Thailand’s Thaksin Freeze Out

Locking up Thaksin’s billions was easy; keeping them might be

Immediately after his family sold their giant telecommunications
firm Shin Corp to Singapore’s
Temasek Holdings for nearly 74 billion baht in January 2006, critics howled
over the tax-free sale and the disposal of a national asset to a foreign

Deposed Thai premier Thaksin Shinawatra shrugged and called
his critics “jealous.”

“Everything has been considered with legal experts,” he said,
apparently secure in his power. “Everything is correct and right. Some people
are concerned about this because it’s a lot of money, and they want it.”

Well, now they are closer to getting it. After months of
treading water, the junta-created Assets Examination Committee (AEC) said
Monday it would freeze 21 bank accounts belonging to Thaksin and his family containing
about 53 billion baht. Investigators are now stepping up the search for the
extra 20 billion baht and change made from the sale.

“In two months, the case will be brought to the court, but
today we are trying to get all the information on money made from the Shin Corp
transaction,” Kaewsan Atibhodi, secretary-general of the AEC, said in an
interview. “We couldn’t stand still and wait until it’s all gone, gone, gone.”

Even so, the sudden concern about the whereabouts of the family’s
windfall may have less to do with progress on the court case than with growing
protests against the junta. The well-funded daily anti-coup protests near the Grand Palace
in downtown Bangkok
feature a huge stage, state-of-the-art sound system and multiple large screen
projectors.  Suspicion naturally falls on
Thaksin’s largesse as the source of money for the protests.

“We now can trace all of Thaksin’s money to check the
background of the protests,” said junta spokesman Sansern Kaewkamnerd on
Tuesday, according to Agence France-Presse. “If the protests stop after
Thaksin’s assets are blocked, it means that he’s been supporting the

Thaksin has denied funding the protests, although rumors
abound that somebody is paying protesters to show up. Of course, that line of
attack has been used before to discredit the 16 million mostly rural, mostly
poor Thais who voted for Thaksin’s Thai Rak Thai party in the voided April 2006

Now Thaksin looks set to return to Thailand to
fight the accusations over Shin Corp, a move that could certainly galvanize his
supporters and test whether he remains a real force. While protests have yet to
reach anything like the scale the preceded the downfall of Thaksin, rallies have
intensified since a military court dissolved Thai Rak Thai and fears of street
confrontations are growing.

Last weekend, about 13,000 people rallied against the junta
at Sanam Luang, a large field next to the Grand Palace,
and some broke through a police barricade to march on Army headquarters. As
this weekend approaches, some think that the protests will be even larger.

In a capital jittery with uncertainty over the future, this
led to a flurry of coup rumors on Wednesday, prompting the stock market index
to plunge 2.26%. There is are worries that that either the government will
issue an emergency decree, the junta will declare martial law, or protest
leaders will be arrested en masse before the weekend.


Shin on Trial

It has proven difficult to nail Thaksin for anything
directly illegal, perhaps because he carefully lawyered his moves before making
them. But the real problem, from the junta’s point of view, is that Thaksin
should have never been allowed to enter politics in the first place. As one of Thailand’s
wealthiest businessmen before he became prime minister, Thaksin was bound to
trip over his telecom holdings. As Thailand’s first tycoon-leader, he
broke a political mold and raised enormous concerns with reformers and
traditionalists alike that his wealth and swagger would do irreparable harm to
the state.

The system almost stopped Thaksin before any of these issues
could fester in 2001, when the National Counter Corruption Council charged him
with concealing his assets during a previous term in government by designating
family members and retainers to hold his shares. But though the evidence
against him was solid, the Constitutional
Court acquitted him in a verdict that was
controversial at the time, even if it was popular with Thaksin’s supporters.

The 1997 constitution aimed to snuff out conflicts of
interest by requiring all cabinet members to divest their shares or put them in
the hands of a juristic person. But it didn’t say that family members couldn’t
hold the stock ‑ a loophole Thaksin exploited to great effect.

Nonetheless, the AEC’s moves ensure that the focus over the
next few months will turn back to the Shin sale, which initially sparked the
anti-Thaksin protests and provided much of the junta’s justifications for the
coup. This could deflect questions about the military government’s own missteps
by shining the spotlight on a deal that a great many people, including Bangkok’s middle class,
found to be immoral.

The case, to be tried in Criminal Court assuming Thai
prosecutors move forward with the charges, features nothing overtly illegal.
Indeed, prior to the coup Thaksin’s opponents combed through the Shin deal’s
fine print in a bid to pin him down.

But the deal was conducted transparently through the Thai
stock exchange, which allows tax-free transactions. Thailand’s Securities and
Exchange Commission investigated the transaction, but only found some
disclosure violations from Thaksin’s son, who had a large stake in the deal,
and fined him a mere six million baht.

Since the coup, government authorities have attempted to
force Thaksin’s children to pay about six billion baht in taxes for share
transfers connected to the deal. But the children have a statement in writing
from the Revenue Department – from the time when dad was still powerful ‑ saying
they didn’t need to pay the tax. Unsurprisingly, the junta sacked the former
Revenue Department chief and filed malfeasance charges against him.

So with the technical bases covered, the junta had to become
more creative in its bid to take Thaksin’s cash. The prosecution has broadened
its scope to argue that Thaksin was secretly holding Shin stock through
nominees and making policies while in office with the specific intent of
boosting the value of Shin Corp, which has interests in telecommunications,
satellite services, media and real estate. Kaewsan and some other former
senators tried to bring a similar case to the Constitutional Court a month after the
Shin sale, while Thaksin was still on the scene, but it was tossed out.

“We are just concerned about the Shin case in regard to
freezing the money, because with the other cases we are investigating we don’t
have grounds to freeze the money,” Kaewsan said. “We can show in court that the
money that came from that transaction is illegally held through a nominee and
Thaksin’s abuse of power added value to Shin Corp.” 

For all the AEC’s digging the past eight months, they ended
up with a case built on arguments that have been debated in public for the past
five years. It all started as far back as 2002, when the phrase “policy
corruption” was first used concerning the planned liberalization of the
telecommunications industry.

Anti-privatization activists said the move would lower
concession payments to the government. They failed to mention, of course, that Thailand was
required to end the state-run telecom monopolies and fully liberalize its
telecommunications industry by 2006 to meet World Trade Organization

That step-by-step liberalization process led to a problem of
sorts for Thaksin, whose family-owned Advanced Info Service (AIS) was Thailand’s
market leading telecommunications firm. Telecom liberalization would lead to
more money for private companies, and his company was well positioned to

A BusinessWeek story in 2002 noted the dilemma: “The Prime
Minister says he is all for liberalizing Thailand’s overregulated
telecommunications industry. But he is holding back, say analysts, since going
ahead would open him to allegations that the real purpose of the reforms is to
help the Shin group.”

As it happens, charges of collusion came fast and furious
once Thaksin started liberalizing the industry. Shin reaped tremendous profits,
and Thaksin’s critics accused him of tweaking policies to benefit his company.
In 2003, AIS saw profits rise 62% to 18.5 billion baht. The next year, AIS’s
net profit grew another 9% to 20.3 billion.

But that’s where the gravy train came to a halt. In 2005, a
fierce price war prompted AIS’s revenue to drop 4% to 92.5 billion baht, and
net profits fell 8% to 18.7 billion baht. Last year, earnings fell another 13%
to 16.2 billion baht.

So how have AIS’s rivals fared? The two other major mobile
phone operators, third-ranked True Move and second-ranked DTAC, have both seen
steady growth and chipped away at AIS’s market share in the past few years.
Although DTAC still lags behind AIS, its net profit has grown for four straight
years. Net profit rose 24% in 2003 and 73.3% in 2004 to 4.5 billion baht. And
although AIS’s net profit fell the past two years, DTAC’s rose 3% in 2005 and
another 7% last year. Analysts expect its net profit to see double-digit growth
over the next two years to more than nine billion baht if the sector is
liberalized further.

Moreover, AIS’s share of service revenue during the last
five years of Thaksin’s rule actually fell to 53% in 2006 from 68% in 2002. In
that time period, DTAC’s share of service revenue jumped to 32% from 28% and
True Move’s rose to 15% from only 4%. AIS peaked in 2004 and has fallen since
as its rivals have slashed prices.

Allegations pose large questions

The point of this is that it may prove tricky to prove
“policy corruption.” The playing field was certainly tilted in favor of AIS,
but it’s tough to pin that solely on Thaksin. Back in 1990, when the concession
was first granted and Thaksin was still an executive, TOT exempted AIS from
charges to access its fixed-line networks in an effort to give it a market
advantage over concessionaires of CAT, its fierce rival. In the early 1990s,
AIS used this advantage to reap billions, although its rival DTAC also took in
stellar profits. This led to calls for market liberalization.

The financial crisis ended talk of reforms and helped deter
new players. By the time the economy recovered a few years later, Thaksin was

The AEC says the evidence of abuse of power lies in seven
suspicious decisions from Thaksin that led to accusations of unusual wealth:
four concerning AIS and three involving Shin Satellite. The accusations involving
AIS involve about 100 billion baht in “lost” revenue compared to just a few
billion from Shin Satellite. Even so, if the allegations against Thaksin stick,
then many new cans of worms may be opened.

Thaksin’s critics accused him of conflict of interest when
he blasted AIS’s rivals in 2002 for refusing to pay the discriminatory access
charges to TOT. The state enterprise backed Thaksin and threatened to cut off
DTAC and the forerunner to True Move. Many saw this as TOT manipulating the
playing field for Thaksin’s personal gain, even though the Administrative Court
‑ which displayed a flare for independence in blocking the initial public
offering of the state-run electricity monopoly in 2005 ‑ also ruled in favor of

While Thaksin did indeed benefit, it’s also clear that TOT
was also looking out for its own interests. Even after the military ousted
Thaksin, TOT threatened to cut off DTAC and True Move for refusing to pay
access charges, and the government is now doing all it can to resist efforts to
switch to interconnection charges, which would truly help level the playing

If Thaksin is found guilty of policy corruption for telling
CAT concessionaires to pay access charges, then would prosecutors go after the
current government for saying the same thing?

The AEC also fingered Thaksin for TOT’s decision to reduce
AIS’s revenue-sharing payments on pre-paid calls to 20% from 25%, which
investigators say cost the state 71.7 billion baht. The military-appointed
government is now hoping to boost those payments to 30%.

But that decision came about because TOT agreed at the same
time to a DTAC request to amend access charge payments from 200 baht per user
per month to 18% of pre-paid revenue. If the court rules that decision is
deemed policy corruption, does that mean Thaksin will also be charged for the
money DTAC saved by reformulating the access charge agreement?

Another major complaint from graft investigators is that
Thaksin’s government allowed mobile phone firms to deduct 10% of concession
payments as an excise tax, which resulted in losses for the state-run telecom
companies. But this move was in line with liberalization, and the money was
still paid to the government.

It was also applied to all telecom companies. So if Thaksin
is required to pay back TOT’s lost revenue, will he also be required to pay
back the revenue CAT would’ve made from DTAC and True Move?

The committee also says Thaksin abused his power by raising
the limit on foreign holdings in telecom companies to 49% just days before the
Shin deal went through. However, this was in the works for years, and in fact
AIS’s rivals were furious at the government for not doing it sooner.

The Telecom Business Law, which took effect in November
2001, put the foreign investment cap at 25%. At the time, AIS was the only
company that actually complied with this provision. DTAC was 40% owned by Norway’s Telenor, and TA Orange, which later became
True Move, was 49%-owned by French-owned Orange.

Although the law was not retroactive, DTAC and TA Orange said
the limit sent the wrong signal to their parent companies, which they needed to
grow. In turn, the government agreed to amend the law to 49%. So when the law
was finally amended days before the Shin sale in January 2006, it was certainly
no surprise. The only question might be why it took five years to do so.

As for Shin Satellite, the strongest case against Thaksin
appears to be his government’s approval of a four-billion-baht EXIM bank soft
loan to Burma,
600 million of which went to buy services from his family’s satellite firm.
While this is certainly a direct benefit to one of his family’s companies, it’s
also not terribly unusual. The Thai government had approved soft loans to Burma to build
roads and airports, and many Thai companies benefited. It’s quite standard
around the world for governments to offer cheap loans to countries in order to
generate business for national companies.

Narongchai Akransee, EXIM bank chairman and a former
commerce minister during the 1990s, defended the loan before the AEC last
month. Three billion of the four-billion-baht loan had already been disbursed,
Narongchai said, and Burma
has dutifully made the interest payments.

The senior bureaucrat added that the loan was made as part
of government policy to encourage foreign investment in other countries, and
has benefited 15 Thai companies in addition to Shin Satellite.


“We won’t take every penny”

 Even so, that won’t stop the AEC from targeting Thaksin.
They have already calculated the political premium he added to Shin’s value at
40 billion baht.

“We won’t take every penny,” said Kaewsan. “About 30 billion
baht [of the 73.3 billion] we have to give back. But then they can get the rest
through civil lawsuits.”

Thaksin certainly didn’t hide his contempt for allegations
that his policies benefited Shin while he was in office, and it’s unlikely he
will mince words if he testifies in court. When accused of “policy corruption”
in 2004, Thaksin replied: “They just made up a beautiful term to use against
me. There’s no such thing in this government. Our policies only serve the
interests of the majority of the people.”

“Politicians have nothing to do with share values,” he
added. “Look at the stock prices of banks ‑ they have also risen. Energy and
cement shares have also jumped. The critics are just talking half-truths; it’s
an ancient tactic.”

Since the case will go to Criminal Court, Thaksin could find
himself in jail in addition to losing a large chunk of his fortune. Right now
it’s unclear under which statute he will be charged, but the anti-corruption
law here has stiff penalties for politicians who abuse their power.

Even so, a court appearance may actually prove to be a good
outcome for Thaksin. On Wednesday, coup leader Sonthi Boonyaratglin warned the
ex-premier of another fate that could come his way if he returns:

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