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The Anti-Corruption Campaign in Thailand: Foreign Companies Beware, Contributed by Kyle Wombolt and Chris Bailey, Herbert Smith

Friday, March 9, 2012

The past decade has seen a significant increase in activity by governments, regulators and enforcement agencies around the world to fight corruption involving business organizations. Thailand is no exception to this global trend. Increasingly, Thai law enforcement agencies, as well as U.S. and other foreign agencies, are holding companies accountable for corrupt activity occurring in Thailand.

Thailand is generally considered a business-friendly jurisdiction. For many years, the country has offered favourable incentives and strong protections to multinational companies that invest in its economy. However, corruption, both within the private and public sectors, has, to varying degrees, been a frustration for companies doing business in Thailand.

Regulatory and enforcement agencies across various jurisdictions have reacted to this challenging business environment. As a result, a number of major international companies have found themselves the focus of corruption-related investigations (led by U.S. enforcement agencies in particular) in connection with their operations in Thailand, often times facing severe penalties for their misconduct. Siemens, Diageo and UTStarcom, for example, have been heavily fined for their activities in Thailand.1 More recently, Hollywood movie producers Gerald and Patricia Green were convicted for Foreign Corrupt Practices Act (FCPA) and other U.S. federal violations involving corrupt payments to a Thai official in 2007.2

Of potentially greater significance is the fact that the Thai government is increasing its efforts to combat local corruption. The National Anti-Corruption Commission (NACC) is an independent agency in Thailand tasked with investigating suspected cases of corruption, and positioned at the forefront of the country’s anti-corruption efforts. The country’s primary anti-corruption law, the Organic Act on Counter Corruption, was strengthened in April 2011 and new legislation was introduced in August and December 2011.3 The new legislation requires all government procurement projects—from infrastructure development to procurement of computers for schools—with budgets exceeding half a million Thai Baht (US$16,000) to be disclosed and subjected to scrutiny from the private sector. Additionally, whistleblowers will be protected and rewarded for purposes of encouraging government officials to report suspected corrupt activity.

Thailand’s private sector is supporting the government’s anti-corruption efforts. The recently established Anti-Corruption Network (ACN) is an umbrella organization that brings together 30 industry associations, including the Thai Chamber of Commerce, the Federation of Thai Industries, the Stock Exchange of Thailand and the Thai Listed Companies Association. The ACN has led various nationwide campaigns and programs to highlight the cost of corruption to the Thai economy, and generate support for the NACC.

Anti-Corruption Enforcement By Agencies Outside Of Thailand

The U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have been particularly aggressive in pursuing multinational companies involved in corrupt activities in Thailand. The actions taken against Siemens, Diageo and UTStarcom are instructive on this point. Of note, UTStarcom agreed to settle FCPA charges brought by the SEC in 2009, which concerned, amongst other things, lavish gifts and all-expenses paid executive training programs provided for existing and potential foreign government customers in China and Thailand. The provision of executive training to foreign officials as a way to secure an illegal benefit is an area of serious concern and focus for U.S. authorities.

U.S. enforcement actions involving corrupt activity in Thailand have touched many industries, including alcohol and tobacco. In July 2011, the SEC brought charges against Diageo plc, the London-based producer of premium alcoholic beverages, for allegedly paying over US$2.7 million to foreign government officials through its subsidiaries to secure lucrative sales and tax benefits.4 According to the SEC, from 2004 to mid-2008, Diageo paid almost US$600,000 (about $12,000 per month) to a Thai government and political party official, who successfully lobbied the Thai government to resolve the company’s multi-million dollar tax and customs disputes in its favour. Diageo settled with the SEC for US$16 million.5 In August 2010, two tobacco companies, Alliance One International, Inc. and Universal Corporation, settled matters with the SEC and DOJ in connection with FCPA violations in Thailand.6 The violations involved payments to Thai government officials to secure contracts with the state-owned Thailand Tobacco Monopoly for the sale of tobacco leaf. The companies agreed to pay US$13.8 million in criminal penalties and to disgorge an additional $14.5 million of profits. Alliance One also agreed to cooperate with the ongoing investigation, and to retain an independent compliance monitor for a minimum of three years to oversee the implementation of an anti-bribery and anti-corruption compliance program and to report periodically to the DOJ.

The U.S. authorities have also taken action against companies that have acquired entities with historical “tainted” dealings. In an enforcement action in 2005, General Electric (GE) found itself the subject of a joint investigation by the DOJ and SEC over corrupt activities it uncovered while conducting a pre-acquisition due diligence review of InVision Technologies, a California-based technology company. The investigated conduct included sales of explosive detection machines by InVision to airports in Thailand. Allegedly, InVision “was aware of a high probability that its foreign sales agents or distributors made or offered to make improper payments to [Thai] foreign government officials in order to obtain or retain business.”7 InVision self-disclosed the conduct to U.S. authorities, and settled the matter, agreeing to pay fines over US$1.3 million, disgorge profits generated from the relevant transactions, and implement an FCPA compliance program.8 Separately, GE went forward with the acquisition, agreed to ensure InVision met its undertakings, and appointed an independent consultant to report to the DOJ on the integration of InVision into GE’s FCPA compliance program.

While U.S. enforcement authorities have been the most active of the international agencies in pursuing corruption occurring in Thailand, they are not the only authorities to have done so. In 2008, Japanese authorities, for example, began an investigation after a former executive of Nishimatsu Construction, a Japanese general contractor, told Tokyo prosecutors that the company paid more than 400 million yen (US$5 million) to Thai government officials.9 Later, the Thai National Anti-Corruption Commission initiated its own investigation into the allegations.10

The Case Against Thai Officials Accused Of Accepting Bribes From Hollywood Producers

One of the more publicized corruption-related investigations undertaken by the DOJ involves the ex-Governor of the Tourism Authority of Thailand, Ms. Juthamas Siriwan, and her daughter, Jittisopa Siriwan. The action against the Siriwans11 stems from a previous DOJ case brought against Gerald Green and Patricia Green, the Hollywood producers found guilty of a conspiracy to violate the FCPA and money laundering.12 The Greens were found guilty of bribing Juthamas Siriwan in order to obtain a series of Thai government contracts, including the contract to manage and operate Thailand’s yearly film festival. The Greens were ultimately sentenced to prison terms.

The Siriwans, however, were not charged with violating the FCPA because, under this law, it is not a crime for a foreign public official to receive a bribe. Rather, the DOJ charged the Siriwans with violating 18 U.S.C. § 1956(a)(2)(A) for, amongst other things, the transportation of funds to promote unlawful activity (i.e., the Greens’ violation of the FCPA).

This is emblematic of an emerging trend whereby U.S. authorities are relying on legislation, other than the FCPA, to rein in forms of corruption not covered by that statute. In spite of many individuals in the business community calling for prosecutors in the United States to ease their enforcement of the FCPA, U.S. Assistant Attorney General Lanny A. Breuer has said that “at this crucial moment in history, watering down the [FCPA] . . . would send exactly the wrong message . . . we may together have no greater mission than to work toward eradicating corruption across the globe.”

While the Siriwans are currently fighting the charges in a U.S. court (further arguments are to be heard on July 30, 2012), what is clear is that U.S. authorities are now not only looking to enforce the FCPA vigorously, but are also looking to enforce other U.S. laws which can be used in the fight against corruption.

Local Enforcement In Thailand

The Siriwans, who are currently residing in Thailand, are facing possible corruption charges at home as well. Years after the Greens’ bribery of Juthamas Siriwan came to light, the NACC has recently recommended that the Siriwans be prosecuted for allegedly taking bribes from the Greens. The NACC found that Juthamas Siriwan committed criminal offences as a former state official and that her daughter was complicit in this illegal conduct as well. Based on the NACC’s finding and recommendation, the Siriwans can now be prosecuted in a Thai court.

The Siriwan case clearly demonstrates that Thai authorities and courts are increasingly willing to take enforcement actions against corruption which occurs within their jurisdiction. This heightened vigilance is the result of a combination of factors, including international pressure to rein in corrupt behavior and penalize those involved.

This is part of a broader effort by the Thai government to enhance its global image and reputation, particularly by fighting corruption.13 On April 12, 2011, Thailand amended its Organic Act on Counter Corruption in order to combat this criminal activity more effectively.14 As a direct result of these amendments, the NACC issued a notification stipulating that private sector entities that enter into procurement contracts with government agencies will be required to prepare an annual review of expense accounts for the Revenue Department, as well as corporate income tax returns for their legal entities.15

In addition to prescribing this increased scrutiny by the NACC, the Revenue Department and other government agencies, the notification sets forth penalties for violations of its requirements, including disqualification from entering into new procurement contracts with government agencies. Most sections of the notification come into force on April 1, 2012, with the remainder coming into force on April 1, 2013.16

Some commentators have conjectured the NACC’s lack of experience and resources may hinder its enforcement efforts, while others have expressed greater confidence, citing support from the private sector, including the ACN and the CAC, and strong public opinion. They point to the march through central Bangkok last September, led by Prime Minister of Thailand Yingluck Shinawatra, opposition leader Abhisit Vejjajiva and the head of the Anti-Corruption Center, as evidence of a favorable anti-corruption trend. Speakers at that march launched an anti-corruption campaign and urged the country to create a culture of honesty. The Prime Minister vowed to prevent corruption and bribery by opposing all forms of corruption, creating a culture of honesty, and employing good governance in the exercise of her duties.

Conclusion

Regulation and prosecution of organizations that have corruption within their ranks is a global phenomenon. States seeking to maintain competitive economies are finding it necessary to clamp down on corrupt behavior—both within their domestic markets as well as with respect to their domestic entities operating abroad—in order to make themselves more attractive to investors. This trend is apparent in Thailand. The Thai government is pushing forward with both legislative and enforcement measures designed to root out corruption.

This push for increased policing of and penalties for those involved in bribery and other corrupt activities has been heralded and supported by many in the private sector. It remains to be seen whether the reforms in Thailand will result in the level of enforcement currently seen in other countries, such as the United States or the United Kingdom. In the meantime, international businesses will want to pay close attention to their activities relating to Thailand in order to ensure that they do not find themselves caught in the web of an investigation or prosecution relating to corrupt acts.

Kyle Wombolt is a partner and head of Herbert Smith’s Investigations and Compliance practice in Asia. Based in Hong Kong, Mr. Wombolt focuses on multi-jurisdictional anti-corruption, fraud and accounting investigations, as well as U.S. securities regulation and trade issues involving multinational and major regional corporates. He has extensive experience implementing anti-corruption compliance programs for a broad range of clients, including investment banks and other financial institutions and multinational companies. He also regularly advises clients on corruption risks associated with a wide range of transactions, including IPOs, mergers and acquisitions and joint venture relationships. Mr. Wombolt is admitted in Hong Kong, California and New York. He also speaks English and Mandarin.  

Chris Bailey is a consultant in Herbert Smith’s Bangkok dispute resolution practice. His background includes working with Herbert Smith in London and Tokyo. Mr. Bailey has extensive international dispute resolution experience in the energy, automotive, financial, media and IT sectors for clients in Asia, Europe, the Middle East and the United States. He has been involved in a wide variety of substantial commercial disputes including litigation in the English, Guernsey, Japanese, Singapore, Thai and U.S. courts; arbitration under the auspices of institutions including the ICC and JCAA; and expert determinations and regulatory investigations.  

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