Since the beginning of the year, a succession of corporate insider trading and embezzlement scandals has erupted in Taiwan, causing anxiety within the business community and leading to much discussion throughout society. In this exclusive CommonWealth Magazine interview, Minister of Justice Shih Mao-lin underscores the intentions behind the Ministry of Justice’s crackdown on corporate corruption, as well as his expectations for corporate governance and the handling of cases by prosecutors.

Lately, everybody feels there are political motivations behind the aggressive crackdown on cases of financial fraud by government investigation and prosecution units. Such talk is unfounded.

Observing matters from my own personal experience, when I was a prosecutor at the Taipei District Prosecutors Office over tens years ago, the amount lost in a corporate embezzlement case was 10 to 20 million NT dollars at the most at the time. Later, it increased progressively to 40 to 50 million NT dollars, sometimes even to a hundred million. Eventually, four years ago, I saw an embezzlement case the Taipei District Prosecutors Office brought to court in which the amount totaled NT$2.8 billion. The following year, over NT$10 billion were embezzled from Pacific Electric Wire and Cable Company.

I became aware that cases of financial fraud were happening all of the time and that the dollar values of the losses were constantly increasing, and I began to sense that some problem might have emerged with the way businesses are operated.

Investigators and prosecutors have pursued a good number of corruption cases against government personnel over the last five to six years. As for the area of corporate corruption, there are more and more cases that are impacting an increasing number of levels. Not only has this weakened the nation’s competitiveness and given people overseas a negative impression of Taiwanese businesses, it has also harmed the average investor, especially the rights of stockholders. Furthermore, the consensus of last year’s Conference on Sustainable Economic Development called for listing the fight against corporate corruption as a vital task for reorienting economic order and enhancing national competitiveness. Hence, there was this series of investigative actions.

Interconnected Sewers

The sources for our investigators and prosecutors’ cases, besides coming from such organizations as the Financial Supervisory Commission and Taiwan Stock Exchange, depend even more on each district prosecutor’s office developing cases on its own. We make a special point of reminding prosecutors that, in the process of handling cases, they must unearth other cases hidden behind those. For instance, the Taichung District Prosecutors Office received a tip from someone regarding intimidation by organized crime. Over the course of the investigation, it was discovered that a group was manipulating stock prices. Further tracking found this group had gone as far as collaborating with a large number of corporate officials.

The way I’m describing what’s beneath each case, it’s like underground sewers that are all interconnected. Once you start digging, it’s just awful. That group of manipulators, according to our information, was involved in over ten cases. The investigators and prosecutors in Taichung have already begun to work on them.

Therefore, when our fellow investigators and prosecutors hear that businesspeople are stricken with anxiety, they feel quite surprised. We believe that as long as businesses’ securities transactions, financial leveraging and financial reports are in compliance with the rules, what is there to worry about? Investigators and prosecutors will only pursue cases against businesses that commit crimes. They won’t touch businesses that haven’t committed crimes.

People often bring up the concept of “the principle of proportionality.” To put it a little more plainly – is it worth it or not? If a company has a capitalization value of NT$2 billion, is it necessary to risk breaking the law by engaging in insider trading in order to make five or six million NT dollars? If a company has a capitalization value of over NT$10 billion, is there any reason on earth to engage in insider trading to make a few tens of millions of NT dollars more? This just isn’t worth it for business executives!

If business executives still embrace the attitude of playing for short-term profits, then they will need to consider the legal risks and the possibility of facing punishment. If business executives still believe violations of the law will go undetected and that crimes can be pulled off without leaving a trail, then they are mistaken. They will necessarily leave trails wherever they go. The Financial Supervisory Commission has market monitoring mechanisms. How funds flow, how accounts are transferred, can all be tracked. If businesses falsify accounts, we need simply go to an accountant or prosecutor investigator to make a check and it will all become perfectly clear. A great deal of evidence can’t be obliterated.

The concept of corporate governance is in fact quite simple – you must consider corporate ethics and corporate social responsibility.

Of course, prior to pursuing a case, investigators and prosecutors need to have an understanding of businesses’ operation practices. For example, such things as price differentials, whether produced by manipulation of financial leverage or buying and selling, are all market mechanisms. Investigators and prosecutors must recognize the scope of what the law allows. They cannot investigate people for excessive profits just because they see that a company is making money. Article 1 of the Company Act stipulates explicitly that the purpose of a company is to make profits. Therefore, I frequently remind our fellow investigators and prosecutors that they must be thorough when pursuing cases. They must understand some of the rules of the market as well as the predicaments and frustrations businesspeople face in managing a business.

However, when running a business, the legal standards must be understood as well. It’s not as if you can just pay them no heed, wait until something goes wrong and then blame the law for not being clear, or lay blame by questioning why you weren’t caught before, or blame investigators and prosecutors for pursuing a case indiscriminately or overstepping their authority. That’s like a patient whose own constitution is weak accusing a doctor of having poor medical skills.

With regard to criticism from the business community that “prosecutors are running the country,” I believe this accusation is too strong. Prosecutors would not, and should not, place this expectation upon themselves. I’m always demanding that investigators and prosecutors remain neutral, objective, moderate and mature when working on cases. I also hope prosecutors don’t just create their own legal opinions out of thin air when pursuing a case, but rather base their work on academic opinions and the views of those directly involved in the sphere affected and consult previous court rulings, and use these together collectively.

Prosecutors Running the Country?

What prosecutors should expect of themselves is that a case can be prosecuted successfully. Otherwise, no matter how beautifully the process goes, if the case can’t be prosecuted successfully or a case is brought to court and the ruling is not guilty, what meaning is there in that?

We often send large numbers of prosecutors to Harvard and Yale for advanced studies and to bring back information. They find that American prosecutors put forth a great effort when pursuing investigations of corporate crime related to Wall Street and have made outstanding contributions to the improvement of order on financial markets that have garnered affirmation from across society.

But as one prosecutor said to me, Taiwan’s housewife stock investors deserve a lot of sympathy. At one point, they earn ten or twenty thousand on the stock market and they’re as happy as can be, but later on they lose it all, due to corporate insider trading. I believe businesses should take care of their core business. If they run into manipulation by shareholders on the market side, they should turn it over to our judicial units for handling. Our prosecutors, based on their sense of mission, will definitely work hard to fight financial crime and establish a fair trading market.

Translated from the Chinese by Stan Blewett

Chinese Version: 法務部長施茂林：企業照規定做　有什麼好擔心？