You sweat for every dollar you earn.  When it comes to depositing your money for saving or other purposes, the last thing you want to see is putting your hard-earned money in the wrong hands.  In order to protect the right and interests of the depositors who may be caught by illegal deposit-taking activities,[1] the Banking Act[2] in Taiwan (the “Banking Act”) prohibits any deposit-taking activities conducted by anyone who is not a bank.[3]  Under Article 29 of the Banking Act, no one but banks may “accept deposits”[4] from the general public.[5] 
 
On the other hand, from time to time some entrepreneurs hoping to attract investors and raise funds from the general public would probably consider offering an investment agreement promising to pay high levels of return to the investors.  However, entrepreneurs considering doing so in Taiwan should be precautious before carrying it out because several incidents reported by the news media in recent years[6] show that, under some circumstances, such an offering would arguably engage in illegal activities prohibited under the Banking Act.[7]  For instance, in one of the incidents reported by the news media last year,[8] the Taiwan Taichung District Court found a defendant guilty of violating the Banking Act because the defendant, who is not a bank in Taiwan, (1) offered various saving plans to the general public and accepted funds from the investors, who became members participating in the aforementioned saving plans; and (2) granted each investor member who successfully recruits a new member a traveling allowance in an amount which may be up to ten percent (10%) of the principal paid in by each investor member as an incentive for encouraging each investor member to recruit new members.[9] 
 
Under Article 29-1 of the Banking Act, “accepting investment . . . or obtaining capital from the general public by agreeing to pay or paying a bonus, interest, share dividend interest or other reward[s] in an excessive amount” (an “Unauthorized Fund-Raising”) is deemed an act of “accepting deposits.”[10]  As a result, any person conducting an Unauthorized Fund-Raising violates the Banking Act’s prohibition on illegal deposit-taking, is subject to a criminal penalty of imprisonment, and may be fined a criminal fine as well.[11]  According to the legislature, Article 29-1 of the Banking Act was amended to safeguard the right and interests of the general public investors, and to protect the general public investors from the risk of losing their money when they are lured by promises of high levels of return.[12]  The courts in Taiwan have held the same view for a long time as well.[13]
 
The question of “whether the amount of reward (which could be bonus, interest, share dividend interest or any other forms of reward) agreed to pay or paid is excessive” is critical to the finding of the courts on whether a defendant commits an offense under the Banking Act by conducting an Unauthorized Fund-Raising in Taiwan.[14]  In determining whether the amount of reward agreed to pay or paid (the “Agreed Return”) is excessive, a long-standing practice is that the courts will take into consideration of the economic and social development of the society, and compare the rate of the Agreed Return with the average interest rate offered by financial institutions on certificate deposits, the interest rate generally offered by the bid society contracts among civilians, and the interest rate on other kinds of debt.[15]  The courts would likely find the Agreed Return excessive when the rate of the Agreed Return is way much higher than the average interest rate offered by financial institutions on certificate deposits, the interest rate generally offered by the bid society contracts among civilians or the interest rate on other kinds of debt.[16] 
 
In one of its recent decisions, 108 Tai Shang 406,[17] the Supreme Court in Taiwan (the “Court”) held that an Unauthorized Fund-Raising constitutes an offense in violation of the Banking Act as long as the defendant offers to pay or already paid, for whatever reason or cause there may be, an excessive amount, regardless of whether there is an agreement between the parties on the payment of an excessive Agreed Return or the return of the paid-in principal.[18]  In 108 Tai Shang 406, the Court affirmed a lower court’s finding that the defendants committed an offense in violation of the Banking Act through conducting an Unauthorized Fund-Raising because the business conducted by the defendants is awkwardly different from other normal transactions with a quid pro quo in today’s society, and the total amount which will be paid to the investors is way more than the principal paid in by the investors.[19]  Business promotion practices, such as offering a discount, giving gifts, and holding a lottery, are commonly seen in today’s society.[20]  However, it is uncommon to see that a business promises to pay the investors with a fixed amount of high levels of return at designated times where the total amount which will be paid to the investors is foreseeably way more than the total amount of the principal paid in by the investors.[21]  In 108 Tai Shang 406, the defendants’ business is awkwardly different from other normal transactions with a quid pro quo because the investors are entitled to enjoy, without any further efforts by the investors, not only services offered by the business, but also the benefits of an extremely high level of return, resulting in that the total amount paid to the investors is certainly more than the amount of the principal paid in by the investors.[22]  Given the foregoing, the Court upheld the lower court’s finding that the conduct of the defendants’ business is a cover of the defendants’ Unauthorized Fund-Raising, constituting an offense in violation of the Banking Act.[23]
 
 

This Article, including the information contained herein, has been prepared only for educational and general information purposes to contribute to the understanding of the prohibition on the unauthorized fund-raising under the Banking Act in Taiwan.  This Article does not and is not intended to constitute, offer or convey individual legal advice, legal opinion or any other professional advice on any subject matters covered herein.  Please obtain specific legal advice before acting on any matters discussed herein.  While the author makes every attempt to ensure that the information covered herein is accurate, the author disclaims any liability for any omissions or errors that may be contained in this Article.