Taiwan: A case study on a Ponzi scheme and money laundering by Dream Company

This article is presented as an example of effective anti-money laundering efforts in detection and investigation when there is cooperation between private and government sectors as well as a strong collaborative effort between various governments and internal departments. Mr. Chia-Jui (Mike) Lan, whose investigative work forms the basis of this article, is a long-time veteran of almost 30 years of investigation experience. He joined the Investigation Bureau of the Ministry of Justice as a special agent in 1983, and has held various leadership roles in the MJIB, including as a law enforcement liaison of Taipei Economic and Cultural Office (Taiwan Consulate, Vancouver, Canada), senior special agent of the Anti-Money Laundering Division (Financial Intelligence Unit of Taiwan), and most recently as section chief of the AML Division. The case shared here is exemplary of the cooperation necessary for all key parties involved to bring to light the criminal activity being perpetrated by Dream Company.

Working together, the private and public sectors can be a powerful effective force to detect and stop money laundering and fraud. The following case study demonstrates how effective this collaboration can be.

How it was first detected

In January 2012, employee B of bank A submitted a Suspicious Transaction Report (STR) to the Anti-Money Laundering Division (AMLD). The following is a synopsis of the report: Mr. W, a foreign person-in-charge, chairman and general manager together with directors Mr. X and Ms. Y (Mr. X's girlfriend) jointly operated Dream Company, a company that was incorporated in May 2010. On two consecutive business days before close of business, the said individuals dispatched Mr. X and Mr. Z (the company's accountant) to withdraw large amounts of cash at bank A. However, they were unable to provide a convincing answer to employee B's questions pursuant to the bank's Customer Due Diligence (CDD) practice with respect to the use of the funds. Employee B reviewed the customer's background, business affairs and irregular transactions and suspected Dream Company to be preparing to wind down and its management to abscond with the funds. Employee B felt it necessary to report the STR to AMLD.

The bank's employees were assiduous in their review and promptly filed a suspicious transaction report

How the FIU responded

Following receipt of the report, AMLD began collecting the company's background information and analyzing the relevant transactions. Investigators discovered that the company might be using means akin to a Ponzi scheme to defraud investors. As a result, AMLD referred the case to the Taipei Field Office, Investigation Bureau for investigation. In February 2012, some of Dream Company's bank accounts were flagged by other law enforcement authorities as a result of an investor, Mr. C, complaining to them about Dream Company's failure to pay the principal sum and interest invested by him, which were due. The law enforcement authorities also began investigating certain employees at Dream Company. Mr. W was alerted of this and proceeded to flee the country on February 29, 2012. Mr. X and Ms. Y, attempted to leave the country on March 6 even when they had already been instructed not to leave the country by the prosecutor. They were arrested by Taipei Field Office at Taoyuan International Airport. The Taipei Field Office searched the premises of Dream Company and the suspects on March 7.

During this time, AMLD also received an STR from anti-money laundering compliance staff of bank A on March 7, 2012, which stated: "Dream Company deposited NTD 10 million in cash on February 21, 2012 but immediately withdrew the same amount on the 24th of the same month. Its refusal to explain the intended destination/use of the said fund prompted the bank to harbor suspicion of money laundering, hence the bank's report." AMLD forwarded the information for investigation by the Taipei Field office of the Investigation Bureau. AMLD also helped the latter trace the flow of funds of the company and related suspects as well as subsequent seizure of the said funds.

The investigation results

Following investigation, Dream Company had been found to be engaging in multi-level marketing to defraud its investors. It illegally raised, from investors in Taiwan, a sum in excess of NTD 2.5 billion (more than USD 83.30 million) by allegedly promising investors that their investment would be used in the installation of coin-operated massage chairs in overseas supermarkets and theme parks. Investors who paid certain amounts of money, for example NTD 98,000 (USD 3,500) or NTD 318,000 (USD 11,000) for a unit of investment, would receive a monthly return of 30 percent. The company stressed that investors would recover their principal sum and make more than three times their initial investments within 10 months of investment. In reality, the company was "robbing Peter to pay Paul" in a manner akin to a Ponzi scheme where subsequent investors' money was used to pay the principal sum and interest of previous investors to defraud its investors.

During a raid on Dream Company's premises on March 7, 2012, the Taipei Field Office of the Investigation Bureau seized cash amounting to approximately NTD 11 million (about USD 400,000) and froze bank holdings of about NTD 60 million (approximately USD 2 million). AMLD also helped trace funds and on the following day (March 8th), and found the illegal flow of funds into the bank accounts of Messieurs W, X, Y and Z. AMLD then assisted the Taipei Field Office of the Investigation Bureau in freezing the funds, which amounted to about NTD 93 million (approximately USD 3.10 million). The total amount of illegal funds seized was about NTD 170 million (approximately USD 5.50 million). Between August 2010 and February 2012, Dream Company remitted over NTD 1 billion (about USD 33.30 million) of its illegal gains to its overseas branch. An additional amount of NTD 8.40 million (approximately USD 280,000) was remitted to a personal bank account maintained by Ms. Y overseas.

Prosecution results

Prosecutors of the Taipei District Prosecutors Office completed their investigation in April 2012 and promptly initiated prosecution in the Taipei District Court. They sought an imprisonment term of 18 years for Mr. W, the person-in-charge, and Mr. X, director of Dream Company; 16 years for Ms. Y, another director, and 7 years and 6 months for the company's accountant Mr. Z.

As a result of bank A's employee B being assiduous in carrying out customer-review and Know Your Customer (KYC) procedures, the said employee was familiar with Dream Company's staff and business. As soon as director Y and accountant Z attempted to withdraw large amounts of cash, the bank employee realized that Dream Company could be wrapping up its "investment" business and closing its office. The bank employee was then able to promptly file an STR. In addition, during the investigation bank A assigned its staff to assist the AMLD in freezing illegal gains in the relevant accounts. Following prosecution of the relevant parties, AMLD notified bank A to give administrative incentives to employee B and other staff who assisted in seizing the illegal gains. AMLD had also exchanged information on the aforesaid money laundering with the financial intelligence center of the relevant country through the Egmont Group's security network. At present its law enforcement authority has initiated criminal investigations on Mr. W, who had absconded to the said country.

Key lessons learned and challenges

  1. The bank's employees were assiduous in their review and promptly filed an STR with respect to any suspicious transactions. They also assisted AMLD (FIU) and relevant law enforcement authorities in a professional manner.
  2. AMLD was able to fulfill its mission by undertaking in-depth analysis of a STR filed by financial institutions and promptly forwarding it to law enforcement authorities for further investigation. It also coordinated the work between local authorities and the financial institution, as well as assisting law enforcement officers during the investigation to procure the relevant transaction records and foreign exchange remittance records from financial institutions and financial supervisory authorities. This helped authorities to deduce the flow of illicit funds in the shortest possible time. AMLD also worked with the Taipei District Prosecutors Office to promptly freeze and seize the illicit gains. Not only did this prevent the suspects from absconding with the funds before their conviction but it also enabled part of the funds to be returned to the victims, thereby minimizing their losses.
  3. This case is a clear example of how criminal activities can be tackled when there is full cooperation between public authorities, private enterprises and financial intelligence centers with prompt and effective provision of necessary information as well as professional assistance from all involved.
  4. The financial intelligence centers vary from country to country with respect to their nature. There is also disparity between the centers with respect to the efficiency of exchange of information and effectiveness that it is extremely difficult to keep pace with the offenders' speed of cross-border transfer of funds. Furthermore, certain countries require execution of pacts or memoranda of understanding for the purpose of exchanging information, thus posing certain hindrances.
  5. There are also numerous limitations in relation to judicial assistance. The inability to extradite the main suspect and obtain evidence and information from foreign countries are some of the more serious obstacles to judicial cooperation.

Taiwan will continue to make an effort to enter into agreements or memoranda of cooperation with other countries with respect to the exchange of information. We will in addition spare no effort in developing official and unofficial channels for international cooperation in an effort to combat cross-border money laundering. 

Enrique Chen, special agent, of Anti-Money Laundering Division, Ministry of Justice, Investigation Bureau, Taiwan, amld@mjib.gov.tw

Reviewer Chia-Jui (Mike) Lan, section chief of Anti-Money Laundering Division, Ministry of Justice, Investigation Bureau, Taiwan, amld@mjib.gov.tw

Contributor: Hue Dang, CAMS, Head of Asia, ACAMS, hdang@acams.org

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