Politicized Enforcement in Vietnam: Anti-Corruption Campaign Under CPV General Secretary Trong

August 2017

Jeremy Tan, Control Risks

A string of high-profile corruption cases has occurred in Vietnam in the last ten months. Most notable is the removal of Dinh La Thang (“Thang”) ‑ the Secretary of the Communist Party of Vietnam (CPV) of Ho Chi Minh City ‑ from the Politburo on 7 May 2017. This follows the Central Inspection Committee’s assessment of Thang’s wrongdoings as chairman of the state-owned PetroVietnam (PVN) between 2009 and 2011. During this period, Thang was widely perceived to have capitalized on his strong ties with former prime minister Nguyen Tan Dung (“Dung”) for personal enrichment. More recently, in late July 2017, the Vietnamese police announced that Trinh Xuan Thanh, a former PVN executive, provincial leader, and Dung crony, turned himself in after a 10-month international man-hunt, for alleged embezzlement, mismanagement, and causing significant losses to PVN.

Thang was later replaced by Deputy Prime Minister Nguyen Thien Nhan and transferred to the Central Economic Committee (CEC) as vice-chairman, a position some country observers argue is a “holding area” until further disciplinary action is dispensed. Thang joins former governor of the State Bank of Vietnam, Nguyen Van Binh, another known Dung stalwart and the current chair of the CEC. Consequently, banking tycoon Tram Be, long sheltered by the political cover of Dung, Thang, and Binh, was arrested in early August for “causing losses” to the Vietnam Construction Bank.

Prior to this, former minister of trade and industry Vu Huy Hoang (“Hoang”) faced punitive action for charges related to mismanagement and abuse of office, also during his tenure under Dung, between 2011 and 2016. Many current and former directors of several state-owned enterprises (SOEs) and local banks, such as former PVN chairman Nguyen Xuan Son (“Son”) and former DongA Bank chairman Tran Phuong Binh, have also been recently arrested for allegedly irregular deals and investments.

Driving these cases is CPV General Secretary Nguyen Phu Trong (“Trong”), often hailed for his anti-corruption stance in Vietnam. However, country observers have suggested Trong’s recent probes are a consequence of the much-discussed rivalry between Trong and Dung. Individuals implicated so far, such as Thang and Hoang, have allegedly enriched themselves politically and economically under Dung’s patronage. It is plausible to construe Trong’s anti-corruption push as a targeted campaign to consolidate his own position by unraveling Dung’s patronage network and limiting Dung’s residual political influence.

Another view suggests the acceleration of Vietnam’s anti-corruption push is a move by the government to divert public attention from economic issues and three massive environmental disasters in 2016 affecting the waters off several provinces in central Vietnam.

Implications for foreign investors and MNCs

Foreign companies’ Vietnam-based business operations and commercial contracts could be jeopardized if their Vietnamese partners have been caught in the cross-hairs for donning certain political colors or being too slow to swap allegiances. Anti-corruption investigations could also cause foreign companies to fall foul of the US Foreign Corrupt Practices Act, UK Bribery Act and other equivalent laws, attracting the scrutiny of homeland regulators.

Previous sanctions and agreements secured from the Vietnamese government or state-owned enterprises could be rendered obsolete if formal investigations into an SOE uncover dubious circumstances under which contracts have been obtained or authorised by officials who have significantly exceeded their authority. This is not an uncommon occurrence in Vietnam’s SOEs, as exemplified by the Vietnam National Shipping Lines’ 2008 purchase of a USD 83 million floating dock from Russia without state approval. The company’s directors over-paid for the heavily damaged dock and subsequently reported millions of dollars in repair costs to siphon off state funding. Both directors received a death sentence earlier this year for causing huge losses to the state.

Anti-corruption investigations also delay plans for public offerings (IPOs) or the sale of state assets. As a case in point, the recently delayed IPOs of PetroVietnam Oil, a subsidiary of PVN and Vietnam’s sole crude exporter, and PetroVietnam Power, another PVN subsidiary, was linked to anti-corruption investigations into PVN’s former chairmen Thang and Son as well as directors of various PVN subsidiaries.

In this connection, investigations into high-ranking government officials and politically connected bosses could directly affect the implementation of economic policies and development in key sectors, such as banking, construction and real estate, where corporate governance is particularly opaque and prominent local actors rely on political connections to thrive. These investigations could shed light on the true extent of mismanagement, non-performing loans and siphoning of resources in these sectors. Coupled with the fact that government investigations are usually conducted in secrecy and could take months or even years, state investigations can cause a protracted dampening of investor confidence while exacerbating anxieties.

Judiciary

Where possible, foreign investors should seek arbitration overseas. Vietnam’s judiciary is perceived to be biased toward local interests and corruptible judges pose challenges to foreign companies and individuals. Additionally, Vietnam’s fragmented anti-corruption apparatus, divided among the Government Inspectorate, Ministry of Public Security, Supreme People’s Procuracy, National Assembly and the CPV’s Central Inspection Committee, as well as lacking a truly independent agency, makes it difficult for foreign investors and MNCs to timely predict and respond to corruption risks involving their Vietnamese partners.

Foreign investors and companies should also pay attention to the recently passed Penal Code, which includes criminalizing bribery involving non-state entities and persons, and the new draft anti-corruption law under discussion in the national assembly.

Mitigating factors 

Notwithstanding the potential risks for foreign investors who fall on the wrong side of the general secretary’s anti-corruption campaign, foreign investors can take comfort in some promising developments.

In May 2017, Trong affirmed the value of market reforms, backed by the full weight of the Central Committee during its semi-annual meeting, which underscored the commitment of the CPV in making Vietnam attractive to foreign investors. Conceivably, jeopardizing MNCs’ business operations and rescinding commercial contracts do not fit into this broader policy objective.

Another factor is rooted in Vietnam’s macroeconomic vulnerabilities. These include a growing public debt at 63.7% of GDP and a budget deficit at USD 8.6 billion as at the end of 2016. To shore up political capital amid growing public unrest, the CPV will push to accelerate the state’s divestment of assets. While the delay of SOE privatization remains likely, due in large part to vested interests and bureaucratic red tape, the pace may hasten under the direction of pro-business Prime Minister Nguyen Xuan Phuc.

This article was first published on Forbes Blog on 2 August.

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