential to prevent money laundering and terrorist financing. Financial institutions must establish and maintain internal controls and risk management systems to detect and report suspicious transactions. These programs must be tailored to the specific risks and needs of each institution and must be regularly reviewed and updated to ensure their effectiveness.
At the same time, financial institutions must also maintain client confidentiality. While reporting requirements for suspicious transactions are essential, financial institutions must balance their obligations to report potential illegal activity with their duty to protect client privacy. This is particularly challenging in cases where the institution is uncertain about whether a transaction is truly suspicious or not.
Despite these challenges and risks, financial institutions play a critical role in preventing money laundering and terrorist financing. By maintaining effective compliance programs and staying vigilant against evolving criminal tactics, financial institutions can help protect the integrity of the financial system and safeguard the interests of their clients.

Key Elements of a Strong AML Program

A strong Anti-Money Laundering (AML) program is essential for financial institutions to mitigate the risks associated with money laundering and terrorist financing. Here are some key elements of a strong AML program.

  • Risk assessment and management: A comprehensive risk assessment must be conducted to identify the types of risks faced by the financial institution. This includes the types of customers, products, services, transactions, and geographic locations that pose the highest risks for money laundering and terrorist financing. Once identified, the institution must implement effective risk management measures to mitigate these risks.
  • Customer due diligence and Know Your Customer (KYC) requirements: Financial institutions must establish and maintain effective customer due diligence and KYC procedures to verify the identity of their customers, and assess the risks associated with them. This involves collecting and verifying customer information, such as name, address, and identification documents, and conducting ongoing monitoring of the customer's transactions.
  • Suspicious transaction monitoring and reporting: Financial institutions must monitor customer transactions and report any suspicious activities to the relevant authorities. This includes establishing effective transaction monitoring systems and procedures, and training staff to identify suspicious transactions.
  • Training and education for staff: AML compliance is a complex and ever-changing field, and staff need to be trained regularly on new regulations, risks, and detection techniques. Institutions should provide ongoing training and education to their staff to ensure they are equipped with the necessary skills to effectively prevent and detect money laundering and terrorist financing.

In summary, financial institutions should adopt a comprehensive and risk-based approach to AML compliance, which includes robust risk assessment and management, customer due diligence and KYC procedures, suspicious transaction monitoring and reporting, and ongoing staff training and education. By implementing these key elements, financial institutions can effectively mitigate the risks associated with money laundering and terrorist financing, while maintaining the trust and confidence of their clients.

Leveraging Technology for AML

As the world becomes increasingly digitized, technology has become a crucial tool in the fight against money laundering. By leveraging cutting-edge technology, financial institutions can enhance their AML programs and improve the effectiveness of their compliance efforts.
One such solution is the Tookitaki Anti-Money Laundering Suite (AMLS) which is powered by the Anti-Financial Crime (AFC) Ecosystem. The Tookitaki AMLS is an artificial intelligence-based solution that uses machine learning algorithms to analyze vast amounts of data, enabling financial institutions to identify and mitigate potential money laundering risks.
Leveraging advanced technologies such as machine learning has several benefits. It can enhance the accuracy and efficiency of AML programs, reduce false positives, and provide real-time insights into potential threats. Additionally, machine learning models can adapt to changing risk factors and improve over time, making them a valuable tool for long-term AML compliance.
By leveraging technology solutions such as Tookitaki's AMLS, financial institutions can strengthen risk assessment and management, customer due diligence, suspicious transaction monitoring and reporting, thereby reducing their risk exposure and meeting regulatory requirements.

Protect Your Institution and Clients with Innovative AML Technology

AML prevention is crucial for maintaining the integrity and stability of the financial system in Taiwan. Financial institutions need to stay ahead of the latest trends and tactics used by criminals and continuously improve their AML programs. In order to achieve this, they can leverage advanced technologies like machine learning to detect and prevent financial crimes.
Tookitaki's AMLS and AFC Ecosystem offer financial institutions powerful solutions to strengthen their AML programs. The solutions are designed to help institutions improve their compliance programs, reduce false positive rates, and enhance efficiency. By partnering with Tookitaki, financial institutions can protect themselves and their clients from financial crimes while reducing costs and streamlining their AML processes. Don't wait until it's too late - take action now to protect your institution and clients from financial crimes. Book a demo with Tookitaki's AML solutions today.