WHY WORRY ABOUT ANTI-CORRUPTION LAWS IN VIETNAM?
At certain points of my career the question of corruption became relevant. Not only was there corruption in the government as they seized assets and claimed taxes—which they had already signed off as having received—weren’t paid, but there was the question of what we, as a company seeking to influence the government, could do. How far could we go and what precautions should we take to make sure that our executives didn’t violate the law and the company was protected from accusations of corruption.
Corruption is very much a front-of-mind element when dealing with government officials in developing countries. Though Vietnam falls roughly in the middle of Transparancy.org’s most recent Corruption Perception Index, approximately 61% of public service users were estimated to have paid a bribe in the previous 12 months. That means that over half of constituents in Vietnam are estimated to have paid a bribe. Sure, most of those are probably to traffic cops or to ward presidents, but the numbers are high enough that they should concern investors coming into the country.
At the very least, someone coming into Vietnam to do business—in whatever form—should make themselves aware of the law concerning corruption so as to avoid stepping across the line and finding themselves in a Vietnamese prison for anywhere from six months to 20 years.
To that end, this article will address the aspects of Vietnam’s anti-corruption law that are relevant to an investor—foreign or domestic—and what they as a businessperson in Vietnam need to know in order to avoid the fines and jail times associated with corruption. This article will not address international anti-corruption laws such as FCPA in the USA or the PCA in Singapore but will focus solely on Vietnam’s laws. The law on anti-corruption is 40 pages long and supplemented with an additional decree from the Government and covers everything from what government officials must do when they receive a bribe to what an enterprise’s responsibilities are for preventing bribes to who’s in charge of investigating. This article will only focus on the parts of the law relevant to investors. What they need to avoid and what they need to do within their organizations to avoid the wrath of an anti-corruption investigation.
WHAT IS CORRUPTION?
Under the law in Vietnam, corruption is defined as “an office holder’s abuse of his/her official capacity for personal gain.” Office holders include:
- Officials and public employees;
- Commissioned officers, career military personnel, national defense workers and public employees of the People’s Army units; commissioned officers, non-commissioned officers and workers of the People’s Police units;
- Representatives of state investment in enterprises;
- Holders of managerial positions in organizations;
- Other persons assigned certain duties and authority to perform such duties.
Personal gain is a “benefit or advantage” obtained in exchange for abuse of an office holder’s official capacity.
One more definition is required to fully understand the applicability of the anti-corruption law in Vietnam. The definition of organizations. As you surely noted in the list of “office holders” above, included are “holders of managerial positions in organizations.” The rest of the list is straight forward and limits itself to public persons, but this item could—depending on the definition of “organizations”—could imply something much broader. And looking further it does just that. While “organizations” are not defined as an umbrella term, state and non-state organizations are included as “organizations.” Most important, then, is the definition of non-state organizations. And the definition given is that non-state organizations are any enterprise or organization that is not a state organization.
This means that the anti-corruption law of Vietnam imposes strictures on the behavior of management of enterprises, who often are or represent foreign investors. Luckily, these enterprise office holders are exempted from many of the potential hazards of state officials. They are only liable for embezzlement, taking bribes, or “bribing or brokering bribery for taking advantage of one’s influence over the operation of the enterprise or organization, or for personal gain.”
HOW CAN I INFLUENCE OFFICIALS?
For some investors, particularly from the United States, familiarity with the exception for expediting in the FCPA is comforting. In Vietnam, gifts were allowed of up to 500,000VND in value, but with the promulgation of Decree 59 which implements the most recent iteration of the law on anti-corruption, that exception was removed. Ultimately, a state office holder must report any gift given by a party that “is relevant to the tasks they are performing or under their management.” This has been interpreted to include gifts for Tet, birthdays, or weddings if the state office holder has competency over a matter involving the gift giver.
This prohibition, of a sort, is extended to his interests. A strict conflict of interest rule is in place that prohibits state office holders from acting on matters in which they “or their relative” has an interest that is “likely to have an influence on performance of the office holder’s duties.” This also covers information disclosure so that prime pieces of intelligence that might influence a stock price, or the value of a piece of land could be considered as corruption.
Investors, therefore, are left with legitimate means of influence. Argument, evidence, benefit. While this may be difficult for many to swallow—particularly given the 61% statistic cited earlier—knowing that the other side is likely involved in corruption of some kind, it is very important to avoid corrupt practices as an investor. For, like many developing countries, enforcement of the anti-corruption laws are spotty and depend largely on who needs to varnish their CV in the public eye or on who has offended the powers that be. It is better not to take the risk of investigation, prosecution, and jail than to get an advantage of a few dollars.
WHAT DOES MY ORGANIZATION HAVE TO DO?
Every non-state organization has the responsibility to implement measures for prevention of corruption; discover and report any act of corruption that occurs within their organization to competent authorities, and cooperate with competent authorities in taking actions in accordance with its rules and regulations; and to promptly provide information about acts of corruption committed by office holders and cooperate with competent authorities in prevention and taking actions against such acts of corruption.
In addition to this rather ambiguous responsibility, enterprises are encouraged to develop and issue internally a declaration of professional and business ethics that should be seen to govern the behavior of employees. More onerous, a code of conduct must be developed and issues regarding anti-corruption actions and, most onerous of all, an enterprise must implement a “control mechanism for prevention of conflict of interest, inhibition of corrupt activities.” Other rules additionally apply to credit institutions, public companies, and fundraising charities (I won’t go into those at this juncture, though if you’re interested we can prepare something for you, at exorbitant law firm rates of course).
But what is this “control mechanism” of which the law speaks?
When I was working in Laos we were advised by a major American law firm that, for purposes of the FCPA, we should implement not only a code of conduct—which outlined the rules for interactions with office holders—but also keep track of all expenditures on office holders to include meals, drinks, entertainment, gifts, etc. This monitoring was to demonstrate that we were seeking to oblige the FCPA and to limit expenses paid to or on public officials.
What wasn’t clear was how effective such an accounting would be should we actually be investigated by the American authorities. And that, unfortunately, is the case here. Neither the National Assembly nor the Government of Vietnam have issued guidelines on what is expected of this “control mechanism.” It could range anywhere from a question included on the agenda of the Board of Supervisor’s meeting to an actual accounting item like I discussed above. The new anti-corruption law in Vietnam is relatively new and there has been little opportunity to develop it in application or legislation.
Therefore, as a prudent person, I would recommend that you implement some form of mechanism that is sufficient to satisfy evidentiary requirements. In essence, you write something down. The exact extent of your control mechanism will be determined by the extent to which your enterprise interacts with office holders. It should be more than the required corporate governance under the law on enterprises and should demonstrate that your enterprise is serious in “combating” corruption. Work with your accountants and lawyers to develop a minimally costed mechanism that satisfies the published laws. Your accountant may already be monitoring this, it can’t hurt to ask, but even then, it would be wise to mark in corporate governance documents like a meeting minutes that you are exploring and developing a control mechanism for anti-corruption purposes.
This implementation is important, as enterprises are liable to inspection by the authorities on this very issue. If you are eager to protect yourself, we can arrange to inquire with the authorities on your behalf as to what such a control mechanism might look like in your geographical area, but pending further guidance, much of what we can tell you is exhortatory, not binding.
WHAT IF I WANT TO REPORT CORRUPTION?
Citizens and organizations who discover corruption are supposed to promptly report it. There is an outlined procedure for reporting corruption—reporting up the chain of command—for individual office holders who are suspected of corruption. There does not seem to be a centralized repository for reports of suspected corruption.
And while whistleblowers of corruption, like all denunciators, are protected from retaliation under the law, the effectiveness and implementation of such protections are limited and frequently criticized by international observers. One who seeks to report corruption to the officials should be wary and consider the potential repercussions from the individual or organization you are reporting.
Before making such a report, too, one should consider the potential influence your action might have on relationships with authorities moving forward. Assume that the fact of your whistleblowing will become known in the locality, assume that leaks will happen. Will the whistleblowing chill your relationship with other office holders necessary for operations or approvals you anticipate needing?
I don’t want to discourage civic duty, but I long ago learned that as a foreigner you don’t get involved with the locals when something goes wrong or you’re liable to be blamed for it yourself. Whether an accident victim you want to help or a fight you think of interfering with or a corrupt act you want to report, be cautious, you might get burned in ways you didn’t anticipate.
PUNISHMENT FOR VIOLATIONS OF ANTI-CORRUPTION LAWS IN VIETNAM
There are numerous laws punishing corruption, most importantly, non-state organizations or individuals—the category in which most investors will fall—are liable only for bribes (giving and receiving) and embezzlement. But violations can be costly. There are civil and criminal repercussions for corruption in Vietnam and in many instances the individual managers who knew about corrupt acts of the enterprise will be held accountable before the law for the acts of the enterprise.
Civil fines have yet to be set for the new law, but criminal offenses for bribery conform with those set out in the 2015 penal code (as amended in 2017). The recommended sentences are as follows for receiving a bribe:
- From 2 to 7 years, for bribes with value from VND2,000,000 to less than VND100,000,000.
- From 7 to 15 years, for bribes with value from VND100,000,000 to less than VND500,000,000.
- From 15 to 20 years, for bribes with value from VND500,000,000 to less than VND1,000,000,000.
- From 20 years to life or sentenced to death, for bribes with value from VND1,000,000,000.
And for giving a bribe:
- From 6 months to 3 years, for bribes from VND2,000,000 to less than VND100,000,000.
- From 2 to 7 years, for bribes from VND100,000,000 to less than VND500,000,000
- From 7 to 12 years, for bribes from VND500,000,000 to less than VND1,000,000,000.
- From 12 to 20 years, for bribes from VND1,000,000,000.
One thing to note, and I just now caught it, an office holder receiving a bribe—and there is nothing I can see that distinguishes between state and non-state here—may be sentenced with death if the bribe is big enough. Reason enough to avoid taking bribes. Know, too, that other sentences for corrupt acts are equally stringent and undesirable. If there is a question of whether an anticipated act will be corrupt under Vietnam’s law then it is wisest to avoid it.