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FSC to crack down on exploitation of OBUs

TAIPEI, Taiwan -- In light of a sweeping easing of limitations on the establishment of offshore banking unit (OBU) operations for the financial sector, the Financial Supervisory Commission (FSC) announced during a Legislative Yuan session yesterday that it is poised to initiate a comprehensive examination of banks that will commence next month.

The FSC stated yesterday its intent to verify rumors that a number of financial institutions exploited recently eased regulatory limits by establishing OBU investment accounts for foreign-based subsidies controlled by domestic accounts.

The approval for the financial sector operations in gaining the recently approved OBU status is a move designed to attract foreign investors, and not intended for the evasion of business taxes, business income taxes and taxes on deposits of domestic investors, the FSC said.

FSC Chairman Tseng Ming-chung (曾銘宗) said that there would be consequences for domestic financial institutions and their clients if evidence reveals that banks have been colluding with their clients, advising them to pose in the guise of foreign entities to exploit the OBU status, are uncovered.

Banks Warned Against Venturing Into Legal Gray Area

According to Tseng, the upcoming bank examination will determine whether banks' knowledge of their clients meets regulatory requirements, such as whether they are holding more than one nationality. Regulations state that Taiwanese nationals holding more than one citizenship may not apply for an OBU account if they reside in Taiwan, such as the multitudes of individuals who have both a U.S. and an R.O.C. passport. In addition, the FSC will be investigating whether banks are actively guiding their clients in acquiring the prerequisites to gain OBU investment accounts, such as establishing a front company as a foreign subsidiary.

“The FSC does not encourage the practice, and advises banks to not venture into this legal gray area,” said Tseng.

In addition, Tseng stated that comprehensive probes will be conducted to investigate Taiwan's six leading banks to uncover possible inadequacies in internal control, and whether the banks are knowledgeable of the activities of their clients.

Mega International Commercial Bank (兆豐銀), Taipei Fubon Bank (富邦銀), Citibank Taiwan (花旗銀), First Bank (第一銀), Cathay Bank (國泰世華) and Bank SinoPac are slated to go through rigorous rounds of bank examinations in April.

In addition, the Taxation Administration stated that it will cooperate with the FSC in the endeavor, while adding that it will be on the lookout for OBU-status companies who have little for show in terms of operating revenues, but extraordinarily high financial investment activities. In addition, the administration stated that Taiwanese businesspersons holding dual citizenship who are registered in the national census are barred from acquiring OBU-status investment accounts.

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