OPPOSITION SEEKING USG SUPPORT IN CORRUPTION

UNCLAS SECTION 01 OF 02 BANGKOK 004093

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/MLS AND EB/IFD - PAUL BROWN
COMMERCE FOR 4430/EAP/MAC/OKSA
TREASURY FOR OASIA
JUSTICE FOR MARK MANDELSON

E.O. 12958: N/A
TAGS: EIND ETRD PGOV TH
SUBJECT: OPPOSITION SEEKING USG SUPPORT IN CORRUPTION
INVESTIGATION



1. (SBU) Summary. The Thai Department of Special
Investigations (DSI, similar to the US Federal Bureau of
Investigation) told us on July 7 that it will soon submit
evidence of corruption to the RTG National Counter Corruption
Commission (NCCC) in the purchase of fire fighting equipment
by the Bangkok city government (BMA). The supplier under the
Bt6.7 billion (US$177 million) contract is Steyr-Daimler-Puch
Spezialfahrezeug GmbH (Steyr) of Austria, a fully-owned
subsidiary of General Dynamics Corporation of the US. The
opposition Democrat Party is urging the RTG Attorney General
to seek US Department of Justice assistance "to investigate
suspected bribery of American and Austrian executives as well
as Thai officials in the procurement..." End Summary.

US-Owned, Austrian Supplier
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2. (U) On July 30, 2004 an "Agreement of Understanding" (AoU)
was executed between The RTG (Ministry of Interior) and the
Government of Austria regarding the purchase by BMA of
firefighting equipment from Steyr. Forming part of the AoU
was a Purchase/Sale Agreement between BMA/Ministry of
Interior and Steyr. Both agreements specified the requirement
for the RTG to open a Letter of Credit in the amount of Euro
133,749,780 for "European Standard" equipment. The equipment
specifications form an annex to the Purchase/Sale Agreement.


3. (SBU) While the Purchase/Sale Agreement was signed by
then-Bangkok Governor Samak Sundaravej (leader of the
Prachakorn Thai, or Thai People's Party),current Governor
Apirak Kosayodhin (a Democrat) opened the Letter of Credit
following his election to replace Samak in August 2004. A
current Democrat Party leader told us that he advised Apirak
not to open the L/C but that Apirak felt pressured by then
Interior Minister Bhokin to do so "because of the harm to
bilateral Austrian-Thai relations" if he did not. Because the
Democrats are concerned that the Thai authorities will pursue
this case in a manner most favorable to PM Thaksin and least
favorable to their party, they are seeking US involvement
under the Foreign Corrupt Practices Act., in hope of a more
even-handed investigation.

The DSI Investigates
--------------


4. (SBU) Police Colonel Tawee Sodsong, Deputy Director
General of DSI and chief investigator of this case told us
that there were several bases for legal proceedings in the
fire fighting equipment purchase and that he was suggesting a
focus on internal Thai activities rather than what foreign
entities may have done. The first issue is a discrepancy
between a Thai cabinet resolution authorizing the AoU and
what the AoU actually contains. This includes an upper limit
of Euro 133 million for the contract to include all expenses
while the final contract excludes Thai VAT and import duties.
Tawee also said that the cabinet approved separate contracts
for foreign-sourced and Thai-sourced equipment and BMA
violated the decision by combining all the purchases under a
single contract.


5. (SBU) Earlier this year Tawee visited Europe as part of
his investigation, including a visit to Steyr. He says he
found that Steyr did little manufacturing itself and acted as
a general contractor for the contract, purchasing equipment
from all over Europe and Thailand. Tawee believes that Steyr
significantly padded the prices, citing as an example the
purchase of Thai-made fire boats for Bt14 million which Steyr
then supplied to the BMA for Bt26 million with little or no
value-added. Tawee says he has requested from Steyr, and sent
a corresponding letter to the Austrian Attorney General,
asking for a breakdown of Steyr's costs in fulfilling the
contract to see if there are any "unaccounted for" expenses.
Tawee has not heard back from the Austrians.

Austrians Argue "It's All in the Contract"
-------------- --------------


6. (SBU) We also met with the Austrian Commercial Attach in
Bangkok, Georg Weingartner, who said that the contract was
completely above-board and that arguments that similar
equipment could have been purchased in Europe for much less
cost simply were not based on the specifications as outlined

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in the Purchase/Sale Agreement. Weingartner admitted that the
purpose of the AoU was to use it as a loophole in Thai
procurement regulations to avoid a public tender. However, he
said that items were purchased in Thailand in accordance with
Thai cabinet requirements that procurements maximize Thai
content as much as possible. Weingartner claimed it was
"nonsense" that Steyr provided no value-added to the
Thai-made items and that the real issue is that Steyr is
caught in the middle of a Thai political battle. He noted
that he has never seen any of the letters DSI claims it has
sent to the Austrian government seeking assistance and that
DSI has never visited the Austrian Embassy to seek
information about the transaction. Note: Tawee confirmed this
but added that the Austrians have never visited his office
either. End Note.)


7. (SBU) Weingartner noted that Steyr and General Dynamics
had conducted their own internal investigation of the
transaction and found everything to be done in accordance
with transparent and correct business practices and that
Steyr had completely fulfilled the terms of the contract. He
also supplied us with a comparison of prices for fire trucks
Steyr supplied to Thailand in 1997 with the 2004 prices;
pointing out that - adjusting for inflation - the prices were
comparable. He also implied that some senior Democrat party
members represent a Spanish firm that is hoping to win a new
contract. He also noted (and we later confirmed) that a
"technical committee under Apirak had reviewed and OKed" the
terms of the contract before Apirak opened the L/C. Christian
Suchs, CEO of Steyr, visited Bangkok the week of July 3 in an
effort to convince BMA to take delivery of the 170 fire
trucks currently sitting in a Bangkok warehouse. BMA instead
asked that the contract be cancelled. Steyr is considering
suing the BMA and the RTG for the cost of storing and
insuring the vehicles.


8. (SBU) Comment. As an Austrian-Thai, government-to
government business deal, we have tried to keep the US out of
this argument but the fact that Steyr is wholly-owned by
General Dynamics keeps dragging us back into the fray. We
have been in touch with DSI since this issue was raised in
the OECD about six months ago and offered the Thai
investigators our full cooperation, which they have never
sought. We have also had regular contact with the Austrian
Embassy and encouraged them to conduct their own
investigation of the matter. Last week, Colonel Tawee asked
if we could follow-up with the Austrian Attorney General on
their letter requesting information on costing from Steyr and
we responded that we would seriously consider any such
request but that we needed to see a copy of the letter sent
to the Austrians. We have not yet received the promised copy
of the letter. In Thailand, the odds are pretty good that a
no-bid government contract could involve money flowing to
politicians. Whether the foreign suppliers might be party to
any possible corruption is not certain.
ARVIZU