Global Investigations Review - The law and practice of international investigations

The Asia-Pacific Investigations Review 2016

Thailand: Anti-Corruption Compliance

20 November 2015

Tilleke & Gibbins

Thailand remains a favoured destination for foreign direct investment (FDI) despite regional and global economic fluctuations. FDI is an important factor in Thailand’s economic growth and stability and the country has focused intensely on efforts to consistently improve its standing as an FDI destination. In terms of investment, the country offers an attractive and modern legal framework, reasonable input costs and a favourable geographic location, all of which contribute to its popularity among foreign investors. Investment figures support the continued focus on Thailand as a hub for FDI.

According to the UNCTAD World Investment Report 2014, since 2012 Thailand has been among the eight priority destinations for FDI for the period 2014–2016. It is also the seventh-largest FDI recipient in East Asia and South East Asia. In fact, since the global economic downturn, Thailand has enjoyed steadily increasing FDI, even in the face of recent political instability. Thailand’s Board of Investment (BOI) further reports that since the return of political stability in 2014, projects registered with the BOI have increased by 73 per cent with the total value of such projects representing an increase of approximately 117 per cent over 2013. With current government policy focused firmly on a seven-year plan to encourage further investment, it is expected that FDI inflows should continue to increase.

The influx of FDI, combined with the substantial presence of existing foreign investment projects, places on-the-ground investors in an environment in which many factors need to be considered by local, regional and global counsel. Foremost among these considerations is the anti-corruption environment in which investors operate.

Overview of corruption

Few people question the cost of corruption. Though statistics on corruption are often questionable, available data suggests it accounts for a significant proportion of economic activity. Estimates by the World Economic Forum show the cost of corruption equals more than 5 per cent of global GDP, with over US$1 trillion paid in bribes each year according to the World Bank.1 Historically, Thailand has struggled in dealing with various forms of corruption without substantial success. Statistics bear this out. According to Transparency International, Thailand has slipped from 60th in the Corruption Perception index in 2001 down to 85th out of 175 countries, scoring an aggregate score of 38 where zero is highly corrupt and 100 is very clean.2

To address the problem in Thailand, a significant budgetary focus is concentrated on supporting anti-corruption agencies, with additional millions spent on wide-ranging media awareness campaigns. In addition, there have been substantial efforts recently to improve the corruption environment through legal reform, efforts the current Thai government intends to expand. The combined budgetary, media and legal focus marks a change in direction that, through time, should show returns.

It should be noted, however, that no efforts, however substantial, are expected to immediately change the challenging anti-corruption environment in which domestic and foreign business operators function in Thailand. It is for this reason that investors should be diligent in efforts to understand the risks and the legal restrictions and protections available, and should work to develop programmes to minimise such risk through education, evaluation and compliance. This article seeks to provide an overview of the legal framework for anti-corruption regulation and enforcement, evaluative mechanisms available to business operators and tools for minimisation of risk through compliance.

Overview of domestic law

Anti-corruption offences are covered by a number of laws in Thailand, including:

  • the Thai Penal Code – BE 2499;
  • the Offence of State Organisation Staff Act – BE 2502;
  • the Organic Act on Counter Corruption – BE 2542;
  • the Rules of the Office of the Civil Service Commission on the Code of Ethics for Civil Servants – BE 2537;
  • the Code of Moral and Ethics of Policies – BE 2553; and
  • the Notification of the Office of the National Counter Corruption Commission Concerning the Provisions of the Acceptance of Property or Any Other Benefits on Ethical Basis by State Official – BE 2543.

In general, the offeror of the bribe, the facilitator and the receiver may all be subject to criminal penalties.

Core elements of the law for a bribery crime to be established include:

  • the recipient of bribe must be a Thai public official;
  • the offence of bribery occurs when parties reach an agreement to offer and accept a ‘benefit’ (an official is guilty even though he was paid to perform his or her own legal duties); and
  • the term ‘benefit’ is defined broadly to cover both tangible and intangible assets, and does not have to be calculable in monetary terms.

The Thai Penal Code does not provide a definition of ‘public official’. However, the Supreme Court has held that a person will be regarded as a ‘Thai public official’ if he or she is appointed by the Thai government (Decision No. 700/2490):

  • to perform governmental functions (Decision Nos. 82-86/2506);
  • whether on a regular or non-regular basis (Decision No. 533/2485) iv) regardless of whether he or she is a Thai national (Decision No. 700/2490); and
  • regardless of whether he or she receives remuneration from the government (Decision Nos. 1397-1398/2500).

The Organic Act on Counter Corruption, BE 2542 also prohibits ‘state officials’ (individuals who were state officials within the last two years of the relevant act) from accepting property or benefits, unless they fall under the exemption of NACC. No motive is needed to violate this provision. Violation of this rule shall be deemed as a breach of duties and may also constitute a dishonest discharge or non-discharge of duties under the Penal Code.

Importantly, recent 2015 amendments to the Anti-Corruption Act have broadened the scope of liability for wrongdoers, a clear objective of the current Thai government. For example, liability may now be extended for corporate entities and senior management for bribery offences committed by employees, agents and others acting on behalf of the company where the act is for the benefit of the company and the company has failed to implement ‘proper internal measures’ to prevent the wrongdoing. This is a move to prevent a previous loophole, in which bribery by a corporate entity was not generally prohibited unless it constituted a bid-rigging violation in connection with a price proposal with governmental agencies according to the Bid-Rigging Act, BE 2542 or considered as an unfair practice under the Trade Competition Act, BE 2542.

These important amendments and the political commitments from the current government portend a continued strengthening of the anti-corruption legal framework and culture.

Quota for acceptance of gifts by state officials

In 2000, the Thai National Anti-Corruption Commission issued a ministerial notification providing that any acceptance of property or benefits by state officials must not be valued at more than 3,000 baht. If an official finds it necessary to accept a gift worth more than 3,000 baht, a report is required to be made to the state official’s supervisor. This is a cultural accommodation that seeks to provide certain exceptions for culturally acceptable gift-giving. That said, much confusion has been caused by this rule as there are no specific guidelines for an action to be treated as violation. Further refinement and clarification is warranted.

Annual requirements for companies

Corrupt behaviour may also be regulated and enforced under the Thai Civil and Commercial Code, which requires Thai private limited companies to prepare financial statements once a year, have them audited by an auditor and submitted to shareholders for approval within four months from the date specified in the financial statements. Failure to meet this obligation may result in a maximum fine of 20,000 baht to the company and a maximum fine of 50,000 baht for each of its directors (Act Prescribing Offences Relating to Registered Partnerships, Limited Partnerships, Limited Companies, Associations and Foundations, BE 2499).

International law and extraterritorial effect

Thailand became a signatory to the United Nations Convention against Corruption (UNCAC) on 9 December 2003 and ratified the UNAC on 1 March 2011. But, it has yet to enact the full panoply of domestic laws necessary to meet its obligations under UNCAC, although recent legal developments have placed Thailand closer to a position of compliance.

For example, recent amendments to the Organic Act on Counter-Corruption also include extension of liabilities for extraterritorial acts. Specifically, coverage has been extended to those giving bribes to foreign state officials and workers of international organisations. Liability may also extend to the foreign state officials and organisations themselves, a significant step to place Thailand in conformity with its international commitments to enforce corrupt behaviour.

While these are positive steps, Thailand still has far to go to improve its anti-corruption laws and procedure. Thailand is not yet a signatory to the OECD Convention, although the Thai National Anti-Corruption Commission (NACC) reports that it cooperates with members of the OECD Anti-bribery Convention on international bribery cases. In addition, enforcement has been inconsistent. More needs to be done to encourage robust investigative efforts, resource allocation and enforcement, a commitment recently made by the Thai government.

Interacting with overseas regulators

Under the Mutual Legal Assistance in Criminal Matters Act 1992, Thailand has signed bilateral agreements for mutual legal assistance in criminal matters with the UK, US, France, Canada, Norway, the People’s Republic of China, Korea, Peru, Poland, India and Sri Lanka. In Thailand, the Attorney General’s Office is the entity responsible for coordinating requests for assistance. The Anti-Money Laundering Office (AMLO) has also signed separate memoranda of understanding with more than 30 countries for the exchange of financial information related to money laundering and remains a valuable investigative source and tool for combating corruption and seeking recovery of the fruits of illicit activity.

Countries that have not signed bilateral agreements with Thailand for mutual legal assistance may seek such assistance through diplomatic channels.

Enforcement of bribery laws

The NACC, the Public Sector Anti-Corruption Commission (PACC), the AMLO, and the Office of the Attorney General of Thailand (OAG) are key players in the anti-corruption investigation, regulation and enforcement fields.

The government agency primarily responsible for enforcing bribery laws is the NACC. The NACC was established under the 1997 Constitution and the Anti-Corruption Act to prevent and investigate corruption crimes. The NACC has broad powers of investigation but lacks actual authority to prosecute a crime, and must refer the case to the public prosecutor for prosecution (although the 2011 amendment seems to have provided for the eventual establishment of a prosecuting division within the NACC). At the same time, the NACC could send a report to the Senate to determine whether to impeach the offending official.

The NACC cooperates with foreign government agencies on corruption cases. If foreign bribery laws are enacted, the NACC will likely play an important role in the enforcement of anti-corruption laws.

The PACC was established in 2008 to focus particularly on corruption by certain categories of public officials. Its jurisdiction thus forms part of the broader jurisdiction of the NACC, and within that area the NACC will generally refer cases to the PACC.

The AMLO has primary responsibility for implementing the anti-money laundering law and suppression of terrorist-financing. It collects and analyses reports from financial institutions and other sources to identify subjects for investigation, and it is responsible for conducting investigations leading to the seizure and forfeiture of assets acquired with the proceeds of offences under the relevant laws. The OAG has primary responsibility for auditing state agencies.

Obligations to whistleblow

The Anti-Money Laundering Act imposes a duty on a prescribed list of persons (in general, certain financial institutions and advisers, and certain categories of traders) to report to the AMLO in respect of suspicious transactions, cash transactions exceeding 2 million baht and other transactions exceeding 5 million baht in asset value, with certain categories of transactions being exempted. The penalty for failure to report is a fine not exceeding 500,000 baht and an additional amount not exceeding 5,000 baht for each day that the violation is not corrected.

There is no general ‘whistleblower’ obligation, although draft whistleblower legislation has been prepared. Although there is no specific law dealing with whistleblowers, protection can be derived from the Witness Protection in Criminal Cases Act of 2003, although its use is rare.

Impact of overseas anti-corruption laws in the US and UK

The US Foreign Corrupt Practices Act (FCPA) prohibits the bribery of ‘foreign officials’. It is extraterritorial in effect and impacts all US companies and persons as well as foreign companies and persons if they issue securities on a US exchange or otherwise engage in activities in furtherance of a bribe in US territory. Importantly, in pursuing potentially unlawful acts under the FCPA, the US Department of Justice has adopted an expansive definition of what it means to commit an act of bribery in the US and has interpreted it to catch the transfer of money through US bank accounts including, potentially, all US-dollar transactions that are cleared through bank accounts in the US.

The FCPA also contains a books and records provision requiring issuers to make and keep accurate books, records and accounts, which, in reasonable detail, accurately and fairly reflect the issuer’s transactions and disposition of assets. In addition, the FCPA’s internal controls provision requires issuers to devise and maintain reasonable internal accounting controls aimed at preventing and detecting FCPA violations. These provisions apply to all companies, both US and non-US, that have their securities issued on a US exchange. They are expansive provisions and have been used to prosecute companies in cases where bribes have been paid to private individuals.

The UK Bribery Act 2010 (Bribery Act) covers bribery of private persons as well as public officials. It also has extraterritorial application. For example, the Bribery Act prohibits offering or accepting a bribe outside the UK provided that the offender has a close connection with the UK. Persons with a ‘close connection’ include British citizens and organisations incorporated in any part of the UK. Similarly, the Bribery Act’s corporate offence – which occurs when an organisation fails to prevent those performing services on its behalf from paying bribes – applies not only to organisations incorporated under UK law, but also to any other company carrying on a business, or part of a business, in the UK, regardless of where the act of bribery takes place.

The fact that conduct may not constitute an offence under local law does not necessarily mean it is permitted under the FCPA or the Bribery Act. Companies doing business in Thailand are advised not only to comply with domestic legislation, but should also be fully aware of the far-reaching extraterritorial effect of both the FCPA and the Bribery Act.

Conclusion

Although the Thai government is viewed as relatively less bureaucratic when compared to other South East Asian countries, paying bribes to expedite licences, permits, provision of facilities and public utilities, and to receive government contracts is common. Police corruption in Thailand remains an issue. Further, judicial corruption, while uncommon, may appear in the form of decisions influenced by personal relationships.

As evaluated by the Global Integrity Report in 2007, the anti-corruption laws in Thailand are in fact fairly strong, given that certain corrupt practices by officials are punishable by death. However, actual enforcement needs improvement. Only 15 corruption cases were brought to court in Thailand between 2000 and 2011. In addition, the prosecution process often takes so long that it fails to discourage offenders, and the Prosecutor General may decline criminal prosecution. This may, in fact, create an environment in which corrupt activity and possible exposure to business operators for violation of foreign laws is increased. It is in this challenging environment that business operators, general and outside counsel must act affirmatively to assess potential liabilities, both domestic and foreign, and design and implement compliance programmes to educate and encourage lawful behaviour that is also culturally acceptable.

Notes

  1. www.bangkokpost.com/business/finance/397862/time-to-rethink-the-misguided-anti-corruption-strategies-in-thailand.
  2. www.transparency.org/country#THA.

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