TAIPEI—Former President Lee Teng-hui, who ushered Taiwan into the democratic era and infuriated China with his pro-independence policies, was indicted on corruption charges on Thursday, an act likely to deepen the island's political divide.
State prosecutors accused Mr. Lee, 88 years old, of embezzling US$7.8 million between 1994 and 1999.
Prosecutors allege the money was stolen from a fund for conducting secret diplomatic activities, which was managed by Taiwan's National Security Bureau.
A spokesman at Mr. Lee's office said the former president was astonished by the charges and had no warning the indictment would be announced on Thursday. He added that Mr. Lee had faith in Taiwan's legal system and insisted he is innocent.
Mr. Lee presided over the rapid democratization of Taiwan after decades of autocratic rule by Chinese Kuomintang leader Chiang Kai-shek and his son Chiang Ching-kuo, who died in 1988.
Mr. Lee won the island's first popular presidential election in 1996, which went ahead in the face of Chinese missile tests off the coast of Taiwan that prompted the dispatch of two U.S. aircraft-carrier groups by then-President Bill Clinton. A furious China saw the elections as a grab for independence by the island, which it claims as a rebel province to be reunited with the mainland.
After stepping down as president in 2000 and being forced out of the Kuomintang, Mr. Lee set up his own pro-independence party, the Taiwan Solidarity Union. He has remained a powerful political figure in Taiwan.
The charges come seven months ahead of the next presidential election, and while it remains to be seen how the case will play out, analysts have said the indictment could help President Ma Ying-jeou to mobilize his base against his opponent Tsai Ing-wen, of the Democratic Progressive Party.
Mr. Lee and his Solidarity Union have been staunch supporters of the DPP.
The elections, scheduled for January, are widely seen as a referendum on recent steps by President Ma to thaw economic relations with China.
A spokesman for the presidential office said, "We respect the judicial process and we do not comment on any ongoing investigations."
The Taiwan Supreme Prosecutors Office said Mr. Lee used the funds to set up a private think tank called the Taiwan Research Institute.
Prosecutors have been investigating Mr. Lee since 2002, according to a 23-page statement from the prosecutors office. Mr. Lee has repeatedly denied charges of embezzlement.
Mr. Lee's attorney, Wellington Koo, told The Wall Street Journal that Mr. Lee was questioned by the prosecutor on May 31, but that there was insufficient evidence to charge him with the crime.
"Furthermore, the prosecutor never gave the defendant a chance to argue his case before the indictment was handed down. The rights of the defendant were completely ignored," said Mr. Koo, who also defended former President Chen Shui-bian against corruption charges.
Corruption investigations and indictments have become common in Taiwan politics, reflecting growing pains in a democracy still struggling to escape the legacy of strongman rule and the murky financial arrangements of that era.
Mr. Chen, who succeeded Mr. Lee as president in 2000 and who served two four-year terms, is serving a 17-year prison sentence after being convicted on a range of corruption charges in 2009. Ahead of the 2008 presidential election, President Ma was indicted and tried for embezzlement. He was acquitted. His DPP opponent Frank Hsieh was investigated for graft but wasn't charged.
Taiwan Solidarity Union Chairman Huang Kun-huei, a confidant of Mr. Lee, said President Ma had pulled a "dirty trick" by using his influence to sway the prosecutors. "This is Ma's way of getting revenge against former President Lee, who has urged voters to vote against him to safeguard Taiwan. Ma knows Lee's rallying cry could greatly impact voter sentiment before the presidential election," Mr. Huang told a news conference.
Yen Chen-shen, a political science professor at National Chengchi University, said he didn't believe there was any political motive behind the charges or their timing.
"In Taiwan, there is no good time to announce a verdict because everyone will have their own interpretation," he said.
The prosecutor said if Mr. Lee is convicted he could face a prison sentence of 10 years to life. But he said that because of Mr. Lee's advanced age and his contributions to Taiwan, any sentence would likely be lenient.
Joseph Wu, who was Taiwan's unofficial representative to the U.S. during Mr. Chen's presidency, said he worried Mr. Lee's indictment would mar Taiwan's reputation. If Mr. Lee is convicted, it "would show that Taiwan still does not enjoy a smooth transition of power," he said.
"After all, we don't elect a president just to prosecute the former presidents. That is not a healthy democracy."
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