How serious is the problem of misappropriating client funds in Taiwan?

misappropriating

Misappropriation of customer deposits occurred repeatedly

“Misappropriating client funds” it looks like a big scandal around the world. However, it’s not rare in Taiwan. Today, I read, again, in the newspaper that Taishin bank specialists of wealth management stole NT$ 347 million. The Financial Management Committee fined NTS 30 million, the heaviest in history. I noticed this problem in Taiwan a long time ago.

The Banking Bureau of the Taiwan Financial Supervisory Commission (FSC) and relevant authorities and the media disclosed that as of November 2020, from 2012 to November 2020 alone, there have been 33 cases of misappropriation of client funds by Taiwan’s banking specialists. In the case of self-stealing by guards, 20 banks were fined NT$ 182 million by the Banking Bureau of the FSC. A total of 17 banks were involved, which is equivalent to more than half of Taiwan’s banks. (there are only 36 banks in Taiwan).

From 2019 to November 2020, there will be 14 cases of self-theft in the past two years, with a total amount of more than NT$ 910 million customers’ fund. In 2020, local Business Weekly magazine featured a cover story on this topic: “The Truth About Bank Greed Behind a Case of Misappropriating – One Specialist defrauded NT$ 300 million, and more than half of the country’s bank was with this scandal!

From 2012 to 2020, Taiwan banks’ specialists have stolen more than NT$ 3 billion, 20 banks have been fined more than NT$ 100 million, and more than half of Taiwan’s banks have been involved. Including Cathay Pacific, CITIC and other well-known banks, among them Taishin Bank, E.Sun Bank, etc., are even more recidivists.

I believe that there must be a criminal black count, and the actual number is several times this; and those that will be reported to the FSC are famous case like, huge amount of money, or the case has not been settled; in short, the actual number is beyond your image.

A common phenomenon in Taiwan’s industry

Judging from the news publicly reported by the above media, Taiwan’s banks (including post offices) specialists in stealing client money is an extremely common phenomenon in Taiwan’s banking industry. In 2020, the outbreak of E.Sun bank’s specialist self-stolen NT$ 140 million, the financial management committee severely fined NT$ 20 million, and the vice president was suspended. This incident has also severely damaged the good image of E.Sun bank’s long-term business.

Many people who can save money in the bank are the hard-earned money and the last coffin of a lifetime. The first thing that banks can survive (and I think the only most important first thing) is customer trust. This kind of thing has happened repeatedly in Taiwan’s banking industry. I wonder what the competent authority, the Financial Regulatory Commission and the banking industry, feel about themselves? Apart from being speechless, I can’t think of any better adjectives.

US case will hit company badly, but Taiwan doesn’t seem to

In the United States, what impact will a similar situation have? In 2016, Wells Fargo (ticker: WFC) broke out in a scandal involving employees stealing account openings to fight for their performance. Over the years, business personnel have faked customer accounts, forged revenue, Wells Fargo admitted that they illegally charged millions of dollars in handling fees and interest, damaged customers’ credit ratings, and illegally abused customers’ sensitive personal assets, leading to the resignation of Wells Fargo’s CEO.

As a result, Buffett has almost cleared out his holdings in Wells Fargo, leaving only 3% in 2020. (it’s zero, Berkshire dump all Wells Fargo position in 2022) Wells Fargo was one of Berkshire’s long-standing largest holdings. More than five years after the incident broke out, Wells Fargo has been in a slump and its stock price has not yet returned to its pre-incident level.

This is why people hide cash under bed

I used to see in the newspapers that many Japanese people were found to hide sums of cash under their beds or underground after they passed away. I didn’t know why before, but I always looked at it from the world’s anecdotes. But after watching this world miracle in Taiwan, I finally understand why.

Don’t have wrong expection on bank specialists

I remind investors again that the skill of specialists is business sale, not investment or wealth management, and they do not have this skill; their income mainly comes from customer commissions and handling fees. They are trained in how to make money from customers, not for customers. This is why I said in the book “The Rules of Super Growth Stocks Investing”, section 1-5, try not to seek any investment advice from banks’ specialists or stock agents.

Competent authorities are to blame

I have been paying attention to this problem for many years, which is very distressing. After all, especially in today, if a customer put lot of money in the bank, and also buy the bank’s wealth managment products, most of these customers will be very conservative retired or retired. But unfortunately, the news of Taiwanese banks embezzling customers has happened again and again, and it is even difficult to stop them.

Compared with less than 40 banks in Taiwan, there are nearly 5,000 in the United States; the rate of occurrence in Taiwan is astonishingly high, and the reported cases are still large deposits, and it should be difficult to report small cases with several million of NT$ loss.

As I mentioned earlier, I personally think it is a common phenomenon in Taiwan’s financial industry, and the Taiwanese people’s deep-rooted thinking that they don’t pay attention to customer rights, plus the law. Because in the United States, such cases will be brought to the court by the customer, and the judge will award (not the customer’s request) sky-high punitive damages. No bank dares to commit a second crime; because a single punitive damages will make the company go bankrupt. The Johnson & Johnson (ticker: JNJ) talcum powder carcinogenic case is only about eight years old.

Several cases before and after have made Johnson & Johnson pay victims and punitive damages of more than 30 billion US dollars. A bottle of talcum powder is only a few US$ dollars, and it is impossible to pay 30 billion US dollars even if it pays 300 million people in the United States.

Johnson & Johnson is not an average small business, it is one of three mega-corporations with AAA corporate ratings, along with Apple and Microsoft. This case made it unbearable, in order to avoid the debt of the “talum powder cancer case”! Johnson & Johnson plans to spin off the business in 2021, transfer liabilities to the new company and file for bankruptcy.

What about Taiwan? The supervisory unit, FSC, catches the manager for misappropriating customer deposits, and at most it will be fined tens of millions of NT$ (for the bank, do you think the bank will care this number?) In the past few years, that was not the way it was handled, which had no deterrent effect on banks and colleges at all. Numbers can speak, and if it works, it won’t happen again and again.

In addition, Taiwan’s regulation are outdated, and the protection of victims is still in 50 or 60 years ago. Judges always think that as long as the money is returned to the victim, the matter will be closed. Like why drunk driving happens again and again, because the sentence is light, the judge usually only asks for compensation for the victim’s medical expenses. There is something to learn, of course, can never be banned.

misappropriating
credit: Flickr

The fundamental problem is that there is no concept of punitive damages in Taiwan’s regulation. Next time, as long as cases related to consumers, like the United States, start to include punitive damages, I believe that these companies that do not have the concept of consumers or victims’ rights and interests will not dare to try the law by themselves, because one case may bring the company out of business and lead to bankruptcy.

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