Thailand's Thaksin Freeze Out

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 country.

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 demonstrations.”

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 election.

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 commitments.

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 profit.

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 premier.

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 TOT.

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 field.

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: assassination.