Taipei- A Singaporean businessman was indicted Friday on charges of embezzling 3 million US dollars from a diplomatic fund set up to persuade Papua New Guinea (PNG) to drop its links with China and recognize Taipei.

The Taipei Prosecutor's Office indicted Wu Shih-tsai, who was in charge of the fund, on charges of forging documents and defamation.

"Wu sent fake bank documents to prove that the money Taiwan had given him was still in a Singapore bank, so he falsified documents. Besides, he claimed a Taiwan man threatened him with a gun, but we found that no one threatened him. So he is also charged with defamation," Prosecutor Lin Chin-tsun said.

The botched diplomatic scandal occurred in 2006 when Taiwan was seeking to launch diplomatic ties with PNG, an island state in the Pacific.

Taiwan's Foreign Ministry sent 3 million US dollars intended as aid for PNG to a joint account opened by Wu and Chin Chi-ju, a Chinese-American, at the OCBC bank in Singapore.

When the talks stalled in December 2006, Taiwan decided to pull out, but Ching vanished before the money could be recovered, while Wu was brought back to Taipei to face prosecution.

The scandal tarnished Taiwan's image and led to the resignation of three officials - vice premier Chiu I-jen, vice defence minister Ko Cheng-heng and foreign minister James Huang in May.

Prosecutors are probing allegations that the aid to PNG was actually a front used by some Taiwan officials to embezzle public funds. (dpa)