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Taiwan's Dirty Business

This article originally appeared in the April 1997 issue of ASIA, INC.

Triads have creamed off billions of dollars from infrastructure projects in the 1990s. The government has launched a high-profile crackdown. Corporate Taiwan will be more impressed when corrupt high-level legislators start going to jail.

The phone call woke Regis Chen at 2 a.m. Chen, the chairman of Taiwan's state-owned BES Engineering Corp., drowsily heard a monotone voice on the line. "Mr. Chen? It's time you bought coffins for yourself, your wife and your children. We offer the best coffins in Taiwan. Would you like to see them?" Jolted awake, the businessman yelled: "Who are you?" The line clicked dead.

Chen had few doubts about why he was being menaced that January 1994 morning. BES was bidding to build a $4 billion freeway in Hsipin, northern Taiwan. Its main rival was Chun Kuo Group, owned by Chen Ti-kuo, a politically connected tycoon known to be affiliated with the United Bamboo triad, Taiwan's largest and most feared secret society.

Chun Kuo wanted to make an unchallenged bid for the project, and thus set its own high price. But Regis Chen, a stubborn man with Buddhist ideals, wouldn't make way. "I refused to cooperate," he says. "Who pays [for inflated bids]? The country pays. So do the people."

His stand led to an 18-month blitz of intimidation. Only the day before the phone threat, a muscular young man had strutted into his office without an appointment. "A certain gang doesn't like you, Mr. Chen," snarled the tough. "They know your habits, your routines, where your wife works, where your children go to school. We can take care of all of you in 15 minutes."

Chen was forced to engage private bodyguards round the clock, and a couple of times sought police protection. He was especially distraught when he discovered that his subordinates were secretly cooperating with Chun Kuo. Chen eventually decided he was fighting a war he couldn't win and quit BES Engineering in July 1995.

Without any rival bids to contend with, Chun Kuo was awarded the freeway contract. Yet Chen Ti-kuo's victory was to prove his undoing. Parts of a tunnel on the Hsipin expressway collapsed in January 1996, leading to a government investigation into allegations that Chun Kuo had skimped on construction costs and bribed government officials. Chen was extradited in November from Singapore, where he had fled, and now is in jail.

Chen Ti-kuo's arrest was part of a high-profile campaign code-named Operation Chih Ping (Operation Clean Sweep) that authorities launched last August to flush out organized crime. Within a few months, the screws were tightened further with the passing of an Organized Crime Prevention Statute and an Anti-Hooligan Law. At stake, says Minister of Justice Liao Cheng-hao, is Taiwan's political and economic future: "Our goal is to destroy the organized criminals. We must succeed. If we don't, Taiwan will have no hope."

The United Bamboo is scuttling for cover, with many of its foot-soldiers either arrested or giving themselves up to police and its leaders in hiding in China, Hong Kong and Macau. Zhang An-lo (aka White Wolf), honorary godfather of the triad, lambasts the government's campaign. "These brothers may not use conventional or legal methods in the construction industry," Zhang admitted in an exclusive interview with Asia, Inc. in a five-star hotel suite in China. "But politicians involved in construction also rig bids. So why sweep the brothers out?"

Battle lines have been drawn. On one side is the Kuomintang (KMT), which has ruled Taiwan since Generalissimo Chiang Kai-shek's army fled there from mainland China in 1949. It is trying to discard its short, mainly shabby history in the island state and reinvent itself under President Lee Teng-hui as a model democratic party. On the other side are secret societies that have grown from often-honorable roots into parasitical billion-dollar empires.

To many of the KMT's critics, however, the anti-gang crackdown is purely cosmetic. The ruling party, they say, is too heavily indebted to the triads -- and has too many of them in its own ranks. Until recently, it needed them to mobilize votes. In return, the secret societies grew rich from gambling, loan-sharking and prostitution.

Even more lucrative were the rake-offs from infrastructure projects, where the web of political and business corruption is spun most thickly. United Bamboo's Zhang, who left Taiwan last December, alleges that politicians and construction conglomerates were rigging bids on public-works projects long before triads came on the scene, adding: "They're sweeping out the brothers while covering up their own crimes."

According to some estimates, Taiwan's triads and crooked officials and politicians together have siphoned off $26 billion in the past six years from public-works projects, around 30 percent of $87 billion spent by the government. Awash with cash, the secret societies have barged into other areas of Taiwan's business life. Last year, gunfire was exchanged by rival gangsters at a shareholders' meeting of Taiwan Pineapple Group, a major canned-food producer. Some companies also use triads to arbitrate disputes, rather than depend on a slow judicial process.

As a result, the rule of triads has become almost as powerful as the rule of law in corporate Taiwan. In the construction industry, businessmen not prepared to pay kickbacks lose out on contracts, or they end up working as subcontractors on thin margins. Sometimes, with public-works projects, so little money is left that quality and safety standards are seriously compromised.

Paul Kung, vice president of Pacific Construction, Taiwan's largest private-sector builder, says his company was regularly nudged out of the bidding for public-works projects by rivals controlled by the United Bamboo. "Our principle now is that if we believe the triads are involved, we don't want to be involved," says Kung. "We don't see this as a difficult principle, but as the right principle. We'd rather not be involved than cooperate with the triads."

While Kung welcomes Operation Chih Ping, others point out that the dragnet has failed to trawl in any national legislators with suspected underworld ties. Yet even by the government's own conservative estimates, 10 percent of the members of the national legislature have criminal links. (That figure rises to 20 percent for provincial legislators and up to 33 percent for all elected officials at county level.)

Lin Kuo-tung, the deputy commissioner of criminal investigation at the Bureau of Taiwan's National Police Administration, insists that nobody is being protected. His message to the triads: "We don't care what background you have, whether you're a KMT member or what -- if you've got a criminal background and we have evidence of it, we'll arrest you."

White Wolf Zhang says the clock can't be turned back. "Many brothers are now in the stock, finance and construction industries," says the honorary godfather, who holds five bachelor's degrees, three from American universities and two earned while he served a 10-year sentence at the U.S. federal penitentiary at Fort Leavenworth, Kansas, for conspiring to buy heroin. "Many are now doing legitimate business. Where do you want them to go back to? To prostitution, to gambling and to numbers rackets?"

The United Bamboo was founded 40 years ago by a handful of teen-aged sons of senior officers in Chiang Kai-shek's KMT army who had encamped in Taiwan rather than be crushed by Mao Zedong's advancing Communists. Disenchanted by the humiliation of their fathers, the young rebels joined forces to fight other gangs along Bamboo Forest Road on the outskirts of Taipei.

During martial law imposed by President Chiang Kai-shek, and continued by his son Chiang Ching-kuo, the United Bamboo faced little official trouble as it branched into gambling dens and loan-sharking. A one-time leader, Chen Chi-li (aka Dry Duck), socialized with the sons of Chiang Ching-kuo, and earned the triad international infamy when he assassinated Taiwanese dissident Henry Liu in San Francisco in 1984. Underworld sources say Chen was trying to curry favor with the KMT and Taiwan's intelligence services and was not on United Bamboo business.

As the United Bamboo moved into construction projects in the 1990s, the sight of its foot-soldiers in their signature outfit of black suit, white shirt, black tie and sunglasses was enough to scare off many legitimate builders. At its peak in the early 1980s, United Bamboo had up to 40,000 members in Taiwan, but intermittent police crackdowns have cut the numbers to 10,000. Overseas cells operate in the U.S., Canada, Australia and Europe, and throughout Asia.

Unlike Japan's yakuza or Italy's Mafia, the United Bamboo does not have a strict rank-and-file. Twenty-four tongs are each led by a da ge or "big brother," with membership comprising gangland enforcers and individual businessmen. "In Taiwan, brothers may be businessmen," says Zhang. "Businessmen may be brothers." Many went to the same schools, learned from the same martial arts master, and ended up marrying each other's sisters.

Mutual benefits and obligations underpin these relationships. Brothers and businessmen may or may not do business with each other but they turn to each other in times of crisis. All pay homage to Zhang, who was "recognized" by Taiwan's triads as their "opinion leader" in 1995. In fact, he is held in such esteem that businessmen ask him to help settle disputes. To show their respect, many restaurants in Taichung in central Taiwan and in Taipei serve whiskies named "Dances with Wolves" and "Wolf Legend."

With his Italian silk-cut suits and ties, Zhang, 48, oozes sophisticated charm, switching between Chinese and English with an easy fluency. Only his business card suggests anything out of the ordinary: The silhouette of a wolf accompanies the legend "Wolf Zhang, president." President not of United Bamboo, that is, but of the Taiwan-based Strategy Group, an investment company with many ventures, including one in construction.

Before he left Taiwan, White Wolf was a popular figure on TV talk shows and in newspapers and magazines, acting as an advocate for all of Taiwan's secret societies. Now, under the Anti-Hooligan Law passed last December, anyone who is a member of a so-called hai dao bang pai (black society) can be arrested. "You shouldn't say that just because I'm a brother, I'm a criminal," says Zhang. "If I didn't commit a crime, I'm not a criminal."

Secret societies have been a tradition in Chinese culture for thousands of years, Zhang says, and Taiwan will never succeed in wiping them out. Neighborhoods are kept clean of petty crime, he continues, with violence meted out selectively, to deserving targets and not to ordinary members of the public.

Nor will he accept that Taiwan's triads can be compared to the Mafia as it operates in the U.S. or Italy. For a start, they do not deal in drugs, the godfather says, insisting that he was innocent of the heroin charges that landed him in jail. Zhang's associates say he was targeted by Taiwanese intelligence agents, aided by the U.S. Federal Bureau of Investigation, for forcing the KMT to admit its role in the slaying of Henry Liu.

"Yes, secret societies have been a part of Chinese history," says Taiwan's popular Minister of State Ma Ying-jeou. "They have their own justice. But that type of justice is part of an agricultural society. We are an industrial, commercial society today. You can't take justice into your own hands. The days of Robin Hood are over."

Taiwan's secret societies, according to Zhang, now are being made scapegoats by President Lee, though he had relied on them to help him to power in 1987 on Chiang Ching-kuo's death. Chao Yung-mau, a professor of political science at the National Taiwan University, agrees that Lee initially was indebted to the triads, but says he needed such allies when he inherited a party still dominated by the sons of mainlanders.

Lee, an indigenous Taiwanese, like 85 percent of the population of 21 million, swept away much of the Chiangs' repressive state apparatus and purged many family loyalists as part of a reform process that led to multi-party democracy. However, the KMT was more practiced in avoiding or rigging elections than it was in commanding popular support. To stave off a mounting challenge from the newly formed Democratic Progressive Party, the KMT enlisted bosses of indigenous Taiwanese triads (known as ge tous) who through bribery and intimidation could deliver the votes at precinct level.

In exchange for the allegiance of the secret societies, underworld sources say, Lee allowed them to get rich off public-works projects and land rezoning -- with much of the money recycled back to corrupt officials and politicians. But the United Bamboo itself started to become a political force, according to Zhang, rallying opposition to Lee's supposed backsliding on the once-hallowed goal of unification with the mainland. The attitude of KMT politicians was, he claims: "You can help me get elected. But if you run for elections, I don't like that." Until the government's anti-triad campaign, Zhang himself had been urged by his followers to run for Taiwan's legislature.

Joe Motheral, vice president of Parsons Overseas Co., a U.S.-based engineering consultancy with annual revenue worldwide of $1.5 billion, says corruption was much less of a problem when he arrived in Taiwan 16 years ago. "I thought the business environment was good then," says Motheral, who was involved in building the North-South Freeway, Taiwan's biggest road project of the time. Although he lauds Taiwan's shift to democracy, he says ruefully: "Decision-making was probably more clear with an authoritarian government."

Minister of State Ma admits that many politicians take money from tainted sources. "I believe in any democratic country you can't separate money and politics," he says. "If you want to be elected you need money." So much money is required to win public office that candidates are financially obligated to their backers. "They get elected and as a result they have IOUs," he says. "Not every elected official is this way. We have many good elected officials. Our goal is to sift out the bad elements."

Many voters came to expect hundreds of dollars, as well as being wined and dined, for casting their vote for the "right" candidate, who usually (though not always) stood on the KMT ticket. Triads soon padded their bank accounts from the commissions they received for distributing the largesse and mobilizing the vote, earning up to $4 million per county per election. By the early 1990s, many triad leaders were keen to run for election themselves.

The reasons were obvious. According to Justice Minister Liao, "buying" a county commissioner's seat sometimes generates better returns than playing the stock market. To win such a seat often requires giving away a lot of cash, sometimes up to $12 million, but the returns can be threefold.

Once a commissioner takes office, he and his backers can dole out infrastructure contracts at any price they like, in return for big inducements. An even more lucrative avenue is land rezoning. For instance, one ping (3.3 square meters) of industrial or mixed-use land in rural Taiwan could rise in value from $370 to $3,700 if re-labeled for residential development. In Taipei, land values could skyrocket from $111/ping to $15,000/ping on rezoning.

Justice Minister Liao says he is determined to crack down on vote buying. "Most voters have no notion that getting NT$500 or NT$1,000 is wrong," he says with frustration in his spacious guest room in the Ministry of Justice in Taipei. "We tried to arrest many voters. Now we realize we must catch the offending political candidates. We must seize their assets."

Corruption has been especially rampant at the county level, where ge tous have ruled with an iron fist. Particularly notorious was Cheng Tai-chi, council speaker for Pingtung county in southern Taiwan. Cheng and another councilor, Huang Ching-ping, shot dead a rival gangster. The pair were convicted in 1995, and are on Death Row awaiting the result of an appeal.

Before the murder, Cheng had terrorized Pingtung county with his "baseball" team, a group of bat-wielding thugs who attacked anybody who irked their paymaster. When police began to investigate a drug factory owned by Cheng, according to sources, he ordered the local police chief to his office and struck him in the face.

Taoyuan County Commissioner Liu Pang-you, though not a triad member, was equally rapacious, according to underworld sources, demanding a 5 percent kickback on all projects in his prosperous bailiwick. Along the way, he made some murderous enemies. At 8:20 a.m. last Nov. 21, two masked gunmen broke into Liu's mansion. They blindfolded Liu, three guests and five members of his household, tied their hands behind their backs and shot them. Only one survived.

The Liu bloodbath -- for which investigators have yet to find a motive -- raised the stakes in the crackdown on political corruption. Two days afterward, the national assembly passed the Organized Crime Prevention Statute, which debarred anyone convicted of a gang-related crime from running for public office. Under the law, political parties face fines of up to $1.9 million if their candidates or elected officials are charged with gang-related offenses.

Already under way was Operation Chih Ping, launched on Aug. 30 with a pre-dawn raid on the home of Tsai Kuan-lun, leader of a notorious triad, the Four Seas Gang. As Tsai and a group of his bodyguards were being whisked by helicopter to Taiwan's Green Island prison, news footage of his arrest was played over and over on national TV. In the ensuing weeks, police hauled in other suspected gangsters, while the government shut down massage parlors and brothels on Taipei's Lin Sen North Road, the city's red-light district.

The campaign moved up a gear on Jan. 17, when more than 5,000 police officers made 420 arrests, swooping on triad members and other criminals. Deputy Commissioner Lin followed the day's developments from the National Police Administration's headquarters in Taipei. "The [triads] have lots of money," he told Asia, Inc. that day as he sipped oolong tea. "They use a company's name to bid for projects, to provide security and to control the construction industry in Taiwan." When a lieutenant rushed in with a list of those arrested, Lin beamed with satisfaction and patted the younger man on the back.

Other triad members were promised an amnesty if they turned themselves in by Feb. 12. Among the 1,300 brothers who have voluntarily renounced gangland ties were dozens of members of the United Bamboo, including the big brothers of the "Hsiao" (or Filial Piety) tong and the "Heaven" tong, both of which were active in construction bid-rigging.

Paul Lee, president of Global Construction International, is not impressed. "All the government is doing is grabbing a few people and saying the problem is fixed," says Lee, who returned to his native Taiwan in 1993 after studying and working in the U.S. "They are just putting on a show." He says it is not uncommon for winning bids for Taiwanese public-works projects to have a 50-percent built-in profit margin, compared with an average of 5 percent in the U.S.

Taiwan needs to award public construction projects on the basis of open, competitive bidding, says Lee, with both local and foreign builders invited to participate. Currently, foreign contractors are barred from bidding for most government projects and are limited to a few "international tenders." Lee insists: "To not change the system and just arrest these people -- you're not finding the root of the problem."

Michael Wang, vice president of Taiwan Pineapple, says some Taiwanese businessmen turn to the triads because they see them as being more effective at collecting debts than a civil court. "If we rely on the law, it'll take too long," Wang says. Even businessmen who would prefer to go to the police find themselves turning to the triads because the line between the two has become blurred, he says.

"Why do we rely on certain brothers?" Wang says. "Because we often are threatened by other brothers. That's the main reason companies in Taiwan need to rely on triads." Taiwan Pineapple created headlines in September 1996 when gangsters hired by shareholders on opposing sides of a proxy fight exchanged gunfire during an annual meeting. No one was injured, according to Wang.

Taiwan's respected Business Weekly magazine has documented 16 publicly listed companies that have recently turned to a "big brother" for protection in business disputes. Publisher James Jin says listed companies commonly enlist triads to help them gather the necessary votes in proxy fights. Even more companies, however, turn to the KMT or its legislators to arbitrate disputes, for a hefty fee. "In this environment, a normal businessman cannot do business," says Jin.

Regulators can do little to halt the infiltration of triads into listed companies, admits Pang Hsu-yung, deputy chairman of the Taiwan Securities and Exchange Commission. "If a triad uses a legal way to buy stock, we can't do anything about it," he says. "We can't stop them." Many listed companies, for instance, are turning to triad-owned security-guard services to ensure trouble is avoided at annual meetings. "The service the brothers offer may not be that bad," says Pang. "It allows meetings to run smoothly."

Just how serious is the government's anti-organized-crime campaign and will it succeed in cleaning up Taiwan? In his posh hotel suite in China, White Wolf Zhang is adamant: "They can't possibly succeed. If they really want to clean house, they'll have to sweep out their own people first. They can't do that."

Look at the level of people being arrested, says publisher Jin of Business Weekly. No national legislators, not even those with well-known triad ties, have been incriminated, though government officials say they are still gathering evidence. "They take who they can't control, those who have little connection with Lee Teng-hui, and sweep them aside and make them scapegoats," says Jin. "They hope this will decrease their burden -- of having a corrupt past -- for the next election."

BES Engineering's former chairman Regis Chen agrees: "The triads will be around for a long time." Now the chairman of Taipei Rapid Transit Corp., Taiwan's largest public-works project with contracts worth billions of dollars, Chen adds wryly: "That's why I own two bullet-proof vests."

© 1997 by Asia Inc. Ltd.
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