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Legal Matters: Too good to be true ‒ Thailand’s little known ‘big stick’ against scammers

Legal Matters: Too good to be true ‒ Thailand’s little known ‘big stick’ against scammers

Despite constant efforts at combating bogus investment schemes, law enforcement agencies and regulators continue to face an uphill battle when it comes to protecting investors from losing their savings. Regardless of whether there is a seemingly legitimate offer to invest in a business with overly promising profits or people are lured to buy a property with the guarantee of regular returns, such schemes take hundreds of millions of baht from people each year. 

Saturday 28 May 2022, 10:00AM

Ponzi Schemes (click to enlarge).

Ponzi Schemes (click to enlarge).

One of the most common financial frauds is the Ponzi scheme, which promises “guaranteed” high returns, higher than those offered by other financial institutions and businesses. To pay the original investors, payments from new investors are usually used to pay profits to the scheme’s operators and pay a return to prior investors. This cycle continues until the scheme can longer find new investors or if too many investors try to cash out their investment. In almost all cases, investors lose everything.

Thailand is, unfortunately, no stranger to Ponzi schemes, especially in real estate and currency/stock investments. It got so bad in the 1980s that the government stepped in with a strange-sounding law called “The Emergency Decree on Borrowings which Constitutes Fraud to the Public B.E. 2527”, also known as the Anti-Ponzi Law. It has been updated three times to reflect the constant evolution of Ponzi schemes and to ensure that investors are sufficiently protected from new forms of fraud.

The Anti-Ponzi law primarily covers offences that are like a classic Ponzi scheme, where someone publicly presents a scheme to 10 or more people with a guarantee of attractive returns, certainly higher than traditional investments. The Anti-Ponzi laws make reference to the maximum interest rate anyone can offer to investors as that offered by financial institutions which is currently capped at 3% per year. Any type of investment offering a fixed or “guaranteed” return over this ceiling could fall foul of the Anti-Ponzi law.

Generally, to be found guilty a defendant must know or should have known that the money received from recent investors was to be diverted to compensate earlier investors. In addition, it must be proven that the perpetrator knowingly failed to conduct a legitimate business activity capable of generating the promised returns. 

To start the action, you only need to show that the scheme was marketed to one person and directly or indirectly this led 10 or more people to be lured into the offering. Whether the scheme operator made a profit from the scheme is irrelevant, and the court will deem that an offence was committed if it finds that funds were transferred between different investors to pay the promised return. 

The Anti-Ponzi law has a big stick ‒ for each investor who fell victim to the scheme, the perpetrator will be charged with one count of fraud. If convicted the court can sentence the scheme operator from five to 10 years imprisonment, a statutory fine amounting to anywhere between B500,000 and B1 million, as well as an additional fine of B10,000 for each day the perpetrator committed the offences and for each investor defrauded. Those sentences can be imposed concurrently for each count of the perpetrator being convicted. In a notorious case, one unlucky defendant could potentially be sentenced to over 200 years imprisonment.

The Anti-Ponzi laws also deems an offence if the defendant refuses to disclose information relating to their business. 

Strict liability offences 

In addition to the above, the Anti-Ponzi law also sets out two types of strict liability offences. This means the defendant is liable for committing an action, regardless of what their actual intent was when committing the act. Good or bad intentions, they can be found guilty.

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The first offence deals with foreign exchange fraud committed against the public. A person is considered guilty if they operate an unlicensed foreign exchange business yet publicly advertises or offers investment opportunities by trading from one currency to another. In this case prosecutors don’t need to prove that the perpetrator knowingly offered unrealistically high returns, only that an unlicensed currency exchange advertised products and services with returns in excess of the maximum interest rate offered by licensed financial institutions.

The second offence is where the perpetrator operates a business, but gets at least B5 million investment from more than 10 people, and then pledges to repay them at rates higher than the maximum interest rate offered by licensed financial institutions. 

Obviously people usually complain if they aren’t receiving the return that they think they agreed to. The defence under the strict liability provisions is that the defendant needs to prove that the scheme or business could have generated a return at the advertised rate but there was an unforeseeable decline in economic activity or other causes that made the business unable to yield the promised return.

What to do if you have lost it all?

Ponzi schemes take on many forms from property investments with so-called “guaranteed returns” to currency or business investments with supposed foolproof profits. These Ponzi schemes and other fraudulent activities could also fall under other regulations that have different proof and legal considerations. 

Nonetheless, this little-understood law packs a big punch and is a stern warning to scammers and is geared towards preventing Ponzi schemes from happening and ensuring that perpetrators are prosecuted. It doesn’t get your money but it’s a good start in the process.

As always, “if it sounds too good to be true, it probably is” remains true.

By Dr Paul Crosio and Jak Chokesikarin

If you believe you have been defrauded or would like to find out more about regulations surrounding investment fraud, you can contact us at info@silklegal.com or use the contact form provided.

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