1st National and International Conference on Administration and Management

January 30, 2015, KU Home, Bangkok, THAILAND

Guidelines on Resolution and Prevention of Corruption

of Thai Listed Companies in the Stock Exchange
*

Dr.Suraphol Srivithaya and Dr.Rattaphong Sonsuphap

**

Abstract
The research paper focuses on corruption problems in Thai private sectors of listed companies in
the Stock Exchange of Thailand (SET) compared with those in five foreign stock exchanges: NYSE (USA),
FWB (Germany), Milan stock market (Italy), KRK (South Korea) and SGX (Singapore). The comparative
analysis concentrated on causes, nature, models and effects of corruption of listed companies, as well as
law enforcement problems of Thai laws and foreign laws on corruption of listed companies in order to
recommend effective guidelines on legal and other related measures for solving and preventing the
corruption of Thai listed companies in the SET. The results of this research found that the private sectors
corruption of listed companies in stock markets had more and more tremendous values and complex
methods of corruption than those in the public sectors, whether such corruption were occurred in highly
developed stock markets or in low developing ones, that had caused financial and economic crises at
national, regional, and global levels without any frontiers in the world of globalization. The causes,
nature, models, and effects of corruption, as well as problems of law enforcement, for solving and
preventing listed companies corruption were different between listed companies in Thai and foreign
stock markets. However, at least two models and methods of corruption that generated economic and
financial crisis were in common: market manipulation by insider trading and embezzlement/siphoning of
companies property by fraudulent accounting statement.
Keywords: Resolution and Prevention, Corruption of Thai Private Sectors, Listed Companies in Stock
Exchange

Associate Dean, Faculty of Law, Rangsit University; Email: iamsuraphol@hotmail.com

Associate Dean, College of Social Innovation, Rangsit University

**

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Introduction
The corruption is a major crime that has considerable effects on political, economic and social
conditions in various countries around the world. The United Nations classified corruption as one of eight
serious global crimes: economic crimes, transnational crimes, terrorism, human trafficking, drug trafficking,
corruption, computer crimes, and money laundry (United Nations Office on Drugs and Crime, 2004). The
corruption of listed companies in the stock exchange has generated world economic and financial crisis:
1997 Tom Yam Kung crisis in Thailand and 2008 Hamburger Subprime crisis in the United States.
(OECD, 2009 and 2010). As a result, the study on causes, nature, models and effects of listed companies
corruption is the most urgent agenda for international financial reform in order to find out legal measures
and other related measures for effective solving and preventing listed companies corruption.

Research Objectives
The objectives of this research aimed to analyze causes, nature, models and effects of Thai listed
companies corruption in the stock exchange by comparative analysis with foreign case studies in five
foreign stock markets: NYSE (USA), FWB (Germany), Milan stock market (Italy), KRK (South Korea) and SGX
(Singapore) and to study related laws and enforcement problems of Thai and foreign laws against
corruption in private sectors of listed companies, as well as to recommend appropriate and effective
guidelines on legal measures and other related measures for solving and preventing the corruption of
Thai listed companies in the Stock Exchange of Thailand.

Research Methodology
This research applied a Qualitative Research by Documentary Research and Case Studies
Research by in-depth interview and focus group discussion with key informants, who are expertise of anticorruption and compliance with corporate governance of listed companies in the stock markets, in order
to collect deep data for comparative analysis of causes, nature, models, effects, and law enforcement of
corruption of listed companies in Thai stock market in comparison with five foreign stock markets: NYSE in
the USA, FWB in Germany, Milan stock market in Italy, KRK in South Korea, and SGX in Singapore, as well
as to recommend guidelines for solving and preventing corruption of listed companies in the Stock
Exchange of Thailand.

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Data Collection and Analysis

The researcher has collected secondary data from all related documents, books, academic
papers and articles printed in journals, research reports, especially United Nations Convention against
Corruption, 2003 (United Nations Office on Drugs and Crime, 2004); Constitution of the Kingdom of
Thailand, B.E. 2550 (Office of the Constitutional Court, 2013); Organic Act on Counter Corruption, B.E.
2542, B.E. 2550 and B.E. 2554 (Office of the National Counter Corruption Commission, 2012); Securities and
Exchange Act, B.E. 2517, B.E. 2518, B.E. 2535 and B.E. 2551 (Office of the SEC, 2009). As for case study
research, the primary data were collected by in-depth interview and focus group discussion from key
informants, who are expertise and specialist in anti-corruption and compliance with corporate governance
of listed companies in the stock markets, both in Thailand and foreign countries: Columbia University,
New York in USA; Frankfurt, Mnster and Dsseldorf in Germany; EU Commission in Brussels, Belgium;
OECD Headquarters in Paris, France; as well as Singapore and South Korea in Asia.
The researcher has undertaken content analysis and comparative analysis all primary and
secondary data on causes, nature, models and effects of listed companies corruption in Thailand and
foreign countries, as well as problems of law enforcement and other related measures in order to
conclude and recommend effective measures for solving and preventing such corruption in the Stock
Exchange of Thailand.

Research Results and Findings

The results of this research found that the corruption of listed companies in stock markets had
more tremendous values and complex models of corruption than those in the government sectors,
whether such corruption were occurred in highly developed stock markets or in low developing ones,
that had caused financial and economic crises at national, regional, and global levels without any
frontiers in the world of globalization. (OECD, 2009, 2010; Phongpaichit and Piriyarangsan, 1994). The
causes, nature, models, and effects of corruption, as well as problems of law enforcement, for solving
and preventing listed companies corruption were different between listed companies in Thai and foreign
stock markets as follows (OECD, 2009, 2010; Alatas, 1990; Nikomborirak, 1999):
1) The causes of listed companies corruption in Thai and foreign stock markets are in general
similar: the use of monopoly and discretion powers without accountability of high administrators in listed
companies who had motivation and corruptive methods that facilitated their successful corruption
opportunities, due to insufficient and ineffective control of management, financial and accounting, as well
as weak and inefficient corporate governance and law enforcement (Klitgaard, 1988). However, the
differences are corruption of Thai listed companies using more crony system and politician influence
interfered in corruption than foreign listed companies. (Quah, 2011). The rules and regulation of the Stock

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Exchange of Thailand are less developed and efficient than those of foreign stock markets, as well as
inefficient internal and external control system and delayed law suites and enforcement in Thailand.
2) On corruption models of Thai and foreign listed companies, the research found that the nature
of corruption is more complex in 4 models: (1) Defraud of corporate directors and managers, such as
market manipulation, insider trading, embezzlement of property and corporate misstatement; (2) Fraud of
corporate directors and managers, such as siphoning of company fund, conflict of interest and money
game fraud; (3) Defraud of corporate finance and accounting, such as fraudulent statements, tax
avoidance, and private bribery; (4) corruption by stock nominees, such as corruptive stock holdings by
nominee and money laundering by nominee. The research found that almost of the four corruption
models were done by Presidents, Corporate Directors, Chief Executive Officers (CEO) and Chief Financial
Officers (CFO) by embezzlement of property and corporate misstatement and insider trading. The
corruption of listed companies in Thailand were more and more complex, similar to those corruption of
listed companies in the United States, European Union and Asian countries.
3) On the effects of listed companies corruption, the research found that such kinds of
corruption had five essential effects: effects on the strength/confidence and development of the stock
market, effects on the strength of private company sectors and confidence of investors, effects on the
economic growth and national development, effects on the images and trusts of both Thai and foreign
investors. Moreover, the research found that the corruption of Thai and foreign listed companies had not
much difference in nature and serious levels of effects, if we compared the effects of Thai listed
companies corruption in the medium sized Stock Exchange of Thailand that caused Tom Yum Kung
Crisis in 1997 and those corruptions in the biggest and most developed NYSE that caused the Subprime
Hamburger Crisis in 2008 by the bankruptcy of Lehman Brothers and the real estate crises in the United
States (Milhaupt and Pistor, 2008).
4) On the law enforcement for corruption of listed companies, the research found that law
enforcement for corruptions between Thai and foreign listed companies were very different. The law
enforcement and law suits for corruption cases in Thai stock market had took longer than those in foreign
stock markets because they had been done by various authorities such as Stock Exchange of Thailand
Commission (SEC), Office of Attorney General, Department of Special Investigation (DSI), Bureau of
Suppression of Economic Crimes, The Office of Counter Corruption Commission and the Anti-Money
Laundering Office. Moreover, Thai law suits and enforcement concentrated on criminal punishment rather
than civil cases, but foreign law suits enforced both criminal and civil cases, as well as more serious
sanctions than Thai law suits and enforcement. The problems of Thai criminal law suits on corruptions of
listed companies are difficulties of burdens of proves in criminal cases, prove difficulties of the will of
shareholders, holding by stock nominees. As for civil cases, persons and groups of persons who
committed unfair stock trading by insider trading technique are most difficult to be processed in law suits.
5) Corrective and preventive measures of listed companies corruption should be done according
to Klitgaard theory (Klitgaard, 1988) by effective applying control measures of monopoly and discretion
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powers of corporate president, directors and managers, as well as strict rules and regulation application
and promotion of effective compliance in ethics and corporate governance by policy measures, legal
measures and managerial measures as well as media and social measures.

Conclusion and Recommendation

The corruption of listed companies in the stock markets has more complexity in its causes,
models, methods and effects than that in the public sector. It can generate tremendous economic and
financial crisis at national, regional and global levels such as 1997 Tom Yam Kung crisis in Thailand and
2008 Hamburger Subprime crisis in the United States. As a result, the research recommended legal and
other related measures to solve and prevent corruption of listed companies in the Stock Exchange of
Thailand as follows:
1. Legal Recommendation on Rule and Regulation
1.1 The Stock Exchange Commissions power shall be increased for investigating criminal and civil
cases. The criminal and civil punishment on corruption of listed companies cases in the stock market
shall be increased as higher level as in some foreign stock markets in the United States and the European
Union for more effective law enforcement.
1.2 The Securities and Exchange Acts, B.E. 2535 Securities and Exchange Act, B.E. 2517 (1974), B.E.
2518 (1975), B.E. 2535 (1992) and B.E. 2551 (2008) shall be amended to let the Stock Exchange
Commission having a law enforcement power on punitive damages for corruption cases of listed
companies in the Stock Exchange of Thailand.
1.3 All Securities and Exchanges legislation in Thailand shall allowed both criminal and civil
process against corruption cases of listed companies in the Stock Exchange of Thailand the same as in the
advanced stock markets in the United States and the European Union, as well as those in some Asian
counties, such as South Korea, Hong Kong and Singapore.
1.4 All Thai authorities concerned shall accelerate to adopt all legal measures to allow any small
shareholders and investors to suite a class action process against corruption cases of listed companies
in the Stock Exchange of Thailand, which facilitate them at low cost for proceeding such cases.
1.5 All Thai authorities concerned shall accelerate to adopt whistleblower protection legislation
and improve evidence protection legislation that was presently pushed by the Stock Exchange
Commission.
1.6 The possibilities of legislative adoption on financial consumer protection for all shareholders
and investors, who were seriously affected by corruption of listed companies in the Stock Exchange of
Thailand, shall be studies in order to establish an financial consumer protection independent authority,
such as The Consumer Financial Protection Bureau, established by Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 in the United States, and The Financial Conduct Authority (FCA),
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which was former Consumer Protection and Markets Authority (CPMA) in the United Kingdom, as well as
BaFin in Germany, who exercised as an independent authority to supervise and control corruption in
three financial sectors: banking, insurance and stock market.
1.7 The Stock Exchange Commission and the Stock Exchange of Thailand shall adopt severe
punitive measures against any persons who practice insider trading, fraudulent statements, and
disclosure of misstatement information, with the intention to fraud shareholders and investors in the SET.
1.8 The Stock Exchange Commission and the Stock Exchange of Thailand shall adopt severe
punitive measures both criminal and civil suits against Chief Financial Officer (CFO) and others officers
concerned, such as in the Korean stock exchange (KRK).
2. Recommendation on Policy and Administration
2.1 The Stock Exchange Commission (SEC) and the Stock Exchange of Thailand shall be
restructured in order to increase its independent authorities against the risk of corrupted politicians with
conflicts of interests to use political powers and influences to interfere in the nomination of S EC
members.
2.2 The Stock Exchange of Thailand and the Stock Exchange Commission shall be developed by
demutualization from independent state agency to be an independent public agency in order to launch
an agenda of stock market and financial reform in the SET.
3. Recommendation for the Next Research
3.1 The next research shall be done on the reform of Thai capital market and stock market in
order to increase SETs potentials to solve and prevent any corruption in the private sectors of listed
companies in the Stock Market of Thailand.
3.2 The next research shall be done in the topic of Development Guidelines of Mechanism on
Effective Law Enforcement for Resolution and Prevention of Listed Companies in the Stock Market.
3.3 The next research shall be done on the utilization of accounting forensic science in the
process of accounting evidence accumulation and proof for suiting corruption cases against listed
companies in the Stock Exchange of Thailand.
3.4 The next research shall be done in the topic of Guidelines for Joint Cooperation on
Prevention and Suppression of Corruption in the Private Sectors of Listed Companies in the Stock Markets
of ASEAN Economic Community (AEC) countries.

Acknowledgement
This research project was supported by the National Research Council of Thailand (NRCT) in 2012.
The researchers also wish to thank the NRCTs Legal Research Supporting Fund Committee and all of its
personnel, who are very well coordinated and worked hard for successful completion of this research
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project. The authors wish to express special thanks to the Research Institute of Rangsit University, who
supported fund for registration fee of 1 st National and International Conference on Administration and
Management.

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