TAIPEI (Taiwan News) — Financial crime is an umbrella term that encompasses every type of criminal conduct that is linked to financial entities and markets.

Taiwan takes the fight against financial crime seriously and is committed to its global obligations imposed by organizations such as the Financial Action Task Force (FATF). FATF is the global money laundering and terrorist financing watchdog.

FATF sets international standards that aim to prevent financially related illegal activities and the harm they cause to society. As a policy-making body, the FATF works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.

FATF’s 39-member body sets international standards to ensure national authorities can effectively go after illicit funds linked to all manner of financial crime, including (but not limited to) drug trafficking, the illicit arms trade, cyber fraud, and other serious crimes.

In total, more than 200 countries and jurisdictions have committed to implement the FATF’s standards as part of a coordinated global response to preventing organized crime, corruption, and terrorism. For evaluation purposes, Taiwan falls under the supervision of the Asia/Pacific Group on Money Laundering (APG).

The APG’s last mutual evaluation report on Taiwan, released in October 2019, saw Taiwan awarded the best rating of "Regular follow-up," which marked a significant milestone in Taiwan's efforts in the fight against financial crime and making it a role model for other members in Asia Pacific. A new mutual evaluation must be “in the wings” but no date has yet been confirmed.

The APG follows FATF’s internationally recognized recommendations and FATF Guidance Notes on various industries or professions. One such profession is the accounting profession and FATF’s guidance helps to provide high level oversight on the important role that Taiwan’s accountants can play in the fight against financial crime.

As an international organization, FATF typically suggests that countries, regulators, professional bodies, or professional service providers, such as accountants, apply a risk-based approach to combatting financial crime, but FATF is also prudent in allowing individual countries to regulate industries or professions as they deem necessary.

A risk-based approach simply means that countries, regulators, and in this case, accountants identify, assess, and understand the financial crime risk to which they are exposed, and take the appropriate mitigation measures in accordance with the level of risk.

This flexibility allows for a more efficient use of resources and it enables Taiwan’s accountants to focus their resources and take enhanced measures in situations where the risks are higher, apply simplified measures where the risks are lower and exempt low risk activities and also helps accountants avoid the consequences of inappropriate de-risking behaviour.

The accounting profession is an interesting one, as accountants are not simply restricted to accounting firms. Accountants appear in many facets of Taiwan's industry and businesses, but for the purposes of this article we will confine the observations to Certified Public Accountants (CPAs) practicing within CPA firms.

Taiwan’s basic financial crimes laws are essentially contained in the Money Laundering Control Act and the Counter-Terrorism Financing Act.

Taiwan also has specific regulations that cover Taiwan’s CPAs and these are to be found in the Financial Supervisory Commission’s (FSC) “Regulations Governing Anti-Money Laundering and Countering the Financing of Terrorism for Certified Public Accountants” (last amended in December 2020) (the regulations). The regulations are comprehensive and practical, and clearly endorse the FATF’s risk-based approach to CPAs.

At their most basic level, the regulations discuss the conduct of ongoing client due diligence procedures to verify the identity of their clients. The principal of "Know Your Client" is a hallmark of the fight against financial crime.

CPA and affiliated CPA firms must create policies and procedures that help them manage and mitigate the risks of clients attempting to engage in financial crimes. CPAs must also have internal control and audit systems that specifically address money laundering and terrorism financing risks.

The FSC also expects to see regular active on-the-job training of CPAs, risk assessment reports and dedicated audit procedures. The FSC also requires Taiwan’s CPAs to understand the background of the client, types of transactions, transaction amount, and direct source or destination of funds.

Reference is made to politically exposed persons (PEPs) and their family members and close associates. PEPs are internationally regarded as potentially high-risk clients and CPAs must be alert to the activities of PEPs and monitor their activities with enhanced due diligence.

The FSC expects CPAs to file suspicious activity or suspicious transaction reports if they identify their clients as potentially committing or committing suspicious activity.

CPAs are also required to keep full records of their clients’ activities for at least five years and make these immediately available to the FSC upon request.

The regulations meet international standards but may seem burdensome and onerous to many smaller CPA firms. Nevertheless, even small CPA firms in Taiwan must ensure they adhere to the regulations. Financial criminals will actively seek out weak links in the fight against financial crime, hence the need for even single CPAs to be vigilant and work in accordance with the regulations.

It is to be hoped that Taiwan’s CPAs and affiliated CPA firms understand their important role as a bulwark against financial crime, especially when a conservative estimate is that financial crime costs over US$1.5 trillion (NT$46.6 trillion) or 5% of global gross domestic product.

Financial crime is an economic cancer that disproportionately impacts those least able to absorb its malignancy.