another publication by IMAGE asia

How law can be used as a business tool to persecute foreigners in Thailand

  Bangkok / Boat Lagoon

The law can be a deceptive illusory concept for innocent businesspeople who are not immersed in legal interpretation on a daily basis. Many businesspeople will rely upon legal advisers to assist with risk-analysis decisions relating to a desire to pursue profits, through investment, risk and reward activities in Thailand.

What can be a surprise for the uninitiated or unprepared is the huge gulf between common practice, enforcement methods and the strict codified laws that exist in the body of law generated over lifetimes. Of further surprise, may be the use of law and alleged, but even unproven, breach as a method to extort, leverage or financially undermine an investor, by a partner or co-investor.

Although laws were written for the purpose of bringing order to society, for protecting economic, social and cultural interests, under a legal constitution, and in accordance with the domestic framework set up for formulation and enactment of laws, the incontrovertible fact – that is not unique to Thailand – is that there are many bad faith market participants.

 

Admittedly, this article focuses on a negative aspect of investment when, arguably, there are just as many – or maybe more – potential upsides to taking risk. However, for a market participant to make good investment decisions and calculate risk/reward, potential capital/income and other financial ratios, good quality information on market risks is better than none, or better than a polished unrealistic portrayal of how a market actually operates in practice. It must be noted first of all, that there are high profile cases of foreigners being persecuted and “judicially harassed” (this means harassment through the law, not by the judiciary itself), but who ultimately have been found by the Supreme Court to have been justified in the actions which formed the subject of harassment. So, justice can prevail, but unfortunately often years after huge personal damage on participants and their families has already been imposed.

So, to the examples of how business partners in Thailand may typically use bad faith persecutory tactics through law, to exact damage and manoeuvre for leverage:

Use the Labour Law or Immigration Act to find a breach or violation unconnected to the business dispute, but which will jeopordise and harm the foreigner’s sense of wellbeing, family and living security, including right to earn income and right of abode – temporary or otherwise, in the country.

Often, upon the first signs of a dispute over a business arrangement, a partner will approach their legal advisor, and strategise to ‘investigate a work permit’, ‘contact the authorities to check compliance’ and/or investigate declarations made in relation to a visa. This is designed to humiliate and scare a foreigner into conceding on the business issue, whether wholly or partially right or wrong, and is a lateral manoeuvre requiring the least effort. Many foreigners are unaware of the limitations of law on the complainant, namely that the complainant must be very careful not to illegally obtain private information from a government department and that the officials must not collude with any information disclosure. Unfortunately, in practice, due to foreigners feeling uncomfortable and not familiar with checks and balances and any ‘safe havens’, the complainant will achieve some degree of success with these socially and morally low harassment tactics. Many legal letters sent on completely unrelated topics contain references to “investigating work permits and visas”. We have also seen extensive use of misinterpretation of salary and benefit declarations as a method to inflict damage on foreign parties who previously relied upon the very party making the complaint, to advise them on compliance.

Use the Computer Crime Act’s broad provisions to trigger spurious legal proceedings to try and provoke confiscation and holding of a foreigner’s passport, restricting rights to travel, visit family overseas, while causing stress and damage through the instigation of criminal proceedings.

Reading the Computer Crime Act in Thai or English, it is easy to see how a breach can occur. Simply entering false information into a computer can give rise to a violation – with limited exceptions. This is almost like asking someone who drives a car if they have ever violated the speed limit. There is so much false information in the world of ‘computers’, or should we say ‘technology’, that is very easy to forward or share something which is partly false, with innocence. Business partners and aggrieved parties will often look to this law to try and file a private criminal complaint to harass a foreigner.

Trick a foreigner into signing a false document, or a wrong document, in relation to an application, then save or ‘store’ the violation and later use it against them as a violation of the criminal code for providing false information to an official. Due to the fact that Thai language is used for all official documents, it is exceptionally easy to wear down a foreigner with the volume of paperwork that they have to churn through for many everyday tasks, applications or business duties. In the face of this bureaucracy, businesspeople will often delegate the translation, completion and submission of these documents and processes to internal staff or external agents.

The common trick for a party seeking to persecute the foreigner, is to identify any technical discrepancy in the paperwork, or even – in more ‘friendly times’ – encourage the foreigner to take a shortcut or make a small violation, only to then use it against him later, with full access to the breach made. A seemingly laissez-faire and relaxed business partner can very quickly turn into a slavish obsessive, determined to privately and publicly enforce everything ‘strictly in accordance with the law’.

When applied very strictly, the law can be a very dangerous societal tool, especially if read literally with no interpretation of intention or balance. It is almost laughable, if it were not for so many fatalities per year, that there is a law against driving through a red traffic light or along a roadway in the wrong direction; such a law does exist, but is not ‘strictly enforced’ if one observes the roads carefully. Likewise, a business mistake on a document is easily made but when dealing with a bad business partner, not easily forgiven.

Encourage the foreigner to commit to an investment structure which is legally flawed, then use the flaw against him so that they dispose of assets at a discount or lose the assets altogether under a dispute or through fraud. The most common example of this is in a joint venture commercial investment, or an investment relating to a property acquisition involving land, whereby one partner will promote a structure, or even recommend an adviser to set up a structure, which they actually will later allege is an illegal structure and challenge it to gain or exploit commercial advantages over their actual or former co-investors. The range of tricks includes:

  • Persuading an investor to take short cuts on ‘paid-up’ share capital, and later ‘calling up’ unpaid capital or denying investor rights – voting and control through evidencing unpaid capital
  • Persuading an investor to enter into false or risky investments with ‘nominee’ shareholders who are simply put forward to place their names into an investment to superficially satisfy the requirements of Thai majority or Thai participation in a particular enterprise. Obviously one investor aware of such a short cut can easily whistleblow and provoke an investigation to exploit and exert pressure, at a time when it suits them.
  • Persuading an investor to sign documents, contracts, or become involved in a business with a ‘land purchase’ element, and then later accuse them of violating the Land Code which restricts foreigners from purchasing land directly or indirectly. This will often be confusing for an investor, who may be investing not to purchase land, but to do something else, but where land is a necessary part of an investment. Grey areas of interpretation, practicalities of a business and an initial friendly approach from co-investors can lead a foreign party into a false sense of security, until it is too late to mitigate risk.
  • Persuading an investor to sign a document which doesn’t have any legal effect under Thai law, knowing that if a dispute arises the foreign party cannot rely upon the validity of a document or agreement. There are many examples of this for an unwary investor: trusts in Thailand are illegal, constructs which constitute illegal securities are illegal, documents which can be interpreted as an illegal loan will be invalid. This can result in the beneficiary of the arrangement experiencing a planned windfall at the expense of the non-compliant foreigner.

There are many instances where a foreign party attempts to exploit a domestic party, and this would warrant a separate article and list.

However, in an economic environment where Foreign Direct Investment will presumably become much more needed, and perhaps wanted, (notwithstanding the world’s gravitation towards anti-‘foreign’ sentiment and nationalism) and where foreign parties will be tempted with discounts and restructuring transactions, it is important to recognise these risks when calculating potential rewards in transactions. Further, for any market participants that are feeling the ‘pinch’ of lack of foreign investment, some self-reflection on policy, enforcement and use of the law to harass foreign parties may be a worthy investment of time, if reform to a more positive framework would be the outcome.


By Desmond Hughes, Senior Partner of Hughes Krupica.
Hughes Krupica is a law firm which specialises in Dispute Resolution; Corporate Transnational and Domestic Law; Real Estate; Hospitality; Construction Contract Support; Transnational Structuring and Compliance; Transnational Commercial; and Litigation, operating in Bangkok and Phuket, servicing clients in relation to their business activities in Thailand and in other regions of Asia

 Contact info:

Hughes Krupica Consulting (Bangkok) Co. Ltd

Phuket Office:
23/123-5 Moo 2, Kohkaew Plaza, 
The Phuket Boat Lagoon, Tambon Kohkaew, Amphoe Muang, Phuket 83000
Tel:+66 76 608 468 

Bangkok Office:
179 Bangkok City Tower, Fifth Floor,
South Sathorn Rd, Sathorn, Bangkok 10120
Tel: +66 2 872 173

[email protected]
www.hugheskrupica.com

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