Elva Chuang
The Supreme Court rendered the 108-Tai-Shang-2261 Decision of October 30, 2020 (hereinafter, the “Decision”), holding that the offense of non-arm’s length transaction under Article 171, Paragraph 1, Subparagraph which does not involve a false act without substantive transaction also falls within the scope of non-arm’s length transaction.
(In view of the length limitation of this article, the author only excerpted a portion of the background facts relating to the legal disputes discussed in this article.)
The first background fact of this case: Chairman T of Company A and his son, Supervisory U of Company A, first caused Company A to outward remit US$12.5 million and Company B to outward remit US$7.5 million to the overseas bank accounts they had respectively set up under the pretext of time deposit but the remittances in reality were short-term time deposits. After the certificates of time deposit were obtained, T and U separately remitted the funds of Company A and Company B in the overseas accounts to offshore companies – Company P and Company S. And then U indirectly embezzled the funds wired to Company P and Company S by remitting them to Company Y set up through his friend in mainland China as its capital stock.
The second background fact of this case: V, the legal representative of Company F, was introduced to and became acquainted with Chairman T and General Manager W of Company A. Obviously aware that Company F was not capable of implementing the construction project at issue, V was still willing to serve as a collaborating vendor to handle the planning of the project at issue and invite unwitting downstream vendors to carry out the project. V agreed with Company A in the name of Company F to increase the amount of the construction project, and V falsely added project items in the project contract. The difference amount between the original contract and the contract falsely added on items by V was returned to Chairman A and General Manager W.
Both the first and second background facts involve the legal controversy of whether “the offense of not conducting arm’s length transaction (also known as the offense of non-arm’s length transaction and the offense of conducting transactions detrimental to the company) under Article 171, Paragraph 1, Subparagraph 2 of the Securities and Exchange Law are limited to real trading acts”? Regarding this issue, various criminal divisions consulted by the court hearing this case all agreed that the answer is negative. They cited as their reasons the legislative objectives for the offense of non-arm’s length transaction under Article 171, Paragraph 1, Subparagraph 2 of the Securities and Exchange Law as amended on April 28, 2004, which suggest that to deter the directors, supervisors, managerial officers and employees of a listed company from a trading act which is detrimental to the company and is not arm’s length transaction, and which is suspected to be fraudulent or breach trust in serious violation of the rights and interests of the company and its investors (including the mass investors in society), it is necessary to impose severe punishment. Therefore, the existence of real transactions is not necessary to constitute the crime of this subparagraph to reflect the true legislative purpose mentioned above.
It was held in this Decision that the so-called “transaction detrimental to a company and not complying with the arm’s length transaction requirement” means that the offense is established if any act is detrimental, by its form, to the company in terms of its appearance and substance and is obviously not compatible with an ordinary arm’s length transaction. Although acts such as transfer of benefits and misappropriating company’s assets with a trading act as the means are typical examples, still false acts in the form of transaction but without substantive transaction for the purpose of fraud and breach of trust are also included since their nefarious nature is worse than an offense of non-arm’s length transaction with actual transaction.
Based on the foregoing, this Decision concurs with the legal application opinion in the original decision that the Appellant’s false act with an appearance of transaction only but without substantive transaction also falls within the scope of Article 171, Paragraph 1, Subparagraph 2 of the Securities and Exchange Law, and that the offenders should be penalized for one of the offenses which entails a heavier penalty based on imaginative joinder with the offense of special breach of trust under Subparagraph 3. However, the original decision failed to further compare the scale of the company at that time to explore if the acts caused material damage to the operation or scale of Company A and elected to conclude that the above offenses were constituted by the Appellant. Therefore, the original decision is unlawful for failure to investigate evidence and for insufficiency of grounds.