Thailand targets nominee companies facilitating foreign land ownership: Hua Hin next in line?

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Thailand’s crackdown on nominee companies and shareholders took a significant step forward recently as the Central Investigation Bureau (CIB) in Phuket announced last week the arrest of over 100 suspects accused of conspiring with foreigners to illegally purchase land.

This marks a decisive move by the authorities to close the loophole allowing foreigners to ‘own’ land in Thailand through local nominees, a practice that has long been illegal but widespread.

The CIB’s ‘Operation Nominee Sweep’, sparked by tips from local residents, involved searches of approximately 100 real estate companies and identified 135 suspects believed to be part of the scheme.

Among the arrested are 67 Russians who used Thai nominees to hold land, with authorities seizing land and cash worth more than 1.5 billion baht. The arrests come amidst a surge in land prices in Phuket since the onset of the Russia-Ukraine conflict.

“Residents of Phuket initially complained that Russians or other foreigners were conducting business in Phuket and purchasing residential properties, causing distress to local residents. These complaints were forwarded to the Prime Minister,” said Pol. Lt. Gen. Jiraphop Phuridej, Commissioner of the Central Investigation Bureau, during a press conference.

The police have not detained any co-conspirators yet but have issued summonses for all suspects to report to Bangkok to face charges under the Foreign Business Act of 1999. Authorities are withholding the names of the suspects for privacy reasons, citing the presumption of innocence until proven guilty in court.

Pol. Col. Krit Woratat, Superintendent of Division 4 of the Economic Crime Suppression Division (ECSCD) and head of the operation, disclosed that the nominee network involved both Russians and Thais. “We have discovered a major Russian nominee network in Phuket, supported by Thais who have opened accounting firms in the area. These firms have registered names as directors and partners with foreigners in up to 130 companies and have established another 141 companies that do not conduct any business activities. We are prosecuting them for establishing nominees to issue work permits to foreigners,” said Pol. Col. Krit.

Under the Foreign Business Act of 1999, violators face a maximum prison sentence of three years and a fine of up to 2 million baht. The legal procedures for obtaining permits are complex and have been seen as obstacles for foreigners who wish to start their own businesses. While foreigners can buy condominium properties in Thailand, they cannot own land. They can be partners in companies with Thais but cannot hold more than 49% of the shares.

Pol. Col. Krit noted that in 2023 alone, over 1,600 companies linked to Russians were registered in Phuket, a sharp increase from the roughly 30 Russian companies registered annually in Phuket seven years ago. The Real Estate Information Center (REIC) reported that land prices in Phuket have risen by 30-40% this year, significantly higher than the national average. It is estimated that by the end of 2024, house and condominium sales in Phuket will reach 31.5 billion baht.

“The search revealed interesting items, including bank account books used for company registration, with a turnover of over 300 million baht, and various land ownership documents in Phuket worth a total of 1.2 billion baht,” Pol. Col. Krit said.

However, the issue is not limited to Russians. For years, foreigners of various nationalities have exploited Thai law loopholes by using local nominees to create companies solely for owning land and other businesses. The land is purchased and transferred into the name of said company. Despite being illegal, this practice has been widespread but is now firmly in the crosshairs of the authorities. The method of using nominee shareholders allows businesses to function as legal entities by letting Thai individuals hold a 51% share while foreigners hold the remaining 49%. This method is now under stringent scrutiny by the authorities.

In September last year, Thailand’s Business Development Department announced it would widen its probe into companies with nominee shareholders. These companies primarily operate in three sectors: tourism, real estate, and hotel & resorts.

Preliminary results from these inspections have already unearthed suspicious activities in Chiang Mai, Chon Buri, and most recently in Phuket. Without revealing further details, some of these businesses are located in Prachuap Khiri Khan and Phetchaburi, confirmed the Business Development Department.

The crackdown targets not only foreigners but also the Thai nominees. Speaking in 2023, Deputy Director-General of the Business Development Department, Jitakorn Wongkhatekorn, stated, “Legal action may be taken if Thai nationals are found to have knowingly held shares for foreigners indulging in nominee activities.” He expressed concern over the rise in Thai individuals getting entangled in these activities.

Violators of this law face severe repercussions, including imprisonment for up to three years or fines ranging from 100,000 to 1 million baht. Additionally, daily fines between 10,000 and 50,000 baht could be levied until the infringement ends.

With the significant bust in Phuket, it is only a matter of time before the crackdown reaches other areas, including Hua Hin. Local authorities are expected to intensify their efforts to ensure compliance with the law, aiming to restore fairness in the property market and protect the interests of local residents.

All images: Central Investigation Bureau

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