While the so-called Panama Papers have sent shockwaves through the corridors of power and wealth the world over, their ramifications for Thailand have yet to be laid bare. It has been revealed that 16 or so Thai individuals are implicated but scant details have been put forward. It is almost as if Thailand's high and mighty wishes that this explosive global scandal would just blow over without local consequences.
Such wilful oversight would be odd and inconsistent under Thailand's junta government, betraying its claim to power on an anti-corruption crusade to clean up and reform our kingdom once and for all. Thanks to in-depth and intensive investigations by the International Consortium of Investigative Journalists, the Panama Papers are telling us many things, and we need to take note in order to keep hypocrisy and vested interest at bay. The Panama Papers are instructive for their overlapping lessons in regulatory shortcomings, tax loopholes, and sheer personal vested interests.
In world capitals where the rule of law and accountability prevail, the heat is on politicians and public figures for their offshore involvement as enumerated in the leaked files of Mossack Fonseca, the Panama-based law firm that specialises in setting up companies in tax havens. Yet here in Thailand, the Anti-Money Laundering Office (Amlo), the main agency tasked with investigating the money trails of Thai citizens whose names are mentioned in the Panama Papers, appears less than forceful and even protective of the alleged names, in stark contrast to many other Amlo-focused cases.
Pavida Pananond is Associate Professor of International Business at Thammasat Business School, Thammasat University. Some of the policy implications discussed here are drawn from her research on Thailand's outward foreign direct investment, supported by Thailand Research Fund.
Foremost in the official investigations should be to determine the legality of these transactions. But scrutinising tax avoidance alone is not enough here. There are fundamental shortcomings in our domestic institutions that have conduced to the proliferating use of offshoring transactions. In view of public anger and quest for accountability -- eg, the Icelandic Prime Minister Sigmundur Gunnlaugsson has had to resign and British Prime Minister David Cameron is under similar pressure -- Thailand's official treatment seems deliberately perfunctory. At least three issues are at work to explain Thailand's quietness on the Panama Papers.
First, is it really the case that Thai authorities had no prior knowledge that offshore investments are routinely used by Thai entities? This is most unlikely. Statistics on Thai outward foreign direct investment stock are disclosed in at least two publicly available sources, namely the Bank of Thailand's International Investment Position (IIP) and the Stock Exchange of Thailand-listed companies' financial reports.
The IIP statistics in 2015 show that as much as 25% of Thailand's total outward foreign direct investment (OFDI) stock went to the three main tax haven destinations of the British Virgin Islands (BVI), the Cayman Islands, and Mauritius. This trend is not new, as the amount has averaged more than 20% annually over the past decade.
Compare that to the 29% of Thai OFDI stock in 2015 that went to our Asean neighbours -- Thailand's main OFDI destination -- this amount is staggering and can hardly be overlooked by the authorities. Tracing these OFDI details further from annual reports of listed companies submitted to the SET shows that the majority of the companies established in the BVI and Cayman Islands by listed Thai firms described their principal activity as an investment or holding company.
Obviously, the main objective for multinational companies from Thailand and other countries is to set up subsidiaries in offshore financial centres for "tax efficiency" -- an ironic term that usually means tax minimisation, if not avoidance altogether. \
On top of the guaranteed secrecy, these locations provide minimum regulatory requirements, thereby allowing flexibility and tax advantages, including zero withholding tax on interests, dividends, and royalty payments. For multinationals, tax havens with double-taxation treaties are also attractive for revenue channelling to avoid being taxed more than once for globally-generated revenue. Thai authorities need an integrated approach, not just relying on Amlo, to monitor and curtail offshore transactions in tax havens.
Second, the local apathy on the Panama Papers may be attributed to the lack of knowledge on corporate ownership. The widespread use of layers of subsidiaries, many of which are owned through complex cross-shareholding, could disguise the identity of real owners and make relevant authorities lose track of who owns what. Shortcomings in legal and capital market institutions, common in emerging economies with strong family business dominance, have led to complex ownership structures among big business groups, resulting in numerous subsidiaries with cross-shareholding at home and abroad. Therefore, shell companies in offshore tax havens can be set up to pursue business activities that authorities at home have a hard time keeping up with.
While the authorities' oversight and convoluted structure of corporate ownership can be addressed through more vigilant and stringent regulations, the third question is perhaps the most difficult. Are we not disturbed by the information leaked from the Panama Papers simply because of our own double standards? It seems like we judge wrongdoing by who has done it rather than what has been done.
One example could be the 600-million-baht land sale by Gen Prayut Chan-o-cha, who was then army chief, in 2013, disclosed under his asset declaration when he took office as prime minister, after the May 2014 coup. The transaction was connected to an offshore company in the BVI, linked to Charoen Sirivadhanabhakdi, the patriarch of the Thai Beverage business group and Thailand's second richest man, according to Forbes' 2015 list.
In many other circumstances, this story would have scrutinised for unscrupulous gains and juicy details that may have violated the law. But this story has faded into oblivion for the time being. Another example is Kularb Kaew, a Thai business vehicle established by Singapore's Temasek Group through offshore companies to acquire Shin Corp that belonged to former prime minister Thaksin Shinawatra's family at the time in January 2006. The Kularb Kaew case placed the controversy of nominee and offshore circumvention under the spotlight and contributed to Thaksin's downfall.
While these two cases show that the use of offshore companies in obscure tax havens is not new to Thailand, their investigations are divergent and contingent on who is being investigated rather the legality of the transaction. In this vein, perhaps the Panama Papers will attract more interest if the 16 names happen to fall along Thailand's political divide.
The use and misuse of tax havens is a global phenomenon. To handle it effectively, both global and local supervision and scrutiny are required. Progress is not hard to fathom. Information on offshore transactions is available and must be put to full use in enforcing the law. Multi-layered ownership structure should be minimised and discouraged to bolster corporate accountability and eschew potential corruption and conflict of interest. Moreover, corporate malpractice should be treated and pursued equally in a single standard of application.