US embassy cable - 05TAIPEI4439

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 004439 
 
SIPDIS 
 
DEPARTMENT PASS AIT/W, INR/EAP 
 
E.O. 12958: DECL: 11/02/2015 
TAGS: PGOV, PINR, TW 
SUBJECT: THE KAOHSIUNG METRO SCANDAL: HOW HIGH WILL THE 
DAMAGE REACH? 
 
REF: A. (A) TAIPEI 4158 
 
     B. (B) TAIPEI 3793 
     C. (C) TAIPEI 4353 
 
Classified By: AIT DIRECTOR DOUGLAS PAAL, REASON(S): 1.4(B/D) 
 
 1. (C)  SUMMARY.  THE SCANDAL OVER THE KAOHSIUNG METRO THAT 
BEGAN WITH A RIOT BY THAI LABORERS HAS LASTED FAR LONGER THAN 
THE NORMAL TAIWAN MEDIA CYCLE OF 72 HOURS.  SOME ARE 
BEGINNING TO SPECULATE IT MAY EVEN FORCE THE RESIGNATION OF 
TAIWAN'S PRESIDENT. CHARGES OF CORRUPTION AND DAILY 
REVELATIONS OF WHO MAY HAVE BEEN INVOLVED IN THE KAOHSIUNG 
RAPID TRANSIT CORPORATION (KRTC) SCANDAL (REF C) OR OTHER 
INCIDENTS OF ALLEGED CORRUPTION, SEEM NOW TO HAVE PERSUADED 
MANY IN SOUTHERN TAIWAN THAT THE DPP IS RIFE WITH CORRUPTION 
AND IT REACHES ALL THE WAY TO THE TOP.  END SUMMARY. 
 
2.  (C) ON OCTOBER 27, LONG TIME AIT/K CONTACT PAUL CHEN TOLD 
AIT/K HE AND SOME OF HIS MOST INFLUENTIAL CONTACTS BELIEVE 
THAT PRESIDENT CHEN SHUI-BIAN WON'T LAST MUCH LONGER IN HIS 
POSITION.  HOWEVER, HE SAID, THE JUSTICE SYSTEM  WILL NOT 
PUSH HIM OUT BECAUSE JUSTICE CAN'T REACH HIM.  WHAT WILL 
DEPOSE HIM, SAYS CHEN, ARE INTERNAL PARTY POLITICS, 
BUSINESSMEN, A DEPRESSED ECONOMY, AND THE FIRMLY HELD BELIEF 
THAT THE CORRUPTION IN THE PARTY REACHES ALL THE WAY TO THE 
TOP.  ALTHOUGH NOT SPECIFIC, CHEN STATED THAT "SOMETHING IS 
GOING ON" IN THE DPP THAT WILL PUSH CHEN SHUI-BIAN TO STEP 
DOWN.  CHEN FURTHER PREDICTED THAT CHEN SHUI-BIAN WILL BE 
GONE BY MAY 20TH.  IF HE IS, THERE WILL BE A BY-ELECTION.  IF 
HE LEAVES AFTER MAY 20TH, VICE PRESIDENT ANNETTE LU WOULD 
TAKE THE OFFICE OF PRESIDENT TO SERVE OUT CHEN'S TERM. 
 
3.  (C)  WHILE THIS MIGHT BE IDLE SPECULATION COMING FROM THE 
MAN ON THE STREET, PAUL CHEN IS IN A POSITION TO KNOW FAR 
MORE THAN THE AVERAGE PERSON.  AS SON OF A FORMER KAOHSIUNG 
CITY MAYOR AND A MEMBER OF THE SECOND WEALTHIEST FAMILY IN 
TAIWAN, HIS SOCIAL CIRCLES IN THE SOUTH INCLUDE POLITICIANS 
OF ALL STRIPES.  AS A BUSINESSMAN, PAUL CHEN HAS BROAD 
ASSOCIATIONS AROUND TAIWAN WITH BOTH KMT AND DPP BUSINESS 
PEOPLE.  AS A PHILANTHROPIST AND CHAIR OF THE CHEN FAMILY'S 
CULTURAL FOUNDATION, HE IS TIED INTO CULTURAL AND ACADEMIC 
CIRCLES THROUGHOUT THE SOUTH.  HIS REPUTATION FOR BEING 
QUIET, CIRCUMSPECT AND GENERALLY UNWILLING TO DISCUSS 
POLITICS, IS WELL KNOWN.  HOWEVER, THIS TIME PAUL CHEN 
STARTED THE CONVERSATION ABOUT CHEN SHUI-BIAN'S TROUBLES AND 
KEPT IT GOING. 
 
4.  (C) PAUL CHEN'S SUGGESTION PARALLELS WITH AN EARLIER 
PREDICTION MADE TO AIT/K BY PROFESSOR YANG TZE-CHUANG, AN 
ECONOMICS PROFESSOR AT CHENG GONG UNIVERSITY (REF C), WHO 
SAID THAT PREMIER FRANK HSIEH WOULDN'T LAST IN OFFICE PAST 
MAY 20TH.  ON SEPTEMBER 30, YANG INDICATED CHEN SHUI-BIAN 
WOULD PUSH HSIEH OUT IN ORDER TO BLAME HSIEH FOR THE 
SHORTCOMINGS OF THE DPP ADMINISTRATION.  SUCH A MOVE, SAYS 
YANG, IS CONSISTENT WITH PRESIDENT CHEN'S PERSONALITY (I.E., 
HE CAN BE A GOOD FRIEND, BUT HE DOESN'T KNOW HOW TO SOLVE 
ADMINISTRATIVE PROBLEMS). 
 
5.  (C) THE POSSIBLE FORCED DEPARTURE OF CHEN SHUI-BIAN SEEMS 
MORE PLAUSIBLE AS THE PLIGHT OF CHEN CHE-NAN, FATHER OF 
FORMER KAOHSIUNG MAYOR CHEN CHI-MAI AND FORMER SENIOR POLICY 
ADVISOR TO THE PRESIDENT, DEEPENS.  CHEN CHE-NAN WAS EXPELLED 
OFFICIALLY FROM THE DPP ON OCTOBER 29 FOR POSSIBLY VIOLATING 
THE PUBLIC SERVICE ACT BY FAILING TO REVEAL FOREIGN TRAVEL 
WHILE SERVING IN AN OFFICIAL POSITION.  IT IS A BREACH OF 
PROTOCOL FOR TAIWAN OFFICIALS TO TRAVEL ABROAD WITHOUT 
PERMISSION.  THE FOREIGN TRAVEL MAY LINK CHEN CHE-NAN MORE 
CLEARLY TO THE KRTC SCANDAL (REFS B AND C), POSSIBLY BRINGING 
IT ONE STEP CLOSER TO PRESIDENT CHEN.  CHEN CHE-NAN, WHO 
PREVIOUSLY DENIED TRIPS ABROAD, WAS PHOTOGRAPHED WHILE STILL 
PRESIDENT CHEN'S DEPUTY SECRETARY GENERAL GAMBLING IN KOREA 
WITH CHEN MIN-HSIEN, WHO IS NUMBER ONE ON THE HIT LIST OF 
CULPABLE CHARACTERS AS DEFINED BY THE OFFICIAL REPORT 
RELEASED ON OCTOBER 21 BY NOW-ACTING MAYOR YEH CHU-LAN. 
SEVERAL CONTACTS HAVE POINTED OUT TO US THAT GAMBLING IS 
RECOGNIZED HERE AS AN EASY WAY TO LAUNDER MONEY.  FOLLOWING 
THE RELEASE OF THE OFFICIAL REPORT, CHEN MIN-HSIEN TOOK OUT 
PAID ADVERTISING IN MAJOR NEWSPAPERS DISPUTING THE REPORT'S 
CHARGES AND CLAIMED HE HAD EVIDENCE THAT WOULD PREVENT HIS 
BEING MADE THE "SCAPEGOAT" FOR OTHER OFFICIALS INVOLVED. 
 
6.  (C)  PREMIER FRANK HSIEH, ON SEPTEMBER 8, CLAIMED DURING 
A TALK SHOW THAT HE HAD NEVER INTERFERED IN THE FORMATION OF 
THE BOARD OF THE KAOHSIUNG RAPID TRANSIT CORPORATION. 
PRESIDENT CHEN ANNOUNCED, WITHOUT ANY APPARENT PROVOCATION, 
ON OCTOBER 17, THAT HE HAD NO INVOLVEMENT IN THIS SCANDAL AND 
PROMISED THAT HE WOULD RESIGN IF HE WAS PROVEN TO BE 
INVOLVED.  IN AN INTERVIEW WITH SANLIH ENTERTAINMENT TV, 
PRESIDENT CHEN OFFERED TO FOREGO HIS IMMUNITY RIGHTS IF THE 
DPP WOULD ADOPT THE "HIGHEST MORAL STANDARD" TO SET UP AN 
INDEPENDENT COMMISSION TO INVESTIGATE THE KRTC SCANDAL. 
PRESIDENT CHEN'S OCTOBER 30TH APOLOGY TO THE PEOPLE OF TAIWAN 
FOR CHEN CHE-NAN'S ACTIONS AND THE PRESIDENT'S ASSERTION THAT 
THE GOVERNING PARTY WOULD RE-EXAMINE ITSELF BASED ON THE 
"HIGHEST MORAL STANDARDS" HAS DONE LITTLE TO EASE THE ONGOING 
SPECULATION THAT THIS SCANDAL MAY EVEN MORE HEAVILY DAMAGE 
THE DPP. 
 
7.  (C)  EVERY TIME ANYTHING HAPPENS TO CAST A SHADOW OF 
CORRUPTION ON CHEN CHE-NAN, PEOPLE IN KAOHSIUNG  CONNECT IT 
WITH CHEN SHUI-BIAN.  MUCH OF THE CONNECTION, SAY OBSERVERS, 
HAS BEEN GENERATED BECAUSE PRESIDENT CHEN HAS ALWAYS ACTED TO 
PROTECT CHEN CHE-NAN NO MATTER WHAT THE DIFFICULTY.  LAST 
YEAR CHEN CHE-NAN STEPPED DOWN FROM HIS POSITION AS DEPUTY 
SECRETARY GENERAL OF THE PRESIDENTIAL OFFICE DUE TO A 
 
SIPDIS 
BUSINESS SCANDAL IN WHICH CHEN YOU-HAO, A BUSINESSMAN, FLED 
TAIWAN WITH LARGE AMOUNTS OF CASH BORROWED FROM TAIWAN BANKS. 
 AFTER DEPARTING TAIWAN, CHEN YOU-HAO DIRECTLY NAMED CHEN 
CHE-NAN AS THE KEY FIGURE IN ARRANGING A MEETING BETWEEN CHEN 
YOU-HAO AND FIRST LADY WU SHU-CHEN THAT LATER RESULTED IN 
CHEN YOU-HAO'S MAKING A LARGE CONTRIBUTION OF MONEY TO THE 
DPP.  AT THE TIME OF CHEN CHE-NAN'S RESIGNATION, RUMORS 
CIRCULATED IN KAOHSIUNG THAT THEN-ACTING MAYOR CHEN CHI-MAI, 
CHEN CHE-NAN'S YOUNGER SON, HAD BECOME THE "FRONT MAN" FOR 
HIS FATHER IN CARRYING OUT "FAVORS" FOR PRESIDENT CHEN.  THIS 
YEAR, CHEN CHE-NAN STEPPED DOWN AS SENIOR POLICY ADVISOR TO 
THE PRESIDENT IN THE FACE OF HIS SON'S RESIGNATION AS 
KAOHSIUNG MAYOR AND DUE TO ALLEGATIONS THAT HE HIMSELF MAY BE 
INVOLVED IN THE KRTC SCANDAL.  THE MOVE WAS WIDELY 
INTERPRETED IN THE SOUTH AS A DEFENSIVE MOVE BY PRESIDENT 
CHEN, WHO, IT IS SAID, SUGGESTED TO CHEN CHE-NAN THAT HE 
SHOULD RESIGN TO CONTAIN THIS SCANDAL. 
 
8.  (C)  THE STRENGTH OF THIS LINKAGE BETWEEN PRESIDENT CHEN 
AND CHEN CHE-NAN AND THE EFFECT OF THAT RELATIONSHIP IS 
SUGGESTED BY A POLL RELEASED SUNDAY, OCTOBER 30, BY THE 
PRO-BLUE UNITED DAILY NEWS.  THE STUDY FINDS 54 PERCENT OF 
RESPONDENTS SAY THEY DON'T BELIEVE PRESIDENT CHEN SHUI-BIAN 
WAS UNAWARE OF CHEN CHE-NAN'S ALLEGEDLY ILLEGAL BEHAVIOR. 
THE POLL ALSO FINDS THAT 60 PERCENT OF THE 1,117 RESPONDENTS 
WHO WERE INTERVIEWED BY PHONE SAY THEY HAVE LOST CONFIDENCE 
IN THE DPP TO RULE TAIWAN. 
 
9.  (C)  ANOTHER FIGURE IN THIS WEB OF SCANDAL ALLEGATIONS IS 
CHEN CHI-YAO, SON OF CHEN CHE-NAN AND ELDER BROTHER TO FORMER 
ACTING MAYOR CHEN CHI-MAI.  SINCE THE BEGINNING OF THIS 
SCANDAL, KMT LEGISLATOR LO SHI-HSIUNG HAS NOTED REPEATEDLY TO 
AIT/K THAT NO ONE IS LOOKING AT CHEN CHI-YAO, BUT THAT HE IS 
EQUALLY GUILTY IN THE CORRUPTION.  LO CALLS CHEN CHI-YAO THE 
"CONDUIT" FOR ALL THE "BLACK GOLD" OR CORRUPT MONEY FLOWING 
INTO THE CHEN FAMILY FROM THE KRTC SCANDAL.  ACCORDING TO LO, 
CHEN CHI-YAO IS NOT ONLY A GOOD FRIEND OF CHEN MIN-HSIEN, BUT 
ALSO OF MANY, MANY LOCAL KAOHSIUNG CONTRACTORS. 
 
10.  LO SHI-HSIUNG NOTED THAT EARLY ON KAOHSIUNG PROSECUTORS 
REQUESTED A WARRANT TO SEARCH CHEN CHI-YAO'S QUARTERS, BUT IT 
WAS DENIED BY A JUDGE WHO DEEMED IT "TOO POLITICAL"  BECAUSE 
CHEN CHI-YAO LIVES IN THE FAMILY RESIDENCE ALONG WITH HIS 
FATHER.  LO SAYS THE JUDGE REFUSED TO ISSUE THE WARRANT DUE 
TO FEARS THE SEARCH WOULD BE TAKEN AS A DIRECT IMPLICATION 
THAT CHEN CHE-NAN WAS INVOLVED IN THE CORRUPTION.  ASKED WHY 
THE BROTHER HASN'T BEEN NAMED BY THE PRESS, LO SAID THE 
PAPERS FEAR A LIBEL SUIT SINCE THERE ISN'T ANY EVIDENCE 
AGAINST CHEN CHI-YAO AND, UNLIKE HIS FATHER AND YOUNGER 
BROTHER, HE IS NOT A PUBLIC FIGURE.  (NOTE  THE NOVEMBER 1 
MORNING EDITION OF THE CHINA TIMES ON ITS FRONT PAGE ACTUALLY 
NAMES CHEN CHI-YAO AS ONE OF THE PLAYERS TO WHOM PROSECUTORS 
HAVE NOW EXPANDED THEIR INVESTIGATION. END NOTE.) 
 
11.  (C)  DESPITE THE OCTOBER 21 OFFICIAL KAOHSIUNG CITY 
GOVERNMENT REPORT THAT CLEARS FORMER KAOHSIUNG MAYORS WU 
DUN-YI, NOW-PREMIER HSIEH CHANG-TING, AND CHEN CHI-MAI FROM 
ANY FAULT AS CIVIL ADMINISTRATORS IN THE KRTC SCANDAL, IT IS 
IMPOSSIBLE TO FIND ANYONE WHO IS BUYING THE ARGUMENT THAT 
THIS CORRUPTION DOESN'T TOUCH DPP POLITICIANS IN GENERAL. 
WITH THE EXCEPTION OF THE CHAIR OF THE INVESTIGATION, CURRENT 
ACTING MAYOR YEH CHU-LAN, WHO TOLD AIT/K ON OCTOBER 27 THAT 
THE REPORT IS TOTALLY UNBIASED AND DISMISSED ANY SPECULATION 
THAT PRESIDENT CHEN SHUI-BIAN OR PREMIER HSIEH WERE INVOLVED 
IN THE KRTC SCANDAL AS UTTER NONSENSE, THERE IS STILL 
WIDESPREAD DISPLEASURE WITH THE REPORT.  FORMER MAYOR WU 
DUN-YI CURRENTLY A KMT LEGISLATOR AND WHO WAS EXONERATED BY 
THE REPORT, COMPLAINED THAT YEH'S REPORT FAILS TO MENTION 
MAJOR IRREGULARITIES IN THE KRTC SCANDAL.  WU ALLEGES THAT 
POLITICIANS AND BUSINESSES COLLUDED IN THE PROCUREMENT OF 
GRAVEL, FOR WHICH SAND WAS SUBSTITUTED CAUSING GROUND 
COLLAPSES AT KAOHSIUNG METROPOLITAN RAPID TRANSIT (KMRT) 
CONSTRUCTION SITES.  YEH TOLD AIT THAT THE CITY HAS 
UNDERTAKEN SEVERAL CIVIL ENGINEERING SURVEYS TO CONFIRM THAT 
PROPER MATERIALS WERE USED AND THAT CONSTRUCTION WAS FULLY UP 
TO STANDARDS. LOCAL POLITICIANS AND LOCAL POLITICAL OBSERVERS 
BELIEVE THIS OFFICIAL REPORT IS A COVER-UP BY YEH FOR ANY 
ACTIONS HSIEH TOOK RELATED TO THE KMRT AND THE USE OF FOREIGN 
LABOR TO BUILD IT.  THEY FURTHER SPECULATE THE "COVER-UP" IS 
THE ENTRY PRICE YEH MUST PAY TO BE NAMED AS HSIEH'S RUNNING 
MATE IN THE 2008 PRESIDENTIAL ELECTION, IF HSIEH EVER GETS 
THAT FAR.  ACTING MAYOR YEH, HOWEVER, DENIES SHE HAS FURTHER 
POLITICAL AMBITIONS AND INSISTS SHE PLANS TO RETIRE AFTER HER 
WORK IN KAOHSIUNG IS DONE IN DECEMBER 2006 WHEN A NEW MAYOR 
WILL BE ELECTED. 
 
12.  (C)  KMT LEGISLATOR LO SHI-HSIUNG COMPLAINED TO AIT THE 
KMT IS NOT TAKING ADVANTAGE OF THIS SCANDAL AND ITS WIDENING 
CIRCLE TO PUT FORTH A STRONG "DIRECTIONAL" MESSAGE FOR 
TAIWAN.  COMPLAINING THAT CHAIRMAN MA YING-JEOU DOESN'T HAVE 
ENOUGH PEOPLE WHO KNOW WHAT IS GOING ON IN SOUTHERN TAIWAN, 
LO SAID HE HAS TRIED TO APPROACH CHAIRMAN MA TO TELL HIM TO 
PAY MORE ATTENTION TO THIS SCANDAL AND THE OPPORTUNITIES IT 
OFFERS THE PARTY IN THE SOUTH.  UNFORTUNATELY, HE SAID, MA 
DOESN'T TRUST HIM, SINCE HE WAS A STRONG SUPPORTER OF WANG 
JIN-PYNG FOR THE RECENT KMT CHAIRMAN ELECTION. 
 
13.  (C)  COMMENT:  THIS SERIES OF ALLEGATIONS IS INDICATIVE 
OF THE GROWING SENSE AMONG MANY IN TAIWAN THAT THE DPP IS 
HEADING FOR A POSSIBLE CRISIS OF CORRUPTION.  ALTHOUGH THE 
SUGGESTION THAT THE PRESIDENT MIGHT RESIGN IS DRAMATIC, THE 
SOURCE WHO SUGGESTED THE POSSIBILITY IS VERY CREDIBLE.  THE 
STORY IS NOT OVER.  AIT WILL BE SOUNDING OUT DPP LEADERS IN 
BOTH KAOHSIUNG AND TAIPEI TO SEE IF THEIR CONCERNS AND 
EXPECTATIONS TRACK THOSE OF PAUL CHEN.  END COMMENT. 
Keegan