While we are by no means legal experts, as finance practitioners who have looked at the Foreign Business Act in some detail we feel that the recent decision by the Commerce Ministry to expand its investigation to potential use of nominees in 16 other companies may be compelled more by political motives rather than a judicious application of the law. Our feeling was strengthened after we looked at these 16 companies and found that most of them engage in businesses that are not governed by the Foreign Business Act, which is the only law in Thailand that clearly prohibits the use of nominees for businesses under its purview.

What the original probe on the Shin transaction found can be summarised as follows: the BDD found that Surin Upatkoon's investment (Bt2.72 billion) was actually invested by him on behalf of a foreign entity, Fairmont Investments Group, a company registered in the British Virgin Islands. Investigators believe it is highly likely that the money from Fairmont is actually from Cypress Holdings, a Temasek subsidiary. The BDD thus recommends the prosecution of Surin, and several others, for violating the Foreign Business Act. Shin is governed directly by this law because one of its many businesses was the rental and servicing of computers, for which Shin has to receive prior approval from the director general of the BDD. The initial findings exonerate Pong Sarasin and Suphadej Poonpipat as the department is satisfied that both individuals used money from domestic sources in their initial investments, regardless of their voting rights or control of the investment company, Kularb Kaew Limited, which was used as part of the Shin purchase.

In our book "25 Questions", we listed several ways in which the nominee status of Kularb Kaew and its Thai shareholders can be reasonably deduced from public information regarding the shareholders' voting rights, control, and sources of funds. In its investigation, the BDD has chosen to define the term nominee very narrowly to include only the ownership of money used for share capital investment. The BDD rightly did not use control and voting rights as criteria in its judgement of nominee status (even though both were mentioned in the fact-finding section of the report), as the Foreign Business Act only authorises it to look at the amount of capital. In addition to this methodology complying strictly with the letter of the law, perhaps the BDD also astutely recognises that to touch upon such issues will mean ushering in a period of economic turmoil as well.

However, upon the suggestion of unfair treatment by Surin Upatkoon, the person singled out by the original report as a nominee for a foreign entity, the Commerce Ministry recently stepped up the scale of its investigation to include the following 16 companies, which we have categorised into seven groups for easy reference:

Group 1, telecom firms - includes UCOM, Bolero-Tak Wu Holdings, Telenor and Hutchison CAT Wireless Multimedia. We would like to argue that these four companies do not come under the purview of the Foreign Business Act at all, but rather under the Telecommunications Act, which still has no provisions regarding the use of nominees. Accordingly, the government entity that is authorised to investigate these companies should be the National Telecommunication Commission, not the Commerce Ministry.

Group 2, domestic airlines - includes Asia Aviation (Thai AirAsia) and Thai Sky Airline. Foreign ownership limits in these companies are now governed by the Aviation Act, not the Foreign Business Act (even though domestic aviation is listed as a category-two business in the Foreign Business Act, its governance power is superseded by the Aviation Act). The Aviation Act has no provision regarding nominees, and at any rate states clearly that the Civil Aviation Committee is the body with the power to investigate not the Commerce Ministry.

Group 3, retail firms - includes Cen Car Limited (Carrefour) and Ek-Chai Distribution System (Tesco-Lotus). The Foreign Business Act only has authority over retail companies with capital of less than Bt100 million. This is explicitly stated in the law. Given the scale of these two retail operations, it is highly unlikely that they will come under the jurisdiction of the Foreign Business Act.

Group 4, construction material firms - includes Cemex (Thailand) and Siam City Cement PLC. The companies manufacture and sell cement and mortar - important construction materials. Categories one through three under the Foreign Business Act do not include these products. These two companies may still come under the jurisdiction of other laws, but not the Foreign Business Act.

Group 5, land transport firms - with DHL Logistics (Thailand) as the sole company in this business under investigation. However, the services of DHL Logistics are governed by the Land Transport Act and the Land Transport Department. It has nothing to do with the Commerce Ministry.

Group 6, firms dealing with household pets - includes Qian Hu Marketing and NNTL (Thailand) Limited. Both are subsidiaries of Qian Hu Corporation, a Singaporean company that bills itself as "an integrated one-stop ornamental fish service provider". Businesses dealing with pets are not listed under any of the three business categories that are governed by the Foreign Business Act. However, we find it somewhat unclear whether parts of Qian Hu's business in Thailand could possibly be construed as "husbandry" or fisheries", both of which are prohibited businesses under category one of the Foreign Business Act.

Group 7, other firms - includes Willich Sales and Contracting (insulation engineering), Izumi Zenkosha (Thailand) (event organiser) and Burapa Lumpini Land (real estate). Willich's insulation could fall under "construction" or "engineering services", both of which are category-three businesses in the act. Similarly, the event organising of Izumi Zenkosha (Thailand) could be construed as part of "advertising", a category-three business governed by the Act.

As for Burapa Lumpini Land, we are not sure what the company's major business activities in the real estate sector are. Foreigners are prohibited to engage in real estate brokerage (buying and selling land) under the Foreign Business Act, but idle landholding or real estate development is governed separately by various real estate laws.

Given that most of the aforementioned 16 companies (11 companies in groups one through five in our categorisation) clearly do not even engage in businesses that are governed by the Foreign Business Act, it appears that the Commerce Ministry's decision to investigate potential use of nominees in them is just a stalling tactic on the part of the current government investigation team headed by Yanyong Phuangrach.

The new investigation is conducted at the ministry level and not at the department level as specified by law, thus lending further credence to the belief that there are political machinations behind it. The government, in protecting its interests, appears willing to gamble the whole economy. If this were true, it is an act of desperation rather than judicial moderation, and therefore should be opposed and scrutinised by the public. The welfare of our economy, particularly one that still relies on foreign investment as one important engine of economic growth, is not a trifling object to be toyed with in this manner.

Ma Nok and Dek Nok Krob are co-authors of "25 Questions on Shin Corp - Behind Shin Corp Takeover Deal", published by OpenBooks this year.

Ma Nok,

Dek Nok Krob

Special to The Nation