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06BANGKOK5497 COMMERCE UPDATES ON INVESTIGATION INTO NOMINEES

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“77428″,”9/7/2006 8:41″,”06BANGKOK5497″,

 

“Embassy Bangkok”,”UNCLASSIFIED”,”06REFTEL:BANGKOK5424″,

“VZCZCXRO3420

RR RUEHCHI RUEHDT RUEHHM RUEHNH

DE RUEHBK #5497/01 2500841

ZNR UUUUU ZZH

R 070841Z SEP 06

FM AMEMBASSY BANGKOK

TO RUEHC/SECSTATE WASHDC 1459

RUCNASE/ASEAN MEMBER COLLECTIVE

RUCPDOC/USDOC WASHDC

RUEATRS/DEPT OF TREASURY WASHINGTON DC”,”UNCLAS SECTION 01 OF 02 BANGKOK 005497

 

SIPDIS

 

SIPDIS

 

STATE PASS USTR

USDOC FOR 4430/EAP/MAC/OKSA

TREASURY FOR OASIA

TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN

 

E.O. 12958:N/A

TAGS: ECON, ETRD, EFIN, TH

 

SUBJECT: COMMERCE UPDATES ON INVESTIGATION INTO NOMINEES

 

REFTEL: BANGKOK 5424

 

1. On September 7, Embassy Economic and Commercial Counselors met

with Mr. Yanyong Phuangrach, the Commerce Ministry\’s Deputy

Permanent Secretary for Internal Trade, to be briefed on that

Ministry\’s ongoing investigation into the sale of telecom operator

ShinCorp to Singapore\’s Temasek (reftel). Central to this

investigation is the question of whether the structure of the

transaction, specifically whether the putatively Thai holding

companies which are used to make the transaction compliant with Thai

law are in fact Thai and not simply stand-ins, or \”nominees\”, for

the Singaporeans.

 

2. Yanyong disclosed that he had intervened in the investigation

just prior to the release of a Commerce report which concluded that

a key nominee (Kularb Kaew) in the transaction was indeed

Singaporean, not Thai. He said, \”I took charge of this because if

we just turned the report over to the police, it would have caused

big problems with other foreign investments in Thailand. The main

problem is that the investigation seeks to determine if Kularb Kaew

is a nominee without first defining what a nominee is. We first

need a clear definition of nominee in the law.\”

 

3. Yanyong said that he and his staff are working on such a

definition: \”We know public expectations are high on this and

everyone wants to see results as soon as possible, but we need

adequate time. We also need to take into account this law\’s

relationship with other Thai laws on land ownership and investment

and to see clearly the impact of any change.\” Yanyong refused to be

drawn out on when he expected to finish his investigation into the

ShinCorp deal\’s nominee structure, but we were left with the

impression that Yanyong\’s project to define the term \”nominee\” will

take at least several months.

 

4. Yanyong added that his ministry wanted to hear the views of

foreign investors and their governments: \”We want to know what you

want to see.\” We replied that, in our view, no one was well served

by the current policy of nominee structures: the current policy

lacks transparency for foreign investors, leaving many in a legally

grey area; it has also been patently ineffective in preventing

foreign participation in supposedly Thai-only investment areas. It

might be possible, we said, to take the lemons from the Shin

investigation and make lemonade by leveraging the current

controversy into support for liberalized, transparent foreign

investment rules, with a much smaller number of Thai-only areas

where genuine national security or other vital issues exist. At

Yanyong\’s urging, we agreed to advise the American Chamber of

Commerce in Thailand to weigh in directly with Commerce on the

changes U.S. investors would like to see in Thai investment rules.

 

Joint Chambers enter the fray

—————————–

 

5. The Joint Foreign Chambers of Commerce (JFCC) independently

sought clarification of the new provisions for foreign business

registrants. In a bid to blunt the practice of using nominees, the

Ministry of Commerce requires applications for business licenses

with more than 40 percent foreign share to disclose certain

information related to the source of funds used to capitalize the

company. Ministry of Commerce officials assured JFCC chair Peter

van Haren that the new provisions would target only new business

applicants, not companies that are restructuring or renewing their

license, and that the scrutiny of funds would not be retroactive.

 

6. The Ministry of Commerce further clarified that they would

scrutinize the validity and source of funds of Thai shareholders

only, and not foreign shares. This is in fact the crux of the

investigation into Shin Corporation. Investment analysts pointed

out to us that the issue is not whether Temasek exceeded maximum

ownership limits in its purchase of Shin, but rather whether the

Thai partners in the deal violated provisions restricting Thai

nationals from holding shares for foreign entities in order to

circumvent those limits.

 

7. Comment: The interests of U.S. investors diverge from those of

other foreign investors, and the American Chamber of Commerce is

distancing itself somewhat from statements made by the JFCC. Most

U.S. companies invested under Treaty of Amity rules or Board of

Investment promotions that offer national treatment and majority

foreign ownership, and rarely made use of nominees. Scrutiny into

current and planned investments is of much less concern to most U.S.

investors, with the possible exception of companies who may have

used nominee structures to (perhaps illegally) purchase land. Since

we encourage adherence to Thai law, we do not plan to protest

examination into possibly illegal land purchases or other dodgy

 

BANGKOK 00005497 002 OF 002

 

ownership structures. However, we will continue to encourage a

reassessment of foreign ownership limits and the sectors to which

they should be applied. If a reassessment with the right terms of

reference does occur, some good may yet result from the otherwise

sad ShinCorp affair. End Comment.

BOYCE

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Written by thaicables

July 13, 2011 at 5:40 am

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