WHY THE FINANCIAL ACTION TASK FORCE DOES BLACKLIST

THAILAND?
If you are following the actuality you may have heard that the Financial Action Task Force has fingered pointed
Thailand as one of the 15 countries with strategic AML (anti money laundering /CFT (Combating financing terrorism)
deficiencies that have not made sufficient progress in addressing the deficiencies.
Why then is Thailand deficient?
Thailand deficiencies come first from the fact that Thailand has a huge shadow economy.

A shadow economy can be defined as including all market-based legal production of goods and services that are
deliberately concealed from public authorities (1) to avoid payment of income, value added or other taxes,(2) to avoid
payment of social security contributions, (3) to avoid having to meet certain legal labor market standards, such as
minimum wages, maximum working hours, safety standards, etc., and(4) to avoid complying with certain
administrative procedures. Now a British accountant called Richard Murphy has based on data sourced from the
World Bank, CIA World Factbook, the Heritage Foundation and World Health Organization and that covered the
period from 1999 to 2007 published a report showing that Thailand had over the period a shadow economy
representing 51% of its GDB and that the cost of the tax evasion resulting from the shadow economy over the period
was 776,999 million THB.
Why is the share of Thai shadow economy so important?
The share of the shadow economy is important because the Thai government is not yet sufficiently equipped to
control the whole economy. For example the Revenue Bureau of Thailand does still not have enough officers to
seriously control the tax situation of all companies operating in Thailand. Bar owners for example can still make
agreements with the Revenue Bureau as to what amount of VAT or corporate income tax they will paid per year. The
company or individual owner of the bar will through his accountant makes an agreement with the tax department

pursuant to which it will pay every month a certain amount of VAT and every year a certain amount of corporate
income tax irrelevant of the actual turnover of the business.
Too many businesses are still run without proper business registrations and do not issue proper tax receipts. When
doing the accounting of a company in Thailand you can count on at least 20% on expenses that you cannot claim as
tax deductible expenses because the suppliers provide receipts that cannot be deemed tax receipts and cannot be
used to claim expenses. In the bar businesses the ratio may increase up to 80 to 90%. Bars will purchase from
supermarkets maybe 20% of the beverages they sold to have tax receipts that matches the official turnover. The rest
will be purchased from beverage businesses that do not issue tax receipts. No records of the beverage purchases, no
records of the beverage sales no taxes paid on most of your income.
Another bad point is an outdated foreign investment context.
Basically in Thailand foreigners are prohibited to exercise any service businesses under the form of 100% foreign
owned. For example all entertainments related businesses must be exercised under the form of 51% Thai owned
companies. Therefore many companies running those kind of businesses and in which foreign investors are involved
are run by dummy corporation with dummy shareholders making it difficult to accounts where the profits goes.

While Thailand has a foreign exchange law which is quite elaborated and makes it difficult to transfer money
overseas without generating a lot of paperworks it is actually quite easy to transfer money out of the country. For
example, many Thais and foreigner will use foreign exchange companies to transfer or bring cash in or out of
Thailand without traces. You just bring cash in the morning in Bangkok and will see your overseas bank account
credited (less foreign exchange commissions and a small fee) in the evening. You can transfer money on a foreign
account in the morning and go withdraw cash in THB or USD in the afternoon in Thailand. Many other methods are
available for those who want discreetly transfers money in and out of Thailand, no questions and no paperworks
involved

Will Thai Authorities straighten things?

Thai Authorities dislike any news that created a bad image for Thailand. Therefore you may be certain that Thai
authorities will takes very quickly measures to formally comply with the Financial Task Action Force requirements in
order to remove Thailand very quickly from the grey listed countries list. While formally the objectives of the FTAF will
have been accomplished and Thailand will be back in the fold of compliants countries the fact is that the issue will not
have solved itself and that the shadow economy will still continue to generate.