Taiwan Audit Affair
The Taiwan Audit Affair was a prolonged impasse between the Republic of China Central Government and the Government of Taiwan that occurred in 1948 – 55, mainly about the ownership of assets confiscated from executed traitors and their usage as collateral in loans from government banks.
After the Taiwan Liberation Front overthrew imperial Japanese rule in 1944 – 45, a ruthless retributive campaign occurred against individuals who co-operated with Japanese authorities, particularly in its suppression of political liberalization. It is estimated that up to 50,000 individuals were executed after a severely flawed process or no due process at all, and officials of the TLF seized into their hands the assets of such individuals while telegraphing to the Nanking government to become a province of the Republic of China, which had just emerged victorious from the WWII.
Because collaborators tended to be rewarded with lands, money, and business opportunities under Japanese rule, the Taiwan Provincial Government was able to seize a large amount of assets. It also took all real and moveable property that once belonged to the Japanese authorities, which was the largest employer and landowner on the island for the previous 50 years, owning as much as 1/9 of the island by land area.
This made the newly-joined Taiwan the single wealthiest provincial government, but it was poor in cash and hoped to obtain a large sum from the Nanking government backed by bonds issued on its lucrative industrial machinery and productive farms. Nanking, meanwhile, wanted to bring Taiwan into the economic system of China and was willing to purchase the bonds.
However, before the central government could purchase them, the provincial government of Taiwan was required submit its books to the Audit Ministry in Nanking. This occurred in 1948, and quite soon the Audit Ministry came to the conclusion that at least 60% of the assets were either obtained unlawfully or questionably. At the heart of the issue, the Audit Ministry reported to the Control Yuan and the central Cabinet that the property confiscated from executed prisoners in most cases could not be considered licit, since such executions are "under neither the old law of Japan nor the new law of China".
The central Cabinet urged the Audit Ministry to rethink the issue and later also suggested that if such property was acquired before the province was annexed, the memory of the law of China does not extend to it, and if so, what is not known to be unlawful should be assumed lawful. The Attorney-General, with assistance from the Attorney-General of Taiwan, was also directed to present the Cabinet's case for the validity of the bonds to the Control Yuan, which oversees the Audit Ministry. But in 1953, the Control Yuan resolved that the matter was one of professional judgement by the Audit Ministry and not justiciable before itself.
In 1954, the opinion of the Audit Ministry ultimately prevailed. The cash shortage in Taiwan was ameliorated by the export of industrial machinery to the continent at a premium, since the goods sold were not audited for the lawfulness of their manufacturing premises but only for their objective value.