Vietnam: Vietnam Investment Review – Interview With Lawyer In Vietnam Dr. Oliver Massmann – Anti-Corruption Action Plan – New Law – What You Must Know:

Last Updated: 11 December 2018
Article by Oliver Massmann

1. It's been observed that corruption in the non-state sector "has been growing rampantly and with complexity, especially in the areas of loaning, bidding, contracting, and in unofficial costs like gifts, tours, or job generation". Will this law prevent or stop these various modes of corruption?

OM: Whether the law can prevent or stop these various modes of corruption depends on how well the law is enforced. Even if the law is written perfectly, without effective enforcement of said laws, they will only remain meaningless words on paper. Therefore, whether a law has a preventative or deterrent effect depends on how well the law is enforced. However it must be stated clearly that it is not possible for a law to stop all acts that it forbids – that is not possible in any country, for any law.
"Modes of corruptions" mentioned above can be classified into three categories: activities within one non-state actor, activities between two or more non-state actors, and activities between non-state actors and state actors.

Corruption in the areas of bidding, lending, contracting occur between non-state actors or between non-state and state actors. The regulation of commercial activities between non-state actors should be left to the realm of civil and contract law, and potentially criminal law for very serious offences to define what is legal and what is not, rather than corruption law, as these transactions are conducted purely in the private sector.

As for corruption between a non-state and state actor, including official costs, it is more efficient and realistic to target the corruption within the state actor rather than the non-state actor. Corruption in this situation can only happen if the state actor is susceptible and willing to receiving bribes, embezzlement or can be easily "bought". Anti-corruption law should ensure that state actors are deterred from receiving bribes and unofficial costs, and criminal law should ensure the punishment of non-state actors for carrying out such activities. On top of that, private companies are profit-driven. No business would like to increase their costs unless absolutely necessary. Unfortunately without such unofficial costs, the private businesses are unlikely to be able to get anything done at all, as the authorities and state actors may purposefully hinder or create difficulties for the non-state actors. Thus, many non-state actors, especially SMEs, must make the sacrifice of engaging in corruption and bearing the costs in order to keep their businesses going. The prevention of such various modes of corruption must begin with the state sector.

2. The law also states that government officials cannot consult individuals and organizations in both state and non-state sectors in tasks that are related to state secrets, secret work, and work in which they have the authorization in or have part of the authorization in (Article 20)

Will this create difficulty in how businesses function well without government experts' advice? The law forbids consultation but does not imply to forbid meetings or restrict communications. Will this be a loophole?

OM: It is reasonable to forbid government officials to consult other individuals and organizations in the non-state sector on information related to state secrets, secret work and work in which they have the authorization in or have part of the authorization in, as this may affect national security and public order. As for consultation with state actors, it should be clear what purpose of the consultation is, the position and security clearance of both parties sharing and receiving the information, and whether the consultation is necessary.
However, in order for this provision to be effective, there must be a clear definition as to what constitutes "state secret" or "secret work", to avoid abuse of the law such as state actors unreasonably withholding information from non-state actors. On top of that, the inclusion of only consultation is also potentially a loophole, unless the law is left open on purpose. Therefore a clear definition for "consultation" is also needed to clarify which acts constitute consultation and is thus forbidden.

3. How would this affect FDI and foreign businesses in Vietnam and their needs to remain "private" as they call themselves?
Nguyen Quang Vu, a business lawyer from Venture North Law Limited, told local press that the provisions are "irrational". He also said that private firms have their own regulations about asset transparency and control and supervision over all activities of their heads. Thus the state should not interfere in their activities. Private firms often have many stakeholders, whose interests are protected by the law and the firms' regulations. The stakeholders are responsible for their assets, not the state.

Do you agree with him? Why/why not?

OM: Private firms may have their own regulations about asset transparency and control supervision over the activities of their employees and executives. I agree with the fact that laws should not interfere with businesses' activities. The firms may have internal motivations to do this, for example to prevent embezzlement and abuse of corporate funds, ensure business efficiency and trust.

Having said that, some external motivations can also be useful. Providing clear laws on the illegality of such acts can also incentivize businesses to create internal regulations that comply with laws, but also give the businesses a legal recourse in the event that an individual within their company does abuse the regulations. Without legal consequences, the only recourse for a business in such situations may be to dismiss and civil action against the individuals. The additional severity from legal consequences can be both a deterrent and correctional mechanism.

The key point here is that the law-makers must find a balance between upholding the benefits of anti-corruption whilst not overly impeding upon the business' interests, and also comply with the provisions of international agreements of which Vietnam is a member.

4. What's your comment on the expansion of Vietnam's anti-corruption fight to private sector? Considering the existing Criminal Law also covers these entities with specific punishments? What else can the government do? Do you foresee any chilling effect this law would have on legitimate private business?

OM: As mentioned in question 3, corruption within the non-state actor can be classified into three categories: corruption within one non-state actor, corruption between two or more non-state actors, and corruption between non-state actors and state actors.

The justification for expanding corruption to include the non-state sector is that such corruption reduces competition in the market, negatively affects the businesses' operations and in turn hampers the country's economy as a whole. Expansion of corruption to the non-state sector will also be consistent with Criminal Code 2015 regulating the responsibilities of individuals within private businesses for acts of embezzlement and bribery.1

It is clear that the intention behind including non-state actors in the new Anti-corruption law is to target corrupt acts of individuals in a non-state actor, especially those that operate on a large scale such as public companies, commercial banks and investment funds which handle extremely large sums of money and can potentially impact the rights and benefits of many other individuals and businesses. Although many of such acts are also already covered by the Criminal Code 2015, nevertheless the duplication in the Anti-Corruption Law may hold a symbolic significance, to clearly signify the severity and also moral and political implications of such acts.

The law also needs to find a balance between regulating and preventing corruption in the private sector, but also a law not too intrusive that it over-burdens legitimate private businesses, especially SMEs where they are less likely to have the resources to bear the costs.Thus the current inclusion of the whole private sector in anti-corruption law is too expansive. The law should not be all-inclusive, but perhaps include only certain private sector actors to avoid over-burdening the private sector because the Criminal Code 2015 covers large parts already. Overlapping regulations do serve nobody.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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