Thaksin's rocky road to the top

GENERAL ELECTION -- A red card, or major political crisis later?
Post Reporters, November 13, 2000

If current opinion polls hold, Thaksin Shinawatra stands a good chance of being the next prime minister. That is, unless legal wrangles involving the Thai Rak Thai leader trip him up first. Even if he gets the job, the country could still be plunged into political crisis shortly after. Mr Thaksin is under investigation over tax payments, share transfers and asset disclosures, by the Revenue Department, securities regulators and the National Counter Corruption Commission. The most immediate case involves the corruption commission, which is inquiring whether Mr Thaksin violated disclosure regulations and shareholding limits when he transferred shares worth billions of baht to domestic staff in 1997. Mr Thaksin is expected to submit documents to the commission by Friday, after which the screening committee will rule whether the matter should be forwarded to the commission board.

The Revenue Department is focusing on whether Mr Thaksin evaded taxes on the share transfers. Officials say privately that preliminary evidence shows some irregularities, with potential unpaid taxes of up to one billion baht, not including penalties of 1.5% per month. One problem is that the current law only gives tax officials up to three years to examine tax returns. Given that the returns in question were submitted by Mr Thaksin in 1996, the statute of limitations for liabilities in that year expired in March, three years from the tax-filing deadline for 1996 returns.

Regardless, the beneficiaries of the transfer _ Mr Thaksin's domestic staff and a chauffeur _ remain liable if they failed to declare the proceeds in their own tax returns. Failure to declare a tax liability is a criminal act with a 10-year statute of limitations. One tax official said they could avoid tax liability by arguing that the transfers did not represent a sale, but were an appointment of a proxy to hold the shares. "But if you argue this to avoid the tax problem, then you run into other problems regarding securities disclosure rules as well as the corruption commission," the official said.

A tax lawyer said officials could choose to prosecute Mr Thaksin under the Revenue Code for "unusual wealth", a clause used by then revenue chief M.R. Chatumongol Sonakul to investigate tax payments by 10 members of the Chatichai cabinet in the early 1990s. "I think it's clear there are tax issues here," the lawyer said. "But if this becomes a political matter you can be sure that we will see similar accusations against current ministers and their own sources of wealth."

At the Securities and Exchange Commission, investigations hinge on whether the share transfers violated market disclosure rules. At issue is whether share prices of Shin Corporations, one of the top stocks on the exchange and the flagship firm of the country's largest telecom group, moved "irregularly" at the time of the transfer. Reports by the firm only stated that a transfer had been made, but did not explicitly define the relationship between Mr Thaksin and the new shareholders.

Another potential legal tangle involves the 1942 Exchange Control Act, which limits inter-company foreign currency borrowings to US$10 million a year and restricts asset transfers overseas by local citizens. The Bank of Thailand, which oversees capital flow and currency transactions, said no investigation was launched into whether alleged transfers to overseas holding companies by Shin Corp violated rules.

For his part, Mr Thaksin denies any wrongdoing. Suranan Vejjajiva, the Thai Rak Thai spokesman, called on anyone claiming to have evidence of Mr Thaksin's misdeeds to come forward, rather than fight a shadow war through the media. Mr Suranan was confident Mr Thaksin would be able to clarify his past business transactions, and denied the party was seeking a fallback position if he was disqualified by the courts. Still, political observers note that Thai Rak Thai was talking with both Meechai Ruchupan, former senate speaker, and Gen Mongkol Ampornpisit, former supreme commander, about running under the party banner. Mr Suranan denied any fallback plans had been made to replace Mr Thaksin, and blasted the allegations as efforts to discredit the party.

In any case, even a guilty verdict by the corruption commission would not necessarily disqualify Mr Thaksin from the general election. A final definitive ruling would be up to the Constitutional Court. If Mr Thaksin was deemed guilty by the court, he would be disqualified from public office for five years. The court is unlikely to rule on the matter before the election, assuming the graft panel rules against Mr Thaksin. A ruling against a sitting premier would cause an immediate crisis for the government. A prime minister disqualified from office would have two choices. He could dissolve the House after the court ruling but before formal publication of the decision, setting the stage for new elections. Or he could accept the ruling and step down from office. This would force the entire cabinet to step down as well, putting ministers into a caretaker position until the House votes in a new premier and a new cabinet is set up.

One twist here is that under the constitution this scenario would bar anyone in the original cabinet from becoming prime minister. The law says the new premier chosen after a disqualification must be an MP. But the members of the original cabinet would have already forfeited their MP status. The law does allow them to be re-appointed as ministers, however. As yet, the Attorney General's Office has not begun a formal investigation of Mr Thaksin.