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Monday, November 20, 2006

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Institutions and Slush Funds

I've been talking recently about the problems inherent in having officials who get slush funds from the government that they can put in their personal accounts, but the Chen/Ma Slush Fund Affair also highlights another issue so common in Taiwan: unclarity of laws and conflicting regulations. The pro-Green Taipei Times today had a commentary from Liu Wen-shi, an adviser of the Ministry of the Interior and executive secretary of the ministry's Laws and Regulations Committee. He noted:
This means that the key to this case is what the law demands of the president. This is also the point that society hopes the courts will clarify. However, all we have heard are suspicions surrounding one receipt, or where another receipt ended up.

The indictment is an impressive 30,000 characters in length, but only a little more than 100 or so address this issue.

Moreover, the only basis referred to is the Management Guidelines for The Disposal of Expenditure Vouchers (支出憑證處理要點). No law is cited, nor is any jurisprudential explanation given. Indeed, in this "legal" document with such a serious impact on the reputation on a head of state, we do not even see the word "law."

The predecessor to the management guidelines -- rules for certification of expenditure vouchers (支出憑證證明規則) -- was established by the Ministry of Audit in 1989 based on the Audit Law (審計法).

In 2002, however, authority was transferred to the Directorate-General of Budget, Accounting and Statistics (DGBAS), which replaced the rules with the management guidelines that were merely a set of administrative regulations. Not only did this document lack legal authority, but the method by which a budget should be compiled, and how expenses should be verified and written off, was left entirely to the discretion of the DGBAS.

In this case, the basis for the state's right punish improper use of the fund is a procedure that allows budget and accounting officials to make changes and adjustments with little notice.

Leaving aside the issue of whether this infringes on the basic principle that delegated authority should have a clearly defined source, even if the guidelines were to be considered a link in the accounting system mentioned in the Accounting Law (會計法), and even if we look at item three in the management guidelines, which say that "[the person] applying for expense reimbursement should ... vouch for the truthfulness of the actual expenditure," the guidelines do not restrict reimbursements on the basis of invoices alone.

Any receipt or document received as proof of an expense is acceptable. In particular, the guidelines' statement of purpose indicates that they are concerned with substance and not with form. In other words, the actual existence of vouchers is what is important, and not the kind of voucher. This is also the viewpoint expressed in the indictment.

One of the consequences of living in a society where there is no rule of law is that the law is often murky, because it is used as a club to punish those the authorities may not like. A legacy of the KMT era is this lack of clarity and conflicting laws, as well as weak enforcement mechanisms, overlapping jurisdictions, and feeble administrative and legal institutions (if you have a chance see Kennedy and Guo's excellent article in this month's AmCham Topics on judges. Kennedy also has a good article on prosecutors in the Dec Taiwan Review). In the authoritarian era institutions were weak because individuals were powerful; if you wanted to know what to do, you got a directive from the Authoritarian-in-chief. Now individuals are (rightly) constrained by laws, but institutions remain weak. In the Chen case we see all this at work -- the rules were drafted by the Budget Office and are only weakly related to the Accounting Laws, they are administrative regs, so it is arguable whether they can be regarded as "laws", and so on. The second-to-last paragraph above, with its cascade of "even if..." shows how tenuous the legal case is against Ma and Chen.

The confusion is also expressed in this Taipei Times article on the differing views of the budget office and the auditing ministry:

Acting on the claim made by fashion designer Ligi Lee (李慧芬), who alleged in June that the Presidential Office submitted fake receipts to gain reimbursement from the fund, the Ministry of Audit sent auditors to the President Office to investigate the fund's use.

After four visits in two months, the ministry reported to the Taiwan High Prosecutors Office in July that it suspected the Presidential Office of misusing the fund.

The ministry also reported to the Control Yuan, complaining that the Presidential Office had obstructed its auditing process by refusing to provide documents it deemed sensitive and confidential.

The ministry also said it was innappropriate for the Presidential Office to assign someone who was not a certified accountant to handle the special account.

The Directorate General of Budget, Accounting and Statistics (DGBAS), however, has a different view of the nature and function of the fund.

DGBAS defined the fund as a "special fund" and "secret fund" and as such it is not necessary to produce receipts or invoices if the fund is used for confidential purposes.

Accounting and Statistics Director-General Hsu Jan-yau (許璋瑤) said his department did not send auditors to check on the use of the fund because it "trusted and respected the national leader."

Chen has said that it was unfair to hold him accountable for the fund's poor controls since he merely followed the practice exercised by his predecessors.

Shih Cheng-feng (施正鋒), a professor at Tamkang University's Department of public administration, agreed that Chen should not be held solely responsible for the ill-designed system, but the administration should have taken the initiative to change the modus operandi as soon as it discovered the flaw.

All this then comes back to the problem of "order" -- if only we had clearer laws, these things wouldn't have happened. The problem is not clarity of laws, but the fact that politicians have access to special accounts in the first place. Why do 6,500 officials have what are essentially personal slush funds? Ever wonder why the bureaucracy loves the KMT so much? Now you know: the government showered money on favored bureaucrats and winked when it disappeared. Does the system lead to corruption? Silly question.....

Meanwhile, Kenneth Lin (林向愷), an economics professor at National Taiwan University, criticized the Cabinet's new measure requiring receipts detailing all expenditures from the funds as "inflexible" and "a step backward."

Chen Chun-kai (陳君愷), an associate professor of history at Fu Jen University, agreed, saying it is a common practice to use fake receipts to claim reimbursements from government funds.


Observe how the debate is over what kind of supervision the slush funds should have, not whether there should be such things in the first place. Also of interest to those interested in the political protection Ma gets from his buddies in the bureaucracy is the Ministry of Audit's initial failure to find anything wrong with Ma's receipts and to certify them as OK.

Finally, the Chen-Ma affair illustrates, as always, official impunity at its finest. For the last couple of days the pro-Green Chinese language Liberty Times has been kvetching about the fact that KMT Chairman Ma Ying-jeou and his receipts are being investigated by a prosecutor who is the mayor's good friend:

Commentators yesterday questioned the impartiality of the prosecutor investigating the alleged misuse of Taipei Mayor Ma Ying-jeou's (馬英九) special allowance fund, saying the investigator's friendship with the mayor created a conflict of interests.

Prosecutor Hou Kuan-jen (侯寬仁) should hand over the investigation to another prosecutor, the experts said.

"Ma was the witness at Hou's wedding ceremony, which indicates their good relations," senior adviser to the president Peng Ming-min (彭明敏) told the Chinese-language Liberty Times,(the Taipei Times' sister newspaper) yesterday.

Peng said that according to the Criminal Procedure Code (刑事訴訟法), prosecutors should avoid involvement in an investigation if there is a concern of bias. He added that he was surprised that Hou has not applied to transfer the investigation to another prosecutor.

Lin Ching-tsung (林慶宗), a prosecutor with the Kaohsiung branch of the Taiwan High Court Prosecutors' Office, yesterday told the Taipei Times that although the Criminal Procedure Code requires prosecutors to transfer an investigation when there is a risk of bias, the law does not clearly define what kind of situations prosecutors should avoid. Therefore, he said, opinions often differ on the issue.

Peng Ming-min, in case anyone has forgotten, was the DPP presidential candidate in 1996 and is one of the most important figures of the old democracy and independence movement. He seems to have faded from the public eye...

...meanwhile we have the prosecutor refusing to refuse himself in what appears to be a clear case of appearance of a conflict of interest. In Chinese culture it is shame, not guilt, that acts as the negative motivator, and the DPP and the Green press are clearly out to shame the prosecutor into proper behavior.

Good luck!

(crossposted at The View from Taiwan)

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