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Taiwan prosecutors on Monday charged Robert Tsao, the former United Microelectronics chairman, with breach of trust over the company’s involvement with a Chinese chipmaker.

The move suggests that the government is planning to make an example of him as part of a pledge to tighten regulation of cross-Strait investment.

Mr Tsao, who founded UMC – and more than 20 other existing and former executives of the world’s second biggest contract chipmaker – have been under investigation over their links to Hejian Technology.

Mr Tsao and the executives allegedly set up Hejian Technology, a contract chipmaker, with UMC assets in 2001 – in defiance of a ban at the time on investment in China by Taiwanese semiconductor companies for national security reasons.

Last summer, the lead prosecutor in the case was replaced, and no progress in the investigation had been reported since then. But in a policy shift, Chen Shui-bian, Taiwan’s president, announced last week he planned to give priority to controlling economic exchanges with China rather than moving towards further opening.

Apparently in response to the upcoming indictment, Mr Tsao and John Hsuan on Monday quit as chairman and vice-chairman of UMC and resigned from their board seats.

The board appointed both executives as senior advisers. They will be entitled to attend future board meetings. Jackson Hu, chief executive, was elected to succeed Mr Tsao as chairman.

Mr Tsao had earlier said he would retire in March to protect the company from the fallout of the Hejian case and from a separate investigation into share trading by UMC executives.

Setting up a more effective enforcement mechanism for restrictions on cross-Strait investments is extremely challenging. Many Taiwanese companies channel their Chinese investments through tax havens with few disclosure requirements. The UMC case, therefore, is seen as a rare opportunity for the administration to claim that Mr Chen’s stricter policy is being implemented.

The Hsinchu prosecutor’s office said it was indicting Mr Tsao, Mr Hsuan and Tseng Tun-chian, head of a venture capital firm partly owned by UMC, for alleged breach of trust under criminal law. “We have gathered enough evidence that [the defendants] gave more than 100 patents held by UMC to Hejian for free,” said Tsai Tien-yuan, the prosecutor’s office spokesman.

Breach of trust carries jail sentences from six months to five years under Taiwan’s criminal law.

UMC said it believed “the indictment of Bob Tsao and John Hsuan is of a purely political nature and caused by the special nature of the relationship between Taiwan and Mainland China”.

Copyright The Financial Times Limited 2017. All rights reserved.
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