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KMT's assets come under fresh scrutiny

TAIPEI -- On Feb. 1, Taiwan will swear in its first legislature controlled by the Democratic Progressive Party following the landslide defeat of the governing Kuomintang (KMT) in January's presidential and legislative elections. Top of the agenda will be the revival of a draft law that would allow President-elect Tsai Ing-wen's government to investigate assets and businesses controlled by its defeated rival.

     The DPP has been calling for more than a decade for a full inquiry into claims that the KMT illegally seized assets when it took control of Taiwan after the defeat of Japan in World War II. "The issue of the KMT's assets is not only about Taiwan's transitional justice, it also damages democracy in Taiwan, as it creates unfair competition," Tsai told local media on Jan. 20, saying that her government will prioritize the issue.

     Tsai seems to have substantial public backing. A survey by the Taiwan weekly magazine Business Today published on Jan. 21 showed that 67.4% of respondents said that any illegally acquired KMT party assets should be returned to their rightful owners. Among pro-KMT respondents, 53.7% supported that proposition. 

     As a first step, Tsai has called on the KMT to stop selling assets. Tsai said during her presidential campaign in December: "I suspect that [the KMT] is selling the party assets with the intention of avoiding examination and supervision of the new legislature after the election, and therefore I call on KMT chairman Eric Chu to refrain from selling party assets prior to the election of the new legislature and the passage of legislation on political parties and party assets."

     The KMT has been actively shedding assets in the last few months. In mid-December, the party advertised the sale of 26 plots of land in addition to shares in a hotel in Palau, a small Pacific island state. According to local media, the sales have now been postponed indefinitely. In early December, the KMT announced that it would donate seven plots of real estate to local governments. Before that, a KMT-linked company donated 90 million New Taiwan dollars ($2.67 million) to establish three foundations. Many other KMT assets have been placed in trusts, removing them from the party's direct control.

     The KMT's current assets include Central Investment Co., an investment vehicle, and Central Pictures Corporation, a movie company, as well as various properties belonging to party headquarters and local chapters. The KMT has tried to sell Central Investment via public bidding without success, and the party said there were no full-time KMT officials on the company's board of directors. It said that income from Central Investment and the sale of assets was used to cover personnel costs and office rents.

The erstwhile KMT HQ opposite the Presidential Palace in Taipei. Its assets under ever closer scrutiny, the KMT sold the building to the Evergreen Group in 2006. (Photo by Klaus Bardenhagen)

     The KMT also said that it had already returned all properties or assets seized illegally to relatives of the former owners, or to local government authorities where the assets were located. Chu, who was the KMT's presidential candidate, pointedly accused the DPP on Dec. 19 of habitually using the issue to divert attention from other policy issues. "The KMT's party assets are not her [Tsai's] automatic teller machine," he said. On Dec. 28 Chu stated that: "It is our goal to give away remaining party assets for the welfare of the public, with the exception of those reserved as retirement funds for party staff."

After selling the old HQ, the KMT moved to this smaller building on Taipei’s Bade Road.

"One of the richest"

The KMT is widely believed to be one of the richest political parties in the world. After KMT leaders fled China for Taiwan in 1949, having lost the Chinese civil war to the Chinese Communist Party, the party was said to have accumulated wealth by confiscating the local assets of Taiwan's former Japanese rulers. The KMT is said to have used those assets to create a business empire, which expanded in the following decades.

    "We lack a law prohibiting political parties from running for-profit businesses, which is precarious given that politicians have lots of sensitive information they can make profit with in the stock exchange at the expense of the other investors," said Su Yen-tu, an assistant research professor at Academia Sinica, Taiwan's leading research institute. Su researches democratic law. "The KMT thinks it took care of this by putting all its assets into trusts, but the problem is that the party can still enjoy the revenue from these trusts," he added.

     No one knows for sure how wealthy the KMT is. The KMT's most recent financial report, filed to the Ministry of Interior, stated that its assets totaled NT$26.8 billion in 2015. However, that figure is substantially lower than former President Ma Ying-jeou's estimate in 2005 -- while he was KMT chairman -- that the party's assets totaled NT$100 billion. Even Ma's figure paled in comparison with former KMT treasurer Liu Tai-ying's estimate in the 1990s that the party held assets worth approximately NT$200 billion.

     Hu Sheng-cheng, a prominent Academia Sinica economist who is expected to hold a leading position in the Tsai administration, said the discrepancies could be accounted for by differences between the treatment of legal assets and other assets, and by the use of different valuation methods. "Nonetheless, the value of the party's known assets easily exceed dozens of billions of Taiwan dollars, so that they should be independently audited," Hu said.

The New World Movie Theater in Taipei’s Ximenting district was one of the several Japanese-owned theaters that were taken over by the KMT . It was held by the KMT-affiliated Central Pictures Corporation until 2005. (Photo by Klaus Bardenhagen)

     When the DPP previously held the presidency, from 2000 to 2008, President Chen Shui-bian submitted a draft law to facilitate the return of allegedly ill-gotten KMT assets to their rightful owners. However, the legislation failed to pass, defeated by the KMT's legislative majority. A jurist who was instrumental in crafting the draft act said Tsai's attempt to legislate might also face obstacles.

     "Yes, they will have the majority to pass the Act, but we must factor in the possibility of the KMT filing a constitutional complaint," said Chen In-Chin, director of the National Central University's Graduate Institute of Law and Government. "After all, all current constitutional justices have been appointed by Ma Ying-jeou," he added.

     There are 15 constitutional court justices, five of whom will retire when their terms end this year. These will be replaced by the DPP administration, but the constitutional court's Vice President Su Yeong-chin, a high school friend of Ma, has already said that the draft law is unconstitutional. "The longer this all takes, the more of the ill-gotten assets can be moved abroad," said Chen. 

     Chen and Su said that Taiwan should follow Germany's example. After the unification of East and West Germany, assets illegally seized by East Germany's Socialist Unity Party were returned to their rightful owners, if they could be found, or distributed to districts in eastern Germany.

     "This is how the Germans did it, but I doubt our constitutional court will allow Taiwan to follow suit," said Chen. "While the DPP controls the actual legislature, the constitutional court is effectively Taiwan's second legislature, and that does not bode well for the DPP's quest to solve this tedious KMT asset issue [quickly]," he said.

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