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Once a reliable technology services base for Philippine gambling interests, Taiwan’s high-tech gaming sector is under increasing scrutiny from prosecutors and politicians amid allegations of criminal associations, money laundering, sham payments companies and police corruption.

Around ten years ago, the online gambling industry began to aggressively embrace Taiwan’s status as the world’s semiconductor behemoth and a flourishing information technology and innovation hub.

Just a two-hour flight to the south, largely Chinese-run Philippine gambling interests in Manila had set up a wide range of tech networks in Taiwan, including support services, software development and cybersecurity.

For a time, a lack of legislative and legal clarity and unenthusiastic policing encouraged Philippine-based operators and their Taiwanese partners to expand operations and enjoy greater media visibility, hedging against risk in Philippine operations and Beijing’s growing ire.

Since then, however, a series of raids, prosecutions and convictions has heavily constricted spaces in which online gaming-linked companies move, shutting down B2C-proximal services and placing certain B2B activities in jeopardy.

Now, a developing scandal enhanced by police corruption threatens to transform controversy over online gambling’s underground nexus into a matter of public concern, possibly akin to the hostility of Filipinos toward foreign-facing online gambling companies (POGOs) that prompted Philippine President Ferdinand Marcos Jr. to slap a ban on the sector.

The latest scandal broke in May this year, when prosecutors in Taichung, Taiwan’s second-largest city and a high-tech hub, detained a newly promoted Criminal Investigation Bureau (CIB) superintendent for allegedly protecting a Taichung gambling group that was being probed by his team.

Prosecutors had been stunned when their original raids on the group fell apart: the group’s members had been tipped off, and now there were no new witnesses and precious few assets or evidence to prosecute their case.

Internal investigations discovered a link between the gambling operation and the CIB superintendent, Lin Ming-tso, and a search of his residence and workplace on May 2 secured NT$1m in cash and other unaccounted-for funds.

With Lin’s arrest, the dominoes began to fall.

Raids on May 22 and 23 led to the arrests of five more suspects, including billionaire Chen Cheng-ku, the head of the Kyushu Gaming Group, Chen aide Shih Chen-kang, a former journalist with organised crime ties, as well as a second aide and two others, joining Lin and a seventh suspect in custody.

In August, Taichung prosecutors announced a complete list of indictments in the case after further raids.

Chen Cheng-ku and 31 others were charged with gambling, money laundering, bribery, scamming and organised crime offences.

In a statement, the prosecutors the Kyushu Gaming Group, along with its associates and subsidiaries, of operating the third-party payments platforms OnePaid and 1177PAY to launder revenue from their own operations and that of other online gambling operations and cyber-scamming groups.

Raids on 65 locations across ten operations from May 2023 recovered NT$160m ($5m) in cash and froze bank funds totalling NT$1.47bn, as well as seizing 25 parcels of real estate, gold and 19 luxury cars. The assets and cash totalled to a record prosecutor’s haul of NT$4.15bn ($128m).

Prosecutors said the Kyushu group operated the prominent gambling websites Leo, Tha and Kubet over many years in Taiwan, Vietnam and Cambodia, generating NT$43.8bn ($1.3bn) in proceeds and laundering scam funds of more than NT$18.5m.

The statement also confirmed Lin Ming-tso’s relationship with Kyushu CEO Cheng, and that Lin allegedly received large gifts of cash, expensive alcoholic items, and the run of a luxury apartment and a private vehicle in return for feeding Kyushu Group information on the criminal probe targeting them.

Ordinarily, such a scandal will disappear from Taiwanese headlines at this point, as prosecutors prepare for trial and bailed defendants hunker down with their lawyers.

But last week, the story got worse for the police and the Taichung City government.

While questioning police and government officials at the Taichung City Council last Thursday (November 7), Councillor Tsai Yao-hsieh revealed that detained CIB official Lin Ming-tso’s replacement in charge of the case, Lee Ming-tao, did not disclose that he is a cousin of defendant Shih Chen-kang.

Tsai added that Taichung police chief Lee Wen-chang also participated in the activities of a drug awareness foundation set up by Kyushu.

Heated words between the three men followed. Lee Ming-tao denied having a close relationship with Shih, stating that “You can’t choose your family” and that it wasn’t necessary to disclose their family ties.

And amid an angry defence of Lee Ming-tao, Lee Wen-chang said internal disciplinary investigations by the police force will only be released after the court rules on the Kyushu case. He conceded that other police may be under investigation, suggesting more embarrassing headlines are on the way.

The scandal, with its family ties and cross-directional informants, is now being likened in Taiwanese media to the film “Infernal Affairs”, a Hong Kong police mole and triad drama remade by Martin Scorsese as the Oscar-winning “The Departed”.

In the meantime, lawyers for Kyushu CEO Chen Cheng-ku sued the Taichung prosecutors over due process issues and to reject the allegation that Chen is the boss of the operation.

But on Monday, a Taichung District Court judge rejected these claims and ordered Chen to remain in custody.

Taichung has a reputation for organised crime, and particularly for the deep relationship between powerful gangsters, politicians, heavy industry and networks of largely Buddhist temple associations.

But this scandal threatens to transcend standard gangster coverage in the media by specifically associating the online gambling support sector, legally now at its most vulnerable, with corruption and the corrupting of public officials.

So it should not be surprising that representatives of gaming-linked companies potentially in the firing line of a new crackdown are learning about options in other regulated markets, raising the prospect of industry segment migration additional to POGOs leaving the Philippines.