Crackdown on foreigners using Thai nominees: DSI raid offices of law firm in Bangkok, Phuket and Samui

[xylophone]

23 minutes ago, NCC1701A said:

we are 29 pages and 426 posts into is topic and all you need to hear is "Yes you can" or "No you can't".

 

That tells you all you need to know about this subject.

 

Majority posters, Thai Legal companies and Thai law = no you can't.

Sham company purchasers = yes you can.

 

Up to you!!

[Dogmatix]

2 hours ago, mogandave said:

Again, any argument formulated around the English translation means little in court.

Laws are written in Thai, and the “official” translation is provided for convenience only.

 

I was helping out a Thai friend in a divorce case with her Australian hubby who came out with some strange arguments about why he wouldn't have to divide their Thai assets 50:50, if the case went to court, as the Civil and Commercial Code prescribes.  He tried to offer her a settlement with a much lower split for her and threatened that, if she insisted on going to court, he would ensure she got nothing at all.  It turned out that the letter had been drafted by an Australian lawyer who was practising illegally in Chiang Mai, since the law is an occupation reserved for Thai citizens.  I insisted that the threats were nonsense and my friend took her now ex to court, countersuing him.  I had the opportunity to meet the  illegal Australian lawyer in the court house when the judge ordered the warring parties to try to come to a settlement.  It immediately became obvious that he couldn't understand a word of Thai and his case was based entirely on his reading and personal interpretation of a translation of the Civil and Commercial Code. My friend hired a lawyer, who is a law professor at Chula and he explained how the divorce laws actually worked in practice from his experience which surprised me in a couple of instances based solely on my reading of the law.  Needless to say the hubby was totally trounced in court and was visibly livid with his fake Australian lawyer after the final hearing.       

[Dogmatix]

1 hour ago, eisfeld said:

And now let's think one step further: What incentives do the "lawyers" now have if they find themselves in such a situation? They either sell their shares (which might not be so easy) or they transfer the property to someone else while making a nice profit at the same time. The foreigner can cry all day because he can't claim that it was his land really. It's a really messy situation, especially if the foreign entity employed tricks like having shares with more voting rights etc.

 

The intent of the law was clear (even if I don't like it for obvious reasons): Thailand doesn't want foreigners to own land. Any any legal trickery to work around that will only work so long as the Government doesn't try to fight against that practice. And good luck winning against the Government.

 

If the balloon really did go up, the government might offer whistle blower provisions for Thai nominees who come clean.  This was proposed when the current FBA was being drafted.  Alternatively they might do, as you say, and try to get out from the situation with a profit. Even if they are not authorised signatories, they can produce the requisite documents with forged signatures, as has been done in many cases already, and just sell the property.  Or they could sell their shares to the local mafia lord who would make life back in rainy Manchester suddenly seem a great idea to the farang tenant.  In either case, they would a profit at any price, since they paid nothing for their shares and there is not much point in the foreigner trying to pursue the case with the police and through the courts, as we have seen in the cases where the farang has tried to get some of his money back.  He might even be charged with a crime. 

[blackcab]

An off topic post and a rather witty reply to it have been hidden.

 

I have to say that this is one of the most erudite and also civil debates I have read in a long time.

 

It is most clear to me that even though our learned members hold different positions, you able able to debate in a traditional and respectful manner.

 

It has been a true pleasure to read your debate so far, and I genuinely thank you all for the time you have spent and consideration you have given in formulating your replies.

 

Thank you.

[Horace]

22 hours ago, Dogmatix said:

The minister has absolute discretion under the Land Code to consider a company as alien and reject its application to purchase land.

 

That was a response was long. Winded just reading it.  But to make it brief and understandable, this one sentence sums it up your position: the Minister has absolute discretion to determine if a company is an Alien precluded from purchasing.

 

If true, the Minister could decide a company owned by the CP Group, SCB or anyone at all is an Alien and cannot buy land. No rules or principles to consider. That is what absolute discretion means.

 

You are claiming the Minister can decide any company is an Alien precluded from buying property, and his decision cannot be challenged.  If so, so much for the rule of law.

 

Its interesting to read this thread and see how we got to this rather amazing claim.  The argument went like this:

 

Assertion:  "The Thai shareholders are nominees because they are investing in a 'sham company'"

Question: "How do you know the company is a 'sham company?'"

Answer: "Because Thai nominees are holding shares in the company."

Question: "How do you know the Thais are nominees?"

Answer: "Because they hold shares in a Thai company."

 

And now, because this is obviously circular, we have a Minister with absolute discretion, which cannot be challenged, who can declare that any company is an Alien Company that is barred from owning land.  

 

Parsed down to understandable text, that is the argument when it is stated clearly.

 

 

[xylophone]

50 minutes ago, Horace said:

Its interesting to read this thread and see how we got to this rather amazing claim.  The argument went like this:

 

Assertion:  "The Thai shareholders are nominees because they are investing in a 'sham company'"

Question: "How do you know the company is a 'sham company?'"

Answer: "Because Thai nominees are holding shares in the company."

Question: "How do you know the Thais are nominees?"

Answer: "Because they hold shares in a Thai company."

You seem to have constructed a circular argument to suit your own position in this and perhaps other folks see it as follows………..

 

Assertion:  "The Thai shareholders are nominees because they are investing in a 'sham company'"

 

Question: "How do you know the company is a 'sham company?'"

 

Answer: “Because it isn’t really a company operating or running a business and producing anything, and it does not employ the requisite number of Thais. It is merely a front for a farang wanting to buy a property/land.

 

Answer: "Because Thai nominees are holding shares in the company."

 

Question: "How do you know the Thais are nominees?"

 

Answer: "Because they hold shares in a Thai company."

 

Answer: “Because they haven’t invested any of their own funds and have no interest of any kind in this "company". Furthermore they receive no dividends or interest from their "investment" because there is no "investment".

There you go…………..sorted.

[Vacuum]

428 replies already. Seems the governmenta has a point, or members are worried.

[mogandave]

 
That was a response was long. Winded just reading it.  But to make it brief and understandable, this one sentence sums it up your position: the Minister has absolute discretion to determine if a company is an Alien precluded from purchasing.
 
If true, the Minister could decide a company owned by the CP Group, SCB or anyone at all is an Alien and cannot buy land. No rules or principles to consider. That is what absolute discretion means.
 
You are claiming the Minister can decide any company is an Alien precluded from buying property, and his decision cannot be challenged.

In much the same way that an umpire has absolute discretion in regard to calling balls and strikes. He does, but after one inning of throwing a game, he’s no longer an umpire.

Then you go on to compare CP and SCB with with a shell company set up to circumvent the law, as if there is no difference. That would be like comparing Boots to a yabba dealer, and claiming a judge could convict the CEO of Boots as as a drug dealer and suffer no blowback.

I think you are being intellectually dishonest.

[Horace]

On 8/17/2018 at 9:53 AM, webfact said:

The raids were conducted in relation to the use of foreingers using Thai nominees to allow matters like land purchase and the operation of businesses restricted under the Foreign Business Act. 

 

In the original article that started this thread, it says the raid were conducted "in relation to the use of foreigners using Thai nominees to allow matters like land purchase and the operation of businesses restricted under the Foreign Business Act".

 

We've had 480+ posts, but I have yet to see one cogent description of what constitutes a "Thai nominee" backed up by a provision of Thai law. Its really that simple and I think I can summarize the main points of my argument in an equally clear fashion.

 

The government has admitted several times that there is a problem with the definition of a "nominee" in Thai law.  The government said there was a problem with the definition of a nominee in 2006 and 2014 before an audience of several hundred members of the foreign chambers of commerce.  They argued that they only way to "clarify" the definition of a nominee was to change a definition in another provision of Thai law; specifically the provision of Thai law that defines an "Alien" company.  Alien companies are defined simply as companies where a majority of the shares are owned by foreigners. Thai law does not allow Alien companies to own land and restricts their ability to operate businesses subject to the Foreign Business Act.  But the definition of an Alien says absolutely nothing about superior voting rights or economic benefits.

 

Decades after these laws were enacted with these definitions, the government said it wanted to change the definition of an Alien company so that a company was considered an "Alien Company" if foreigners had voting control or superior economic rights.  The foreign business community said it was unfair to change the definitions in laws that had been around since 1998 (FBA) and earlier in the case of the Land Act, and that foreigners relied on these definitions and announcements by government officials stating that preference share structures were legal when the made their investments. 

 

The foreign community said that if the Thai government wanted to include control and economic rights in the definition, it should have done so when the laws were enacted.  The FBA was enacted in 1998 and, when it was enacted, there was debate and argument by Thai legislators about including foreign voting control and economic benefit in the definition of an Alien company.  The Thai legislature decided against doing this because of fears it would chill foreign investment in Thailand.  Then World Bank WTO Director-General Supachai Panitchpakdi lobbied hard against making this change.  No change was made to the definition of an Alien Company in the FBA.   The proposed changes only came decades later. 

 

My point all along is that you cannot now insert foreign voting control or foreign economic benefit into the definition of an Alien Company.  The government adopted a definition of an "Alien Company" that expressly excluded voting control and foreign economic benefit when these laws were adopted decades ago.  If a company is now treated as if it is an Alien Company simply because foreigners have superior voting control or economic rights by claiming that these features alone make the Thai shareholders "nominees" of foreigners holding shares with superior voting or economic rights, that change to the law is an expropriation of rights.  Its an expropriation since Thai law already defines "Alien Companies" by majority share ownership and its been legal for foreigners hold shares with superior voting and economic rights since the FBA and the Land Act was enacted.  

 

 

 

 

[Dogmatix]

Some of these replies seem to ignore the fact that the Land Department already has a system for determining whether a company is a front for a foreigner to own land or not that has been in use since 2006 and is laid out in publicly available directives from the Interior Ministry.  The land officers must interview the Thai shareholders and directors and ask them to show their sources of funds to invest in the company and they must explain the business plan of the company and how the investment in land fits into that.  If they can't demonstrate that they had the financial resources to spare to invest in the business and cannot explain a coherent operating business plan for which it is necessary to buy land, the Land Department refuses to register the land in the name of the company on the grounds that it is a sham company that is a front for a foreigner to buy land. Since a company's shares can change hands after the purchase of land, the Land Department's authority also extends to investigating companies that have already purchased land in the same way and   it can use its power to force the de-registration of the land through voluntary or forced sale.  The system is quite pragmatic and has never been challenged as being inconsistent with Thai law by any companies that were deemed as fronts for foreigners and denied the right to own right to own land by the Land Department in the 12 years it has been in operation.  This seems to set up de fact legal definitions as the Director General of the Land Department could be called upon to give his department's definition of a sham company in a court and it is hard to image that a Thai court would pull the rug from under his feet. 

 

To date what is missing is cooperation between the Interior and Commerce Ministries. The Land Department doesn't bother to refer sham companies it discovers to the DBD for investigation for possible violations of the FBA and the DBD doesn't attempt to track down sham companies and pass the details to the Land Dept for checking to see if they have registered land.  In 2006 the Sarayudh government planned to implement cooperation between the Interior and Commerce Ministries and hire more manpower to set up a combined task force track down foreign violators of the FBA and the Land Code but the government came to an end before it could be done.  Another missing link is the Finance Ministry.  If the Revenue Department could be harnessed to send an alert to the DBD and the Land Dept whenever it spotted a company with foreign shareholders or directors that has no operating business and owns land in its balance sheet, it would be very easy to set up a database of sham, land owning companies. The tests would take less than a minute for Revenue Department officers to perform by looking at the accounts.  But I expect that any proper cooperation between those three ministries is light years away.  To date the Interior Ministry doesn't even let other ministries get access to its database of ID card details of Thai citizens.  In fact it doesn't even provide the Land Department with these details which are essential to its work, despite the fact that the Land Dept is part of the Interior Ministry.  I was once asked to sign an affidavit in a provincial land office swearing that I was really a Thai citizen before I could register a piece of land.  I kept asking them why don't they just look in the BORA database to verify my citizenship but they refused to answer, suggesting that they didn't have access to it directly.  They also refused to go to the district office which was next door and ask to access the database on their terminal.   Thai government officials, particularly upcountry, are not used to having people argue with them or make suggestions. LOL.    

[Dogmatix]

12 minutes ago, Horace said:

 

In the original article that started this thread, it says the raid were conducted "in relation to the use of foreigners using Thai nominees to allow matters like land purchase and the operation of businesses restricted under the Foreign Business Act".

 

We've had 480+ posts, but I have yet to see one cogent description of what constitutes a "Thai nominee" backed up by a provision of Thai law. Its really that simple and I think I can summarize the main points of my argument in an equally clear fashion.

 

The government has admitted several times that there is a problem with the definition of a "nominee" in Thai law.  The government said there was a problem with the definition of a nominee in 2006 and 2014 before an audience of several hundred members of the foreign chambers of commerce.  They argued that they only way to "clarify" the definition of a nominee was to change a definition in another provision of Thai law; specifically the provision of Thai law that defines an "Alien" company.  Alien companies are defined simply as companies where a majority of the shares are owned by foreigners. Thai law does not allow Alien companies to own land and restricts their ability to operate businesses subject to the Foreign Business Act.  But the definition of an Alien says absolutely nothing about superior voting rights or economic benefits.

 

Decades after these laws were enacted with these definitions, the government said it wanted to change the definition of an Alien company so that a company was considered an "Alien Company" if foreigners had voting control or superior economic rights.  The foreign business community said it was unfair to change the definitions in laws that had been around since 1998 (FBA) and earlier in the case of the Land Act, and that foreigners relied on these definitions and announcements by government officials stating that preference share structures were legal when the made their investments. 

 

The foreign community said that if the Thai government wanted to include control and economic rights in the definition, it should have done so when the laws were enacted.  The FBA was enacted in 1998 and, when it was enacted, there was debate and argument by Thai legislators about including foreign voting control and economic benefit in the definition of an Alien company.  The Thai legislature decided against doing this because of fears it would chill foreign investment in Thailand.  Then World Bank WTO Director-General Supachai Panitchpakdi lobbied hard against making this change.  No change was made to the definition of an Alien Company in the FBA.   The proposed changes only came decades later. 

 

My point all along is that you cannot now insert foreign voting control or foreign economic benefit into the definition of an Alien Company.  The government adopted a definition of an "Alien Company" that expressly excluded voting control and foreign economic benefit when these laws were adopted decades ago.  If a company is now treated as if it is an Alien Company simply because foreigners have superior voting control or economic rights by claiming that these features alone make the Thai shareholders "nominees" of foreigners holding shares with superior voting or economic rights, that change to the law is an expropriation of rights.  Its an expropriation since Thai law already defines "Alien Companies" by majority share ownership and its been legal for foreigners hold shares with superior voting and economic rights since the FBA and the Land Act was enacted.  

 

 

In 2007 the amendments to the FBA that would have enlarged the definition of alien companies to include those where foreigners had effective management control was defeated in the appointed legislature not because of rational arguments as this but because a militant faction in the NLA that wanted much tougher controls of foreign businesses than in the amendments bill decided to boycott the vote at the last minute as a protest against the supporters of what they regarded as an overly soft bill.   This cloud seems to have past again in 2014 but it will probably come again as it pops up every decade or so.  Eventually they will probably get around to freeing up the services sector to large investments and ditching the preference shares, which would have implication for land ownership, as that will never be freed up.  

 

Be all that as it may, we have not been focusing on large companies with real businesses and preferences that are wanted in Thailand and are useful to the economy.  We have been focusing on shell companies set up solely to buy one house for one foreigner without substantive Thai shareholders and no operating business and usually without any preference shares, which the Land Department has been defining as alien according to its own internal rules at the discretion of the Interior Minister since 2006, as provided for in the Land Code.  

 

It seems pointless to say that the Land Code should have been written in 1954 with a definition of alien company being one controlled by preference shares and that it is now too late to have a change of heart and go back on that because foreigners have already bought land on that basis.  In 1954 there were no preference shares permitted in Thailand and foreigners were allowed to own land under treaty.  The Alien Business Decree only came into being in 18 years later.  At any rate the Land Code has a different definition of an alien company from the FBA that came later.  Under the Land Code a company is alien where foreigners own more than 49% of the shares are held by aliens or the majority of its shareholders are aliens.  In the FBA a company is alien if more than 50% of its shares are held by foreigners without regard to what proportion of shareholders are aliens.  So much for saying that definitions used under different laws must be consistent. 

[Horace]

52 minutes ago, Dogmatix said:

In 2007 the amendments to the FBA that would have enlarged the definition of alien companies to include those where foreigners had effective management control was defeated in the appointed legislature not because of rational arguments as this but because a militant faction in the NLA that wanted much tougher controls of foreign businesses than in the amendments bill decided to boycott the vote at the last minute as a protest against the supporters of what they regarded as an overly soft bill.   This cloud seems to have past again in 2014 but it will probably come again as it pops up every decade or so.  Eventually they will probably get around to freeing up the services sector to large investments and ditching the preference shares, which would have implication for land ownership, as that will never be freed up.  

 

Be all that as it may, we have not been focusing on large companies with real businesses and preferences that are wanted in Thailand and are useful to the economy.  We have been focusing on shell companies set up solely to buy one house for one foreigner without substantive Thai shareholders and no operating business and usually without any preference shares, which the Land Department has been defining as alien according to its own internal rules at the discretion of the Interior Minister since 2006, as provided for in the Land Code.  

 

It seems pointless to say that the Land Code should have been written in 1954 with a definition of alien company being one controlled by preference shares and that it is now too late to have a change of heart and go back on that because foreigners have already bought land on that basis.  In 1954 there were no preference shares permitted in Thailand and foreigners were allowed to own land under treaty.  The Alien Business Decree only came into being in 18 years later.  At any rate the Land Code has a different definition of an alien company from the FBA that came later.  Under the Land Code a company is alien where foreigners own more than 49% of the shares are held by aliens or the majority of its shareholders are aliens.  In the FBA a company is alien if more than 50% of its shares are held by foreigners without regard to what proportion of shareholders are aliens.  So much for saying that definitions used under different laws must be consistent. 

 

A few quick points.

 

I don't know what happened in the NLA's deliberations in 2006.  But it's irrelevant.  What we see is an elected legislature considering voting control and economic control in 1998 when the FBA was enacted, and deciding against it.  In 2006/7, the exact same issues and arguments are raised, and Thai government does not change the definition.  In 2014, the exact same issues comes up again with the same arguments, and the Thai government again abandons the proposal.  Having considered and rejected proposals to change the definition of Alien to include voting control and economic control at least three separate times, how can they now plausibly change the law?  If they do so, the rule of law means nothing in Thailand.

 

I don't know when preference share holding first came up, but I know the ABB Distribution case (shares with different rights) came up in the early 1990s.  If the authorities wanted to change the law to require Thai control and economic benefit in companies that own land, they could have changed the definition in the early 1990s and grandfathered in companies that already had these structures.  They did not do so.  Most of the construction that seems to bother people happened well after the 1990s.   Further, Thai banks were still granting mortgages to foreigners to finance land acquisitions circa 2001-2004. No objection at all from the Bank of Thailand.  There was a big booth in Don Mueng Airport next to a TAT office and an immigration office that was advertising and promoting foreign ownership of land.  No objection.

 

My problem is with a change in the law where foreigners are forced to divest ownership and control in companies that were registered legally and treated as if they were legal for decades.  Forcing a divestiture now is an expropriation.  Its unfair and it will scare investors.   The same law that applies to a villa with an infinity pool in Koh Samui (alas, I don't have one) applies to Tesco and DTAC.  I don't see how you can make a principled distinction between the two.  

 

If Thailand wants to change the law going forward, that is another matter.  Grandfather in the existing structures, which means they remain and there is no gradual divestiture, as was proposed in 2006/7 (that is just a slow expropriation).  The new laws can only apply to new companies formed after the new laws are enacted.  Companies formed before new laws are enacted are not required to make a divestiture.  Share owning rights remain the same.  Otherwise, the government has an expropriation and that is not only wrong, but would be an economic disaster for Thailand. 

[mogandave]

 
A few quick points.
 
I don't know what happened in the NLA's deliberations in 2006.  But it's irrelevant.  What we see is an elected legislature considering voting control and economic control in 1998 when the FBA was enacted, and deciding against it.  In 2006/7, the exact same issues and arguments are raised, and Thai government does not change the definition.  In 2014, the exact same issues comes up again with the same arguments, and the Thai government again abandons the proposal.  Having considered and rejected proposals to change the definition of Alien to include voting control and economic control at least three separate times, how can they now plausibly change the law?  If they do so, the rule of law means nothing in Thailand.
 
I don't know when preference share holding first came up, but I know the ABB Distribution case (shares with different rights) came up in the early 1990s.  If the authorities wanted to change the law to require Thai control and economic benefit in companies that own land, they could have changed the definition in the early 1990s and grandfathered in companies that already had these structures.  They did not do so.  Most of the construction that seems to bother people happened well after the 1990s.   Further, Thai banks were still granting mortgages to foreigners to finance land acquisitions circa 2001-2004. No objection at all from the Bank of Thailand.  There was a big booth in Don Mueng Airport next to a TAT office and an immigration office that was advertising and promoting foreign ownership of land.  No objection.
 
My problem is with a change in the law where foreigners are forced to divest ownership and control in companies that were registered legally and treated as if they were legal for decades.  Forcing a divestiture now is an expropriation.  Its unfair and it will scare investors.   The same law that applies to a villa with an infinity pool in Koh Samui (alas, I don't have one) applies to Tesco and DTAC.  I don't see how you can make a principled distinction between the two.  
 
If Thailand wants to change the law going forward, that is another matter.  Grandfather in the existing structures, which means they remain and there is no gradual divestiture, as was proposed in 2006/7 (that is just a slow expropriation).  The new laws can only apply to new companies formed after the new laws are enacted.  Companies formed before new laws are enacted are not required to make a divestiture.  Share owning rights remain the same.  Otherwise, the government has an expropriation and that is not only wrong, but would be an economic disaster for Thailand. 

Why would it be an economic disaster for Thailand?

[xylophone]

3 hours ago, mogandave said:

Then you go on to compare CP and SCB with with a shell company set up to circumvent the law,

 

2 hours ago, Dogmatix said:

Be all that as it may, we have not been focusing on large companies with real businesses and preferences that are wanted in Thailand and are useful to the economy.  We have been focusing on shell companies set up solely to buy one house for one foreigner without substantive Thai shareholders and no operating business and usually without any preference shares, which the Land Department has been defining as alien according to its own internal rules at the discretion of the Interior Minister since 2006, as provided for in the Land Code.  

Question for Horace...………..

 

Just about all of the posts on here have been about the points highlighted in the quotes above...…..ie shell companies set up solely to buy a house/land for a foreigner.

 

You seem to be focussing on a different issue.

 

Can you please confirm that is the case......YES or NO?

[OldSiamHand]

On 8/23/2018 at 12:08 PM, Dogmatix said:

 

This was actually smoke and mirrors. Securities companies were released from Annex 3 of the FBA but they were never under the jurisdiction of the FBA because they are regulated under the SEC Act which covers foreign ownership. That is capped at 40% but the SEC has the discretion to approve up to 100% foreign ownership on a case by case basis. 

The Securities and Exchange Act and the Thai SEC no doubt regulate securities businesses, but the FBA definitely covers their operations as well, and required an entity that otherwise complied with SEC regulations to also obtain a foreign business license.  The 40% limit you refer to is news to me.  I don't recall seeing that in the SE Act.

[Horace]

1 hour ago, mogandave said:

 

Why would it be an economic disaster for Thailand?

 

 

Why would anyone investment in a less developed country that has expropriated property?  Your investment is not safe, and Thailand relies on foreign direct investment.

 

In 2014, when the government proposed changing the definition of an Alien so that a company would be considered an Alien if foreigners had management control or economic control, the then Thai Minister of Commerce met with representatives of the foreign chambers of commerce.  Within the first 10 minutes of the start of the meeting, the chair of the Japanese Chamber of Commerce in Thailand said that if the proposed changes were made, the Japanese would stop investing in Thailand and many Japanese companies, including name brand auto companies, would pull out of Thailand.  Hundreds of thousands of high paying jobs would be gone forever.

 

After that, a representative of the Japanese Embassy stood up and said that the Japanese Chamber had the full support of the Japanese government and that the Japanese Chamber was right.  He also said that if these changes were adopted, the Japanese government would proactively warn Japanese companies against investing in Thailand.  Japanese investment makes up a bit more than half of the foreign investment in Thailand, and foreign investment is crucial to Thailand's economic development.

 

After the Japanese sat down, you could hear pin drop in the room.  The Thai Minister of Commerce looked forlorn, but asked for comments from the other foreign chambers.  Every other foreign chamber voiced complete agreement with the Japanese.  The US, all of the European chambers, the Singaporeans, etc. There was no dissent.

 

The proposed plan to change the definition was instantly dropped.  The Ministry of Commerce sent notes to foreign embassies in Thailand saying that there would be no change. 

 

The same laws that apply to big companies apply to small investors.  You can't make a principled distinction between the two.  You can't trust a government that expropriates investments, irrespective of their size. 

 

If the Thai government changes its position now after accepting what some here mistakenly call nominee structures (I disagree with that term and description) and reassuring foreign investors as recently as 2014 that there would be no change , foreign investors will know that the Thai government cannot be trusted.  Thailand already has a very bad reputation on complying with international obligations and transparency (corruption) issues.  Investment already suffers as a result.  But if these steps are adopted, foreign investors will not only avoid new investments in Thailand, but pull out altogether.  The Thai government knows this.  Somkid has admitted this to Ambassador Davies.

 

Now consider Thailand's work force, infrastructure, record on protection of intellectual property rights and CPI ratings.  The work force is poorly educated.  The elites may be very well educated, but the men and women who will work in the  increasingly advanced factories that are being built now and in the future lag far behind workers in other SE Asian countries.  The work force is aging and declining in size.  Thailand's record on enforcement of intellectual property rights is poor. Why risk valuable intellectual property in Thailand if it can be expropriated?  

 

Thailand's score on Transparency International's Corruption Perception Index (CPI) equals Indonesia and has declined since 2014.  Thailand is looking to the Chinese for help on infrastructure (China's extortionist terms for investment is fodder for whole new thread, but its been covered in the financial press).  That is a sign of desperation. Its growth is lagging behind its neighbors.

 

If Thailand wants to grow and meet the expectations of its growing middle class, its needs a stronger service sector.  The service sector will continue to lag behind other countries if protectionism prevents competition.  A small group of the elites, the vested interests, may prosper from protectionist policies, but the other 99% will suffer, including the Bangkok middle class.

 

This is not the time for Thailand to even bluff about expropriating foreign assets. 

 

 

 

[mogandave]

 
Why would anyone investment in a less developed country that has expropriated property?  Your investment is not safe, and Thailand relies on foreign direct investment.
 
In 2014, when the government proposed changing the definition of an Alien so that a company would be considered an Alien if foreigners had management control or economic control, the then Thai Minister of Commerce met with representatives of the foreign chambers of commerce.  Within the first 10 minutes of the start of the meeting, the chair of the Japanese Chamber of Commerce in Thailand said that if the proposed changes were made, the Japanese would stop investing in Thailand and many Japanese companies, including name brand auto companies, would pull out of Thailand.  Hundreds of thousands of high paying jobs would be gone forever.
 
After that, a representative of the Japanese Embassy stood up and said that the Japanese Chamber had the full support of the Japanese government and that the Japanese Chamber was right.  He also said that if these changes were adopted, the Japanese government would proactively warn Japanese companies against investing in Thailand.  Japanese investment makes up a bit more than half of the foreign investment in Thailand, and foreign investment is crucial to Thailand's economic development.
 
After the Japanese sat down, you could hear pin drop in the room.  The Thai Minister of Commerce looked forlorn, but asked for comments from the other foreign chambers.  Every other foreign chamber voiced complete agreement with the Japanese.  The US, all of the European chambers, the Singaporeans, etc. There was no dissent.
 
The proposed plan to change the definition was instantly dropped.  The Ministry of Commerce sent notes to foreign embassies in Thailand saying that there would be no change. 
 
The same laws that apply to big companies apply to small investors.  You can't make a principled distinction between the two.  You can't trust a government that expropriates investments, irrespective of their size. 
 
If the Thai government changes its position now after accepting what some here mistakenly call nominee structures (I disagree with that term and description) and reassuring foreign investors as recently as 2014 that there would be no change , foreign investors will know that the Thai government cannot be trusted.  Thailand already has a very bad reputation on complying with international obligations and transparency (corruption) issues.  Investment already suffers as a result.  But if these steps are adopted, foreign investors will not only avoid new investments in Thailand, but pull out altogether.  The Thai government knows this.  Somkid has admitted this to Ambassador Davies.
 
Now consider Thailand's work force, infrastructure, record on protection of intellectual property rights and CPI ratings.  The work force is poorly educated.  The elites may be very well educated, but the men and women who will work in the  increasingly advanced factories that are being built now and in the future lag far behind workers in other SE Asian countries.  The work force is aging and declining in size.  Thailand's record on enforcement of intellectual property rights is poor. Why risk valuable intellectual property in Thailand if it can be expropriated?  
 
Thailand's score on Transparency International's Corruption Perception Index (CPI) equals Indonesia and has declined since 2014.  Thailand is looking to the Chinese for help on infrastructure (China's extortionist terms for investment is fodder for whole new thread, but its been covered in the financial press).  That is a sign of desperation. Its growth is lagging behind its neighbors.
 
If Thailand wants to grow and meet the expectations of its growing middle class, its needs a stronger service sector.  The service sector will continue to lag behind other countries if protectionism prevents competition.  A small group of the elites, the vested interests, may prosper from protectionist policies, but the other 99% will suffer, including the Bangkok middle class.
 
This is not the time for Thailand to even bluff about expropriating foreign assets. 
 
 
 

So now you’re comparing Toyota and Hitachi to a guy setting up s shell company to circumvent the law.

I think reports about shell companies being shut down that were designed to circumvent the law would have little or no effect on legitimate foreign investment.

If anything, it would look like a crack-down on corruption.

Do you really think Honda, Toyota or Hitachi are going to pull out of Thailand because a few cheaters get caught?

[eisfeld]

Don't the big companies like car manufacturers have a completely legal majority foreign ownership through schemes like BOI sponsorship or Foreign Business License? Why would these big players need to employ questionable legal structures for their companies when they can do it in a safe way?

[mogandave]

Don't the big companies like car manufacturers have a completely legal majority foreign ownership through schemes like BOI sponsorship or Foreign Business License? Why would these big players need to employ questionable legal structures for their companies when they can do it in a safe way?

Under the BOI companies be 100% foreign owned, property included.

[eisfeld]

3 minutes ago, mogandave said:

 

Under the BOI companies be 100% foreign owned, property included.

 

 

Exactly, my point was that these big investors don't need anything even remotely resembling agents, nominees or whatever legal trickery. They can fully legally and in a straight forward manner enjoy 100% foreign ownership (with certain constraints of course).

 

I'm not an expert on this topic at all but to me it seems that these companies don't need to fear anything when there's a crackdown on foreign entities misusing companies just with the intend to circumvent the land ownership laws.

[Horace]

2 hours ago, mogandave said:

So now you’re comparing Toyota and Hitachi to a guy setting up s shell company to circumvent the law.

 

The Japanese Chamber and Embassy opposed the proposed changes to the definition of an Alien Company. All foreign chambers and embassies opposed the proposed changes. How do you make a principled distinction between a small investor and a big one? The same law applies to both. If one is a “cheater” the other is also a “cheater”.

 

When you call them “cheaters” you’re putting the cart before the horse. If these structures are already illegal, why did the Thai government press three times to change the definition of an Alien Company? 

 

And what about about SMEs and IT start ups? By adopting protectionist laws you’re eliminating the challenges that will make Thai SMEs and tech companies more competitive.

 

Your taking learning and job opportunities away from Thais. That’s not fair to middle class Thais who can’t afford an expensive university education overseas. Why should average Thais suffer so that vested wealthy local interests are protected from international competition? 

 

By the same token, why shouldn’t Thai property owners be free to sell their property to foreigners if they offer higher prices? Why the press to keep less privileged Thais poor?

 

Free and open markets - including property markets - make the economy more robust and help immunize economies from the collapse I saw here in 1997. They reduce opportunities for corruption. They provide opportunities for growth and development. Why should these opportunities be denied to the vast majority of Thais?

[mogandave]

 
The Japanese Chamber and Embassy opposed the proposed changes to the definition of an Alien Company. All foreign chambers and embassies opposed the proposed changes. How do you make a principled distinction between a small investor and a big one? The same law applies to both. If one is a “cheater” the other is also a “cheater”.
 
When you call them “cheaters” you’re putting the cart before the horse. If these structures are already illegal, why did the Thai government press three times to change the definition of an Alien Company? 
 
And what about about SMEs and IT start ups? By adopting protectionist laws you’re eliminating the challenges that will make Thai SMEs and tech companies more competitive.
 
Your taking learning and job opportunities away from Thais. That’s not fair to middle class Thais who can’t afford an expensive university education overseas. Why should average Thais suffer so that vested wealthy local interests are protected from international competition? 
 
By the same token, why shouldn’t Thai property owners be free to sell their property to foreigners if they offer higher prices? Why the press to keep less privileged Thais poor?
 
Free and open markets - including property markets - make the economy more robust and help immunize economies from the collapse I saw here in 1997. They reduce opportunities for corruption. They provide opportunities for growth and development. Why should these opportunities be denied to the vast majority of Thais?

I don’t see a company with five thousand employees (or five for that matter)that owns property and operates a going concern, as the same as a shell company set up to intentionally circumvent the law such that a foreigner can own a home. You (apparently) see them as being the same thing.

The government does not want to allow foreign ownership of property, and I believe they have the support of most citizens.

What protectionist laws will hurt start-ups? Legitimate companies can still buy properties. Why do companies need to own property anyway? The trend it toward leasing properties, not buying. China does not allow companies to own property, and there’s no shortage of foreign investment there.

Would the poor Thais you claim to be worried about benefit more in the long term by leasing their property rather than selling it?

[Dogmatix]

9 hours ago, Horace said:

 

A few quick points.

 

I don't know what happened in the NLA's deliberations in 2006.  But it's irrelevant.  What we see is an elected legislature considering voting control and economic control in 1998 when the FBA was enacted, and deciding against it.  In 2006/7, the exact same issues and arguments are raised, and Thai government does not change the definition.  In 2014, the exact same issues comes up again with the same arguments, and the Thai government again abandons the proposal.  Having considered and rejected proposals to change the definition of Alien to include voting control and economic control at least three separate times, how can they now plausibly change the law?  If they do so, the rule of law means nothing in Thailand.

 

I don't know when preference share holding first came up, but I know the ABB Distribution case (shares with different rights) came up in the early 1990s.  If the authorities wanted to change the law to require Thai control and economic benefit in companies that own land, they could have changed the definition in the early 1990s and grandfathered in companies that already had these structures.  They did not do so.  Most of the construction that seems to bother people happened well after the 1990s.   Further, Thai banks were still granting mortgages to foreigners to finance land acquisitions circa 2001-2004. No objection at all from the Bank of Thailand.  There was a big booth in Don Mueng Airport next to a TAT office and an immigration office that was advertising and promoting foreign ownership of land.  No objection.

 

My problem is with a change in the law where foreigners are forced to divest ownership and control in companies that were registered legally and treated as if they were legal for decades.  Forcing a divestiture now is an expropriation.  Its unfair and it will scare investors.   The same law that applies to a villa with an infinity pool in Koh Samui (alas, I don't have one) applies to Tesco and DTAC.  I don't see how you can make a principled distinction between the two.  

 

If Thailand wants to change the law going forward, that is another matter.  Grandfather in the existing structures, which means they remain and there is no gradual divestiture, as was proposed in 2006/7 (that is just a slow expropriation).  The new laws can only apply to new companies formed after the new laws are enacted.  Companies formed before new laws are enacted are not required to make a divestiture.  Share owning rights remain the same.  Otherwise, the government has an expropriation and that is not only wrong, but would be an economic disaster for Thailand. 

 

The ABB Distribution case in 1991 was not directly about shares with different voting rights. ABB used a Thai company of which it had effective management control as the majority Thai shareholder in ABB Distribution, taking 49% through an overseas subsidiary.  The MoC, under pressure from Thai business lobbyists, wanted to define it as alien by lifting the corporate veil of the ABB Thai affiliate that owned the majority stake to calculate the ultimate the alien shareholding back through all layers of ownership.  That would have meant that,  since 49% of the common shares of the Thai company that owned 51% were owned by aliens, in aggregate this 51% stake should be considered 25% alien and 26% Thai.  Thus the ultimate alien ownership of ABB Distribution was 49 + 25 = 74%. (This is a method of calculating foreign ownership that is, in fact, used in some countries and I think China is one of them.)  Anand Panyarachun who was PM at the time was not in favour of this interpretation of foreign ownership and the case got referred to the Juridicial Council (now the Council of State), which ruled that only the share capital of the company in question should be viewed to determine its status without regard to the Thai: alien split of shareholdings in its corporate shareholders.      

 

The Bank of Thailand is only concerned with economic stability and supervision of financial institutions, not foreign ownership issues, except in the case of foreign ownership of commercial banks on which it has the authority to make recommendations to the Finance Ministry, since their foreign ownership levels are governed by the Commercial Banking Act, not the FBA .  It would have only been looking at the systematic risk posed by overall mortgage lending and therte is no reason why it should even been aware of this type of lending which must have represented a tiny percentage of overall mortgage lending

 

It is hard to say what would happen, if the FBA were ever amended to eliminate foreign voting majorities through preference shares. There would obviously have to be a reasonable amount of freeing up of the services sector to 100% foreign owned companies as a quid pro quo which would stifle protests, if they decided to make things retroactive.  Grandfathering is quite common in Thai legislation but is not always the case.  When the first Working of Aliens Act came requiring foreigners to have work permits, foreigners with PR were grandfathered in for life but only if they didn't change professions.  On the other hand when the 1971 decree put an end to jus soli or the right to Thai citizenship for anyone born in the Kingdom, those who were Thai through birth in the Kingdom to alien parents were automatically stripped of their citizenship.  Foreign entities that owned land under treaty even before the Land Code was enacted were allowed to keep their land, even after the treaties expired, and the British Club still has its and I think Diethelm still does too.  However, this was not controversial since their ownership was explicitly permitted at the time they acquired the land.  Perhaps substantial companies controlled by foreigners would be grandfathered into Annex 1 and 2 businesses.  However, this would somewhat controversial and not something a politician would want to have to explain to the Thai public.  In my view it would be more likely that they would be given time to restructure.  At any rate, they would probably want to form new 100% owned subsidiaries to run what are currently Annex 3 businesses.  At the same time they might have to to just remove the preference share structures of companies in Annex 1 and 2 businesses, if they wanted to stay in those sectors.  That would not be expropriation at all because there would be no change in common share registration.  If it came to all this, you could be pretty sure they would legislate the sham villa owning companies into oblivion.  Nobody would be sticking up for them and it wouldn't even be a blip for the Thai economy. 

[Horace]

9 hours ago, Dogmatix said:

If it came to all this, you could be pretty sure they would legislate the sham villa owning companies into oblivion.  Nobody would be sticking up for them and it wouldn't even be a blip for the Thai economy. 

 

Interesting post.  I am not sure why this is revolving around villa owning companies.  It started with the comments on the raid on DFDL. My comments have been about changing definition of an Alien so that structures that were legal become illegal.  Its the principle that bothers me.  A taking of a property interest is an expropriation no matter what the nature of the business.  There is no reason to do it unless that business is creating problems.  And I don't see the problem here, but I do see problems with plenty of other businesses here, and they don't involve foreign ownership, but instead involve environmental degradation, human trafficking and corruption.

 

I don't have any interests in Koh Samui villas or any other villas, but I do think an expropriation of villa owning companies would not be good for Thailand.  Tourism is becoming increasing important to the Thai economy. and this sort of expropriation does sends the wrong signal to visitors.  Also, I can't see how this sort of move helps Thailand. What "problem" is this type of move fixing.  Why change the law to fix a "problem" that does not exist? 

 

Doesn't Thailand have bigger problems?  A dodgy educational system, corruption, a reputation for double standards when dealing with foreigners, etc.  How does an expropriation of a villa where a foreign retiree lives helping Thailand? Indeed, rightly or wrongly, this sort of move will harm Thailand's on the "double standards" issue.  And for what?  How are Thailand's real problems improved by expropriating the villas of foreign retirees?

 

Seems like a recipe for bad press to me.

 

Everyone here (except me) seems to focus on villas in Samui.  So its obviously  important to them.  I think any expropriation of any kind in Thailand (and we are talking about an expropriation) would further harm Thailand's already shaky reputation when it comes to observing the rule of law.  And I don't think you can honestly predict with confidence that it would not be a blip.  You really don't know.  Let's be honest: none of us do.  So why mess with it when it does not solve any real problems here?

[xylophone]

49 minutes ago, Horace said:

Everyone here (except me) seems to focus on villas in Samui

Not so Horace...……...the posters are focussing on property/land acquired by setting up sham companies anywhere so that foreigners can circumvent the law, with the majority saying that as it is illegal, it shouldn't be allowed.

 

Furthermore if one takes the risk, one should accept the consequences is all that is being said

 

"I am not sure why this is revolving around villa owning companies.  It started with the comments on the raid on DFDL. My comments have been about changing definition of an Alien so that structures that were legal become illegal".

 

And that is a different argument to that being debated by just about all of the posters here, moreover, the setting up of sham companies to circumvent the law has never been legal in the first place!!

 

Glad that you admit you are not "arguing" the same point.

[Dogmatix]

Interestingly a English language paper that cannot be quoted here ran a story today about AMLO planning to seize the assets of a Phuket company called TC Blue Dream Limited which is apparently believed to be a company owned by Thai nominees who facilitate business ownership by foreigners. The nominal major shareholder, a certain Ms Woralack, is currently languishing in Phuket prison on charges of recklessness causing death to others among other charges, relating to the sinking of the Phenix and the tragic deaths of Chinese tourists on board.  She apparently claims she had nothing to do with the management of the company and was only a nominee to facilitate business ownership and management control by her Chinese husband. These brings us back to the original post re the raid on DFDL in Phuket because there seems to be a connection, regardless of whether TC Blue Dream Limited was a client of DFDL.  In formulating specific targets for knee jerk reactions to events Thai police often opportunistically select targets that are unrelated to the event but are on someone's sh*t list for some other reason.

 

Although the details of the various reports about TC Blue Dream Limited are still very muddled, it throws up a number of interesting issues.  One is the flip side of being a nominee director of a Thai company can mean the criminal responsibility that goes with the position.  Negligence is no excuse, since directors are expected to take pains to attend board meetings and know what the company is up to.  In order to absolve themselves of criminal responsibility for actions by management that they do not agree with, they should have it minuted that they disagreed with the management decision.  If there are no board minutes or management refuses to make disclosures to the board, they should resign from the board sending a letter noting the reasons why.  

 

Another issue that the stories so far about TC Blue Dream Limited throw up is that members of AMLO, the DSI and Thai reporters have been singularly remiss in their attendance at foreign chambers of commerce meetings, since they appear blissfully unaware that the FBA and the provisions in the Land Code that prohibit alien land ownership are nothing but worthless scraps of paper that are utterly unenforceable. The opinions that land ownership by foreigners is illegal and enforceable and that Thai nominee shareholders are nominees, however flawed this  thinking may be, seem to be opinions shared by most law enforcement agencies and well over 99.9% of the Thai population. This wall of ignorance would be a significant obstacle to any small scale foreign investor in land who is unfortunate enough to find himself targeted by authorities, without substantial resources and access to legal help. 

 

Chinese investors are used to paying bribes and tend to set up structures in a very crude way, relying on being able to bribe corrupt Thai officials.  It could be that this new breed of foreign investor will upset the apply cart for the polite farang investors who have the liesure and inclination to attend lunches and cocktail parties at the foreign chambers of commerce.  It is possible that incidents like the sinking of the Phenix are being used to set the stage for a far tougher approach to foreigners who use loopholes to run businesses and own land.  Only time will tell.

[Horace]

2 hours ago, Dogmatix said:

hese brings us back to the original post re the raid on DFDL in Phuket because there seems to be a connection, regardless of whether TC Blue Dream Limited was a client of DFDL.  In formulating specific targets for knee jerk reactions to events Thai police often opportunistically select targets that are unrelated to the event but are on someone's sh*t list for some other reason.

 

This highlights another concern I have about these "nominee" claims.  The concept is so vague (even if there is disagreement on what the term "nominee" means, I think we can agree it is subject to legitimate argument), that it lends itself to opportunistic enforcement. 

 

Agree that the Chinese are prone to pay bribes and tend to set up structures in a crude manner.

[eisfeld]

The link to the recent events with Chinese tour companies and especially the boat tragedy didn't really cross my mind but seem to totally make sense. I agree that cracking down on retired foreigners "owning" a villa doesn't seem like a pressing concern to me, at least it shouldn't be with all the other much bigger and important problems regarding land ownership (e.g. encroachment). Cracking down on the zero-baht chinese tourism business though might be a big enough concern to trigger actions like this raid.

 

About the ABB example: did their setup pre-date possibilities like BOI sponsorship or why did they opt to set up a corporate structure like that?

 

About the big Japanese companies like car manufacturers: I don't see a reason for them to not be able to have straight forward majority foreign ownership, fully supported by the government.

[garyk]

I am not really interested in this other than an interesting read, but isn't it also against the law to be a foreigner and marry a Thai woman, and buy property in her name as rental property or to own a business? Especially if the money was coming from the foreigner. Seems to me that would be the same thing as setting up a company!  

[stud858]

3 minutes ago, garyk said:

I am not really interested in this other than an interesting read, but isn't it also against the law to be a foreigner and marry a Thai woman, and buy property in her name as rental property or to own a business? Especially if the money was coming from the foreigner. Seems to me that would be the same thing as setting up a company!  

I havent seen anything written in a law Act that even suggests its illegal.

Its not illegal to marry a thai.

Its not illegal to provide for your wife.

Its not illegal for thai person married to falang to run business.

All good, unless some official wants to make up their own laws.