I think you are mostly correct.

 

Think he was transferred after the army raided the place and suspected him of knowingly allowing this stuff to go on.

So he was removed for not doing his job  which fact was uncovered by a drug raid which turned up all the underage drinkers and druggies?

From another source:

 

It says that 5 police officers have been transferred.

 

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The raid found a large number of underage drinkers and drug takers at the Khao San nightspot that also lacked relevant licenses.

 

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Commander Watcharapong Damrongsri has set up a committee of enquiry to look into claims that the police knew what was going on and allowed it to happen.

 

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All the officers concerned are attached to the Chana Songkram station that is based just around the corner from the famous tourist road.

They will take up clerical duties at Region 1 HQ while the investigation runs its course.

 

5 hours ago, Thechook said:

So has he allowed a raid on a pub owned by someone powerful and connected? 

From the article, that has to be best guess.