COMMERCE UPDATES ON INVESTIGATION INTO NOMINEES

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