Closing the Central Motion Picture Corporation Case via Administrative File-Closure: Can Prosecutors Withstand Public Scrutiny?

Photo Credit / Solomon203

After over seven years of investigation, the Supreme Prosecutors Office's Special Investigation Division (SID) decided to close the high-profile Kuomintang (KMT) party assets disposal case—commonly known as the "Three Central Enterprises" case—via an administrative file-closure on the grounds of "failing to discover concrete evidence of suspected crimes." Although the SID broke with prosecutorial tradition by issuing a nearly 40-page press release detailing the investigative findings alongside a comparative QA table, it still drew severe criticism, with critics arguing that "the SID used a national crisis to shield the KMT's ill-gotten party assets, and the legal community strongly questioned the timing of the file-closure."

Was the timing of the file-closure wrong? When would a file-closure be appropriate? Such criticism is not worth a second glance! However, from the author's experience as a judge who has tried the Central Motion Picture Corporation (CMPC) case, the prosecution indeed failed to fully clarify the controversies. When the collegiate bench, in which the author served as the designated judge, accepted the private prosecution brought by the CMPC against defendants Wu Ch'eng-lin and two others for alleged forgery, although the three defendants were acquitted due to insufficient evidence, the court still filed a complaint with the Shilin District Prosecutor's Office in 2011 regarding matters discovered therein that were suspected of involving crimes.

First, when Tsai Cheng-yuan, the former chairman of the CMPC, established and increased the capital of Apollo Investment Company in 2001, he immediately transferred the funds out after the share payments were remitted to the company account and capital verification was completed. This modus operandi is identical to offenses violating the Company Act by failing to actually pay up share capital. After the case was indicted by a prosecutor, because the relevant account books had exceeded their retention period, witnesses could no longer remember the details, and Tsai Cheng-yuan presented relevant evidence that he had sold the shares of Apollo Investment Trust Company held by him to Apollo Investment Company, the court consequently acquitted him with finality. Based on the principle that "when there is doubt about evidence, lean in favor of the defendant," this judgment result is acceptable. However, according to the data submitted by the National Taxation Bureau, after Tsai Cheng-yuan sold the shares, the share equity amount declared and paid for securities transaction tax by the parties involved differed from the registered capital of Apollo Investment Company by eight million NTD—meaning the securities transaction tax was underreported. May I ask whether the parties concerned made up for the shortfall in securities transaction tax and accepted the penalty?

Second, regarding the dispute over the management control of the CMPC, the Taipei District Court separately appointed a Certified Public Accountant surnamed Hung as an inspector to examine the business accounts and property conditions of the CMPC. The "General Conclusion" section of the CPA's inspection report stated: "The Central Investment Company's sale of its shareholdings in 2005 was the focus and flashpoint of the CMPC dispute, which harbors startling interests and manipulability," and listed nine major doubts.

Among them, the more significant ones include: 1. After the buyer paid the second installment, the seller transferred all shareholdings. The buyer thus gained full control of the CMPC, capable of operating capital reserves to distribute gratis shares for capital increase and immediately reducing capital to withdraw cash, which was then used to pay the purchase installments for each period—implying that the buyer acquired massive share equity interests with zero investment. 2. Was a cash capital increase at 10 NTD reasonable? Were specific individuals favored through profiteering? 3. The CMPC possessed substantial real estate, and the principal agreement stipulated a profit-sharing clause stating that if the selling price of a certain asset exceeded a certain amount, the seller would be entitled to a share of the profits and held the right of first refusal to introduce others for purchase. The CMPC is a company with a sound accounting system; after it sold its assets and the money entered the company, how could profits be distributed to the seller? Did this imply the existence of under-the-table transactions?

The contents of the report above were issued by a CPA who ought to be fair, objective, and professional, implying that doubts existed regarding the CMPC's equity transactions and the capital increase and reduction decisions made by Tsai Cheng-yuan after taking charge of the CMPC, which violated general transaction practices and ordinary business norms. Bound by the principle of "no action without a complaint," the court could only transfer the case to prosecutors to investigate and clarify the truth. Who would have expected the SID's press release to state: "The CMPC's capital increase through capital reserves for gratis share distribution, followed by a capital reduction of the same amount from those distributed shares to obtain cash for paying share installments... are recorded and testified to in court by CPA Hung [omitted character] Te, the inspector of the CMPC appointed and recognized by the Taipei District Court on June 12, 2007, and no illegality was found in the relevant transaction process." Can reasoning like this withstand scrutiny? Has it clarified the CPA's doubts?

Did anyone commit a crime in the CMPC case? The author does not know. However, closing the case with procedural controversies and insufficient reasoning makes it difficult to silence public criticism! As early as 2012, the Control Yuan passed a corrective measure pointing out that the Ministry of Justice's administrative rules permitting other cases to be closed via administrative file-closure not only violates the principle of legal reservation, but also hinders the defendant's right to defense, the witness's right to refuse testimony, and the complainant's litigation rights, while resulting in the defect of various prosecutor's offices delaying cases under pretexts and leaving them unclosed. How did the administrative file-closure system—which was originally developed to resolve the problems of abusive litigation and petty offenses faced by local prosecutor's offices—become the closing method utilized by the SID after a lengthy investigation? Could it be out of fear that once the evidence is laid bare, it cannot withstand public scrutiny?

Chinese society has long been immersed in the culture of Judge Pao. The reason the prosecutorial system was introduced lies in the recognition of Montesquieu's maxim: "To prevent the abuse of power, it is necessary that power checks power." Therefore, it is necessary to separate the judiciary and the prosecution, allowing courts and prosecutors to mutually supervise and keep each other in check. Today, without any judicial review, a prosecutor's non-indictment disposition possesses final and conclusive binding force, the legitimacy of which has long been heavily questioned; yet an administrative file-closure does not even provide a formal public announcement or written materials to the parties involved, and the SID actually used it to conclude the long-criticized Three Central Enterprises case! Who says this is appropriate? Prosecutors, if you consider your investigations to be complete, and at the same time wish to spare the parties from facing the risk of prosecution again in the future, why not boldly issue an indictment or non-indictment, and subject yourselves to the scrutiny of all sectors of society!