The $12 Billion Fraud Woman - Truong My Lan and the Endemic Corruption in Vietnam
The Asian Crime Century briefing 68
Coming at the same time as the proud 70th anniversary of the Battle of Dien Bien Phu, when the Viet Cong won a great victory over the French military in 1954, a Vietnamese businesswoman has been found guilty of committing certainly the biggest ever fraud in Vietnam and one of the largest in Asia. A moment of national pride for Vietnam is overshadowed by a case illustrating the endemic corruption in the country.
Ms. Truong My Lan (referred to by her given name ‘Lan’ as per Vietnamese practice) was last week found guilty and sentenced to death by a court in Vietnam for orchestrating financial fraud amounting to 304 trillion dong (US$12.2 billion). The huge amounts involved dwarf the proceeds of financial crime identified in the ongoing money laundering case in Singapore, which to date involves $2.2 billion (see the Asian Crime Century briefing 67). The scale of both cases puts fraud and corruption in developed countries in Asia into perspective and illustrates the continued necessity for strong anti-corruption and risk management programs with robust due diligence for international companies investing in the region.
The scale of the fraud and corruption in this case is startling. Lan was accused of embezzling $12.5 billion, but prosecutors at her the trial claimed that the total damages caused by the fraud amounted to $27 billion, the equivalent of six percent of Vietnam's 2023 GDP. The charges of embezzlement, bribery and violations of banking rules involved $12.2 billion misappropriated from the Saigon Commercial Joint Stock Commercial Bank. Lan and her associates arranged loans from the bank to shell companies under her control. She also bribed government officials to ignore the fraud.
The indictment against Lan and her associates charged that between 2012 and October 2022 she had a controlling stake of up to 91% of the Saigon Commercial Joint Stock Commercial Bank, appointed their relatives to key positions, and disbursed loans to hundreds of fake companies. There were 916 bank loan documents relating to $12.5 billion identified in the case.
The Vietnam court sentenced Lan to 20 years in prison for bribery, another 20 years for violating banking regulations and the death penalty for embezzlement, and ordered her to pay compensation of more than 673.8 trillion dong (US$27 billion) to the Saigon Commercial Joint Stock Bank.
As the Vietnam central bank has taken the Saigon Commercial Joint Stock Bank under government control there are losses to the state, which has to inject funds to ensure that the bank does not collapse. The state is hence a victim of the fraud and corruption, but so are citizens. Lan and her associates were also accused of bond fraud involving 25 bond issuances worth 30 trillion dong ($1.24 billion) that deceived a large number of victims, mainly depositors of Saigon Commercial Joint Stock Bank, into purchasing the bonds.
Lan started work as a cosmetics trader in Ho Chi Minh City and in 1992 founded the Van Thinh Phat property company that started in the restaurant and hotel industry before expanding into property development. Lan’s Chinese links are apparent with her marriage to a Hong Kong Chinese businessman. The Truong clan originates from Guangdong and Fujian provinces in China, where the surname is rendered differently in various Chinese dialects, but mainly as ‘Chan’ in Cantonese or ‘Chen’ in Mandarin. Lan’s family originate from Shantou in Guangdong Province, and are part of the Chiu Chow (Teochew) diaspora that is famous as trading merchants as well as for producing major Triad society groups such as the San Yee On, Fuk Yee Hing, and Yee Kwan.
From the Viet Cong to Corruption
The case involving Lan comes in the midst of a prolonged anti-corruption campaign in Vietnam driven by Nguyen Phu Trong, leader of the ruling Communist Party of Vietnam. The Covid-19 pandemic seems to have been a spur for reporting corruption in Vietnam.
In January 2023, the National Assembly voted to dismiss two deputy prime ministers after a request from Prime Minister Pham Minh Chinh due to their alleged corruption. The corruption of one of the deputy PMs was related to police investigations into Viet A Technology JSC, a maker of Covid-19 test kits, which involves criminal proceedings against 102 persons connected to the company. The case involving the second deputy PM involves allegations of bribery connected to the organisation of repatriation flights for Vietnamese abroad during the Covid-19 pandemic, which has led to criminal proceedings against 39 individuals. The dismissals were part of government efforts to reduce corruption, seen as essential to protect the legitimacy of the Communist Party in the country. This is worth bearing in mind as Vietnam has a large population (100 million) and is becoming a more attractive destination for outsourcing following concerns regarding supply chain concentration in China in the past several years.
In June 2022, Vietnam Communist Party General Secretary Nguyen Phu Trong said that the anti-corruption fight is crucial for socioeconomic development and was now stronger than ever after 10 years of the anti-corruption campaign. The ten year campaign is now 12 years, and the case of Ms. Truong My Lan indicates that corruption in business and government departments is as strong as ever. Other corruption cases abound in Vietnam.
Also reported last week is the court trial of the former director of Đỗ Hữu Ca, the Hải Phòng City Police Department, and 12 other defendants charged with fraud, tax evasion, and illegal invoice trading. Ca and his wife are accused of ‘illegal trading of invoices and documents for State budget collection’ and ‘offering bribes’, whilst former district tax officials are accused of accepting bribes. The case involves the Khánh Dung Joint Stock Company that specialised in the illicit trading of value-added tax invoices, with bribes paid to Ca to solicit his help in avoiding investigation and prosecution. Ca was sentenced to ten years imprisonment.
Reported cases are likely to continue, as the Communist Party committee in Ho Chi Minh City announced in November 2023 that they would pay up to $406 for reports of corruption that lead to verification of the crimes by investigating agencies. The approach seems remarkably similar to China, where civil society organisations are unable to hold government officials to account but citizens are encouraged to directly report crimes. The absolute trust in a hierarchical party driven system to combat and prevent corruption is misplaced without the checks and balances of civil society organisations holding officials to account.
The question to be answered is does endemic corruption in countries such as Vietnam matter to international investors seeking a return on profit. The answer is no in the short term but yes in the long term. Local corruption in a fast growing Asian economy such as Vietnam is likely to not impact foreign investors directly as they can negotiate benefits from the central government and remain aloof from day to day corruption. However, in the long term endemic corruption will have an impact as local partners themselves are subject to corruption that is passed on as higher costs to investors. In short, this is a problem that Vietnam must solve if it is to become the next ‘tiger economy’ in Asia.
Defeating corruption, or deterring it so that it stays within certain manageable limits, is not only an enforcement activity. China provides a good lesson in how endemic corruption cannot be restrained only by arresting every government official identified as having engaged in misconduct, which is never ending. Action against corruption requires an all of society approach, and cannot be effectively won by the Communist Party of Vietnam.
However, a report from September 2023 allegedly from the Vietnam Politburo suggests that the Vietnam Communist Party is as paranoid about foreign influences that may undermine the rule of the Party. ‘Directive 24’ from the Politburo issued nine orders for party and state organizations to implement, which include a “Focus on developing and organizing the strict implementation of policies and laws on national security, especially in relation to international development cooperation projects, foreign investment, the activities of multinational corporations, foreign non-governmental organizations in Vietnam; associations, social funds, charities, religious organizations, social enterprises and alliances, as well as the links between these groups; organizations and activities that receive foreign support and aid; cultural activities; the establishment and operation of trade unions; dialogue, negotiation, and signing of collective labor agreements; connections, especially connections formed in the organization of strikes.”
Directive 24 is a list of actions to take to suppress civil society, not build a vibrant and open society. As has been the case in China, this will inevitably lead to failure to address corruption that develops in parallel with economic growth as government officials tend to seek access to wealth that is developing in the private sector far faster than in the public sector. Will this be detrimental to international investors in Vietnam? The answer is yes if the problem is not addressed by companies, which need to have robust anti-corruption policies and make clear to local partners and authorities that they will not pay or accept bribes or take any part in corruption. This is the distinguishing factor of great companies, which will prosper in the long term.