Taiwan's Kuomintang Seeks to Hide its Assets

Taiwan’s ruling Kuomintang is pushing for new legislation that critics say will effectively make it more difficult to trace the huge ill-gotten wealth of what is often referred to as the world's richest political party.

Under the terms of the legislation, now before the Legislative Yuan, the country’s political parties would be prohibited from running or investing in profit-making businesses. Ownership of the shares in such enterprises would be required to be transferred or sold off within a grace period, all of which sounds like a major political reform.

However, critics say, a glaring loophole exists which would allow assets to be placed in opaque trusts, a move that would turn into farce numerous pledges by President Ma Ying-jeou of the KMT to level Taiwan’s political playing field.

According to the new draft act, if political parties fail to sell off the assets at the end of a two-year period, they would then have to place them into a trust within six months. But because the KMT's enterprises are unlisted public companies, there is no way of knowing if indeed all of the KMT's fortunes go into the trust.

“Although paragraph 44 of the act stipulates a zero-asset rule, it allows trusts to handle assets. This simply means the party has a new means to keep what it already has,” said Hu Sheng-Cheng, a professor at the Institute of Economics of Academia Sinica, Taiwan's highest research institution.

“To put democracy on the right track, parties' assets should be given to the state or the Red Cross, not trusts.”

“The article is expected to be passed in this legislative session,” said Lai I-chung, a researcher with Taiwan Thinktank. “This means the KMT can still utilize its fortune for the 2014 election [to be held in Taiwan's biggest municipalities] and dangle it in front of big businessmen to illicitly ensure their cooperation.”

Behind the riches is a classic Cold War drama in which the KMT, founded a century ago in China, made off with much of the country’s fabled riches. When they lost the Chinese Civil War to Mao Zedong’s Communists, the retreating troops of Generalissimo Chiang Kai-shek carried with them most of the country’s gold reserves, estimated at a phenomenal 2.6 million taels, along with whatever else they could take. Whatever else they could take included 650,000 pieces of Chinese bronze, jade, calligraphy, painting and porcelain from the Forbidden City, arguably the greatest repository of Chinese art in the world by far.

Upon landing in Taiwan, the Nationalist Army confiscated hundreds of properties and buildings from the defeated Japanese, who had ruled over the island as a colonial power for some 50 years, and by many accounts, those of the local elites as well. The KMT effectively governed as the state as well as a political party well into the 1990s and was accountable to no one, it bought government land at bargain-basement prices and extended preferential treatment to KMT-controlled companies in lucrative national development projects.

“The KMT demanded that all Japanese to return to Japan after the Japanese army surrendered, allowing each of them to only carry two big suitcases,” said Lai I-chung. “Then, during the following chaotic take-over period, the KMT simply grabbed Japanese and also local Taiwanese people's property.”

The forced departures left Japanese properties intact, Lai said, so that the KMT simply turned them into party assets. Japanese engineers were subsequently allowed to return as they were desperately needed by the KMT to look after the island's infrastructure, but as they could not possibly present legitimate Taiwanese ownership documents, their property shared the fate of the others.

With the democratization of Taiwan in the latter half of the 1990s, voices grew louder that the KMT's wealth belonged to the state. In 2000, the KMT lost power to the Democratic Progressive Party (DPP). At that point, Ma Ying-jeou, then the KMT chairman, sought to sanitize the party’s image by vowing in 2005 to sell all of its assets. What followed were moves to sell the building housing the Policy Research and Development Center for US$13.5 million, the China Television Co, the Broadcasting Corp of China and the Central Motion Picture Co for another US$29.2 million.

But those were only baby steps. Data provided by the Ministry of Interior show that in 2011, the party still owned 146 plots of land, many of them in prime locations, as well as 157 houses and buildings. Arguably the KMT's most precious asset, which it has resisted giving up, is the controversial Central Investment Co. with a current declared net worth of about US$620 million. It is this institution that continues to make the party rich through means such as insider trading, Taiwan's opposition alleges.

A textbook example how this works, the opposition alleges, was delivered in August last year: After a plunge on Wall Street caused jitters around the globe, the Taiwan Stock Exchange's TAIEX was hit badly. A day later – a Saturday – President Ma called a press conference, evoking healthy economic fundamentals, thereby making private investors believe that the state-owned National Stabilization Fund (NSF) would intervene soon after the bourse opened the following Monday morning.

That notion predictably caused investors to go bargain hunting and postpone selling, but that Monday, the NSF remained conspicuous by its absence. Panic selling followed, and it wasn't until Tuesday that prices recovered after the injections from the government-run labor insurance, labor pension, civil-servant pension and postal funds.

Critics said it was clear what the KMT's Central Investment Co had done: After the president's confidence-boosting statements drove prices up, the investment company dumped stocks from the party's own assets at an opportune moment. Those were then bought by private investors, and because the government released funds later than had been anticipated, panic hit, prices plunged, and at the end of the story, the dumped shares were again bought up at bargain prices by the Central Investment Co.

The KMT said the Central Investment Co made US$59 million in dividends in 2011. But according to the opposition DPP, a glance at the spending comparison between KMT and DPP shows the disparity between the coffers of the opposing parties. According to the Ministry of Interior's statistics, the KMT paid US$50 million for staff last year while the DPP made do with US$3 million. To run its offices, the KMT spent US$56 million, compared to the DPP's US$4,2 million.

Last year, in the run-up to the January presidential and legislative elections, the KMT's declared spending for its offices increased by as much as 60 percent over 2010. The DPP alleges it has reason to believe that the money was used to illegally support the KMT's campaign. And, given the expected passage of the legislation, it will have plenty of spare change for the next election.