Early Comments on the FBA Investigation into DTAC


The Bangkok Post reported that the Ministry of  (“MOC”) issued a 35 page report addressing claims that DTAC is an “alien” under the Foreign Business Act (FBA): “Commerce Ministry investigators have made a preliminary finding that some Thai nominees hold shares on behalf of foreigners in the mobile firm DTAC”. (http://www.bangkokpost.com/business/telecom/245480/dtac-probe-finds-nominees)

That report was to be forwarded to the Royal Police, but more about that below. Continuing with the Bangkok Post report: “Mr. Yanyong [of the MOC] said the preliminary investigation had found some Thai shareholders were nominees for foreign groups led by Telenor, a Norwegian state enterprise.”  In other words, this case turns on the so-called “nominee shareholder” prohibition contained in FBA Section 36, as we originally suspected.

The report is not public and it’s early days, but we can make a few observations and comments about this matter.   For example, what the MOC’s “findings” do and do not mean.  And what they suggest about the MOC’s views on what constitutes nominee shareholding under FBA Section 36.

First and foremost, the MOC’s findings, preliminary or otherwise, are not law.  We are a long way off from anything that can remotely be considered law.  Even if this matter gets to the Royal Police, they actually investigate the matter and they decide some of the Thai shareholders are nominees, that finding by the police and anything the police decided is also not law.  The matter must still go to the prosecutors who must then decide if they want to prosecute.  And if they do prosecute and a Thai Court reaches a substantive decision, there are the inevitable appeals.

A comment, reported in the 8 July 2010 edition of the Bangkok Post (http://www.bangkokpost.com/business/telecom/246011/political-appointee-asserts-role), appears to confuse this point:

Sanya Sathirabutr, a political adviser to Alongkorn Ponlaboot, a Democrat MP and acting deputy commerce minister, said yesterday his investigative team had the authority to decide the nationality of the company and hoped to make a decision by Monday.

Not quite.   If it gets that far, that decision will need to be made by a Court.

But even if the MOC’s findings are not law, they are important.  The press reports give us a glimpse into the MOC’s thinking on this matter.  “‘We have no authority to ask for the financial documents. We need to pass on the duty to the Royal Police instead,’ he [an MOC official] said.”  He appears to be referring to alleged loan arrangements with some of the Thai shareholders.

In practice, when making inquiries about possible nominee status, the MOC looks for evidence of the financial ability of Thai shareholders to fund an acquisition of shares with their own money.  A simple review of bank statements is generally conducted at the company registration stage.  The alleged focus on loan agreements in the DTAC case goes beyond this, but it is consistent with our general theory about what, in the MOC’s eyes, distinguishes genuine investors from nominee investors: evidence that the Thai investor had the ability to and did in fact fund an investment with his or her own funds.

From an administrative perspective, you can see why this approach is attractive.  The so-called “nominee” provision found in Section 36 turns on intent: why did this Thai investor buy these shares?  Did he do so as a genuine investor or as a nominee of foreigners?   MOC officials cannot read minds, but they can read financial statements.  Whether that, by itself, is sufficient and how those records should be read is another matter – a matter that also has not yet been decided.

And the there must also be a prosecution.  FBA Section 36 is a penal provision providing for, among other things, imprisonment of up to three years.  From a prosecutor’s perspective, absent an unequivocal admission from the Thai investor (say, a written deed of nominee shareholding signed by the Thai shareholder), how do I, the prosecutor, prove this investor intended to help foreigners circumvent the FBA?  If the Thai shareholder says he is a genuine investor, how do I prove otherwise?

This case, if it proceeds, will need to address these and many other difficult questions.  It will be interesting.

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