Taiwan sues over Clinton slush-fund claim

"We must have a hit a raw nerve," says Ying Chan, a New-York-based journalist who is facing an unusual criminal libel suit filed by a leading member of Taiwan's ruling Kuomintang party, backed by President Lee Teng-hui.

The raw nerve was a story in the Chinese-language news weekly Yazhou Zhoukan alleging Liu Tai-ying, a leading Kuomintang official, offered an illegal $15m (pounds 10m) contribution to President Bill Clinton's re-election fund. Mrs Chan believes Taiwanese contributions to the Democratic Party dwarf the controversial funds supplied by the Indonesian Lippo group.

Also named in the suit is her Taiwanese colleague, Hsieh Chung-liang, and Chen Chao-ping, a political consultant who has now stated he was the main source for the story.

Mr Chen was one of four people present at the meeting with former White House aide Mark Middleton during which the money was allegedly offered. Mr Chen was not named in thestory but has decided to go public.

There has been no legal action from the Democratic Party, which faces a growing number of accusations of illicit funding from Asian sources. US parties are not permitted to obtain funding from abroad. "This story is like a centipede", says Mrs Chan. "There are so many legs, every week brings new information".

She would like to get back to reporting it, but has been waylaid by the criminal libel suit, which carries a maximum penalty of two years in jail as well as fines. The action is also extremely costly. Mr Liu, who launched the suit, is Chief Finance Officer of the Kuomintang, one of the world's richest political parties. Although the party has financial muscle, it is not a regular litigant. The Kuomintang is not named in this suit but is behaving as a participant by having its spokesman comment on aspects of the case and by calling a meeting of its central committee to endorse the action.

Far more unusual is the endorsement given by President Lee, who usually remains aloof from matters of this kind.

"This is clear legal and political harassment", says Mrs Chan who is in Hong Kong to attend a libel seminar and consult legal advisers. She is preparing for another hearing on 28 January and hopes this will provide an opportunity for Mr Liu to withdraw the action.

The pro-Kuomintang media suggest Taiwan is entitled to all means at its disposal to gain influence overseas in the face of diplomatic isolation and China's efforts to keep the island out of the international arena. So-called "money diplomacy" has long been a mainstay of Taiwan's foreign policy. But the government denies that it resorts to illegal means to win friends with the chequebook.