Taiwan probing alleged fraud in Navy shipbuilder’s bank borrowing

Prosecutors are investigating whether fraud occurred when Ching Fu Shipbuilding Co. won a multi-billion dollar contract to build minesweepers for the Navy tried and received a NT$20.5 billion loan from a group of domestic banks. (CNA)

TAIPEI (CNA) – Prosecutors are investigating whether fraud occurred when a company that won a multi-billion dollar contract to build minesweepers for the Navy tried to get a NT$20.5 billion (US$679 million) loan from a group of domestic banks.

At the center of the investigation is Ching Fu Shipbuilding Co. (CFS, 慶富造船), Taiwan’s largest private shipbuilder, which won a contract from the Ministry of National Defense in October 2014, to build six mine countermeasure vessels for Taiwan’s military for NT$34.9 billion (US$1.18 billion).

It’s a part of the nation’s domestic warship-building program.

A criminal investigation by the Kaohsiung District Prosecutors’ Office found that fraud allegedly occurred when CFS was trying to obtain a NT$20.5 billion syndicated loan from a group of nine domestic lenders led by First Commercial Bank.

CFS, with registered capital of just NT$530 million, was told by the lenders that it needed to increase its capital to facilitate the loan application.

To meet the lenders’ requirement, CFS used bogus documents to falsify four capital increments from November 2014 to May 2016 to boost its capital to NT$4 billion, the investigation showed.

It used false receipts and contracts signed with four companies that only existed on paper and were registered overseas, the investigation revealed.

That enabled CFS to successfully obtain funds totaling US$67.33 million from the lenders from March 2015 to November 2016.

CFS also received transitional funding totaling US$7.1 million in 2015 using similar methods, the investigation showed.

First Commercial Bank said that NT$15 billion of the NT$20.5 billion promised by the lenders, has already been paid to CFS.

Taiwan’s Cabinet on Thursday issued its report on the investigation and indicated there were flaws in the Ministry of National Defense’s procurement process and the arrangement of a syndicated loan by state-run banks.

The Cabinet investigation report said that the defense ministry was negligent in awarding the contract to the company without following proper tendering procedures.

It said First Commercial Bank also failed to accurately assess CFS’ financial health, its debt paying ability and its ability to fulfill the contract to build minesweepers before making payments, according to the report.

The Cabinet investigation also found that NT$4.93 billion from the syndicated loan had been transferred to Hong Kong, Macau and Singapore through five shell companies that CFS claimed as its suppliers, and NT$1.3 billion was remitted back to the accounts of CFS affiliated companies.

A Cabinet investigation task force suggests in the report that Tsai Ching-nain (蔡慶年), the chairman of First Commercial Bank, the lead lender of the loan, be removed and that Taiwan’s judiciary should find out who in the defense ministry and the bank should be held accountable for their mistakes, said Deputy Premier Shih Jun-ji (施俊吉).

The Cabinet said it will refer the case to prosecutors for further investigation.

The Kaohsiung District Prosecutors’ Office, which is handling the probe, said it will focus its investigation on the cash flow of CFS.

Asked about this case by reporters accompanying her on an overseas visit, President Tsai Ing-wen (蔡英文) said in the Solomon Islands on Thursday that it will be a professional decision rather than a political one when asked whether the defense ministry will seek another contractor to replace CFS as the company might not be able to fulfill the terms of the contract due to financial fraud allegations and technical problems.

Tsai added it will be up to the Navy to decide whether to keep CFS as the contractor, based on professional assessments.

However, Tsai stressed the Presidential Office’s stance on the matter is in line with the Cabinet’s.

Meanwhile, political parties across the spectrum on Thursday expressed support for further investigation into the case. 

By Chiu Po-sheng, Ku Chuan, Lu Hsin-hui and Evelyn Kao