US embassy cable - 05TAIPEI3288

S E C R E T SECTION 01 OF 02 TAIPEI 003288 
 
SIPDIS 
 
DEPT PASS TO AIT/W AND USTR 
DEPT FOR EAP/TC, EAP/EP, EB/IFD/OIA AND NKWG 
TREASURY FOR OASIA ZELIKOW,WISNER AND OCC AMCMAHON 
TREASURY ALSO PASS TO FEDERAL RESERVE BOARD OF GOVERNORS, 
SAN FRANCISCO FRB AND NEW YORK FRB 
 
E.O. 12958: DECL: 08/08/2020 
TAGS: ECON, PINR, KCRM, KTFN, RP, TW 
SUBJECT: INSIGHT INTO EAST ASIA MONEY LAUNDERING 
 
 
Classified By: AIT DIRECTOR DOUGLAS PAAL, REASON 1.5 B/D 
 
1.  (S) Summary.  A Hong Kong private investigator discussed 
with AIT Econ on July 14 his ongoing investigation into three 
unlicensed Taiwan money brokers that have been sending U.S. 
dollar bank and travelers' checks to his client, a Hong Kong 
bank.  The investigator had come to Taiwan to determine if 
the money was of criminal origin and to persuade the 
unlicensed brokers to collect customer information needed to 
comply with U.S. banking laws.  On August 2, the investigator 
provided AIT with a somewhat plausible explanation of the 
several tens of thousands of dollars in sequential, unsigned 
travelers' checks issued in South Korea that the Taiwan 
brokers regularly send to Hong Kong.  The investigator is 
also looking into the possibility that North Korean 
businessmen may be seeking to change money and make large 
investments in Manila.  End Summary. 
 
2.  (C) Hong Kong private investigator Peter Gallo of Pacific 
Risk Ltd. visited AIT on July 14 to discuss his investigation 
into three unlicensed money brokers that were sending U.S. 
dollar bank and travelers, check to his client, a Hong Kong 
bank, for currency exchange.  At the time of his meeting with 
AIT, Gallo had not yet met with any of the three brokers, but 
planned to do so over the next few days.  Gallo was aware 
that the unlicensed money brokers were operating "outside of 
the law" yet he hoped to find that the money was not the 
proceeds of criminal activity, that the brokers could be 
persuaded to keep the customer records required by anti-money 
laundering banking regulations, and that the business 
relationship between the brokers and his Hong Kong client 
could continue without violating banking regulations. 
 
3.  (C) Gallo said the total daily U.S. dollar value of the 
checks his client received from the three brokers was "well 
into six figures."  Most of the checks were drawn on U.S. 
banks and had valuations under $1000.  However, among the 
travelers, checks there were often $30-40,000 worth of 
sequential, unsigned checks that had been issued in South 
Korea.  In one instance, Gallo found a sequential series of 
unsigned travelers, checks with a total value over $100,000. 
 
4.  (C) Gallo said he did not suspect the bank checks of 
being criminal proceeds since they were for small amounts 
(usually from 25 to a few hundred dollars) and were drawn on 
a large number of different U.S. banks.  Nor did he think the 
money was the fruit of graft or corruption in Taiwan, since 
the details did not seem to fit local corruption.  He 
suspected that most of the money was coming from a triangular 
trade wherein small business in Taiwan obtained U.S. dollar 
checks through direct sales to U.S. customers (perhaps from 
sales over the internet), and exchanged them for Taiwan 
currency at the unlicensed brokers to avoid bank records, 
taxes and high bank exchange fees.  Gallo thought another 
part of the triangle trade was the tens of thousands of 
illegal Chinese immigrants in Taiwan who lacked legal status 
and identification documents but wanted to repatriate money 
to relatives in China.  These people could not deal with 
banks that ask for identification, so they use the unlicensed 
money brokers for currency exchange and transfer via Hong 
Kong to accounts in mainland China. 
 
5.  (C) Gallo was very surprised when AIT informed him that 
he was the only person in the past year to approach AIT 
asking how to bring unlicensed money brokers "into the fold" 
(how to make them comply with anti-money laundering 
regulations).  He had assumed this would be a common concern, 
and while he only knew of the three unlicensed brokers that 
sent money to his Hong Kong client, he assumed there were 
hundreds of such brokers in Taiwan. 
 
North Korean Seeks Investment Opportunities in Philippines 
--------------------------------------------- ------------- 
 
6.  (S) Gallo also told AIT that a "confidential informant" 
of his in Manila called him in mid-June to discuss a North 
Korean businessman who wanted to exchange currency and make 
large investments in the Philippines. 
 
7.  (C) AIT has informed Taiwan's Ministry of Justice and 
Financial Supervisory Commission of the outlines of Gallo's 
story.  They confirmed that "unlicensed money brokering" is 
clearly a violation of Taiwan law.  They added that as far as 
they were aware there was no way to legalize such activities. 
 Money exchange must be done through banks that follow 
required anti-money laundering procedures. 
 
Gallo's Follow-up Report 
------------------------ 
 
8.  (S) Gallo sent AIT/Econ a follow-up e-mail on August 2 
after his interviews with the unlicensed money brokers with 
what he thought was a credible explanation for why large 
quantities of sequentially numbered, unsigned travelers' 
checks issued in South Korea.  According to Gallo, the money 
brokers had explained to him that it is common practice for 
tour group leaders to bring cash with them to pay for the 
group's hotels and other expenses.   Paying in cash allows 
them to negotiate the prices already agreed.  Once the tour 
group arrives in Taiwan from South Korea, the tour guide will 
call hotels and try to get a better deal than the one holding 
the reservation.  The tourists in the group can be palmed off 
with some excuse about a change in the itinerary, and the 
tour guide pockets the difference.  This deal depends on the 
ability to pay cash.  Travelers' checks are simply the best 
way to carry cash.  Gallo said he would follow-up with his 
informant in Manila and report the results. 
PAAL