Vietnam’s Anti-Corruption Campaign Is Stymieing Deal Flows
A more measured approach by authorities means due diligence processes take longer.
Lan, a high-profile businesswoman who chaired a sprawling company that developed luxury apartments, hotels, offices, and shopping malls, was formally charged with fraud amounting to $12.5 billion—nearly 3 percent of the country’s 2022 gross domestic product (GDP). More than 80 others, including central bank officials, have been implicated in the case, which was first filed in 2022 and has prompted a crackdown on corruption.
Amid the intensified investigative climate, authorities are being more cautious, resulting in longer approval processes from enhanced due diligence measures, lawyers in Vietnam told Law.com International. “People are more measured,” said Yee Chung Seck, a Ho Chi Minh City-based partner at Baker McKenzie. “This means that due diligence and licensing approvals tend to take longer as people are asking more questions to be more robust.
“This is both on the investor side and the government approval side,” Seck added.
Vietnam’s current anti-corruption crackdown is one of the comprehensive campaigns undertaken by the Communist Party of Vietnam and has led to the resignation of President Nguyen Xuan Phuc, along with two deputy prime ministers in early 2023. Last week, the head of Vietnam’s parliament, Vuong Dinh, also resigned amid the ongoing anti-corruption campaign that’s shaken the country’s political and business elites.
“Corruption in Vietnam has been a serious issue for some time, and the government’s campaign against it is longstanding,” said Steven Okun, a senior adviser at international trade consultancy McLarty Associates. “Recent cases highlight the scope of the challenge and the actions of the government to address them.”
The campaign is intended to create a fairer business environment by breaking down some entrenched interest groups. However, it has also led to slowdowns in the bureaucratic system.
“In the past, when a foreign company came into Vietnam, they could just spend a lot of money and they would receive business licenses quickly, without strict verification and compliance,” said Stephen Le, chair of Vietnamese law firm Le & Tran. “But now controls are stricter, so businesses and authorities take longer to carefully check and verify all the information to ensure legal compliance.”
The longer approval times have not stifled investor interest, lawyers say. Vietnam remains an attractive destination due to its growing middle class and educated workforce. The country is also reaping the benefits of international firms looking to diversify production away from China.
In the first nine months of 2023, foreign direct investment projects were estimated at more than US$15.9 billion, up 2.2 percent year-on-year, with the country’s manufacturing sector receiving the bulk of the projects. According to Vietnam state media, Apple intends to increase its supplier base in Vietnam amid efforts to wean dependence away from China. Samsung and LG are also among the many other foreign firms that have plowed billions of dollars into hi-tech manufacturing in Vietnam.
“The anti-corruption campaign has not affected the level of deal flow, only the speed of approvals,” said Le. “This year and the next may be the highest point of the campaign, but there will be significant improvements after that.”
Prosecution of Developers Leads to Cooling of Property Sector
The case against Lan is one of the most high-profile and shocking corruption cases to hit the country. She was found guilty of illegal activities including embezzlement, bribery, and violating banking regulations by taking fraudulent loans from one of the country’s biggest banks via hundreds of shell companies. Details of her death sentence have been widely reported by Vietnam state media, a rare move from a usually opaque justice system. She has appealed the verdict.
“The My Lan case is good for Vietnam,” said Le. “The government is prioritizing anti-corruption because we’ve quickly integrated into the world economy and the business entities must be protected for fairness and transparency.”
Lan is only one of several property developers who got caught in the crossfire of the anti-corruption campaign. Last month Do Anh Dung, chairman of property developer Tan Hoang Minh, was sentenced to eight years in prison for defrauding bond investors, and the former chairman of property and leisure company FLC Group is currently being prosecuted for stock market manipulation.
The cases have contributed to the ongoing “climate of investigations” and have created unease among officials. That, in turn, has led to a cooling effect on the property sector and the larger economy.
For example, investors have cited delays in development projects due to difficulties in determining market land prices, as local officials have been reluctant to take responsibility for calculating real estate prices. According to Vietnam’s Ministry of Construction, the inability to determine land prices has contributed to approximately 50 percent of the problems faced by real estate developers.
“A bunch of officials have been arrested, investigated, or put into jail, and the knock-on effect is that the officials that come in to take their place—they are incredibly cautious,” said a legal adviser based in Vietnam. “You see your boss’s head start rolling, and now that you sit in his chair, you become a bit more careful about giving approvals.”
Law firms such as Russin & Vecchi, Allen & Overy, DFDL, and DLA Piper declined to comment due to the sensitive nature of the issue. Other firms contacted, including KVN Law, Rajah & Tan, Tin An Legal, and Kim Chang, did not respond to a request for comment.
Other Affected Sectors
Vietnam’s energy sector has also felt the consequences of increased regulatory red tape, with delayed projects in wind farms and the implementation of the PDP8—the government’s eighth national power development plan.
The country is also expected to win significant investments following the implementation of its direct power purchase agreement (DPPA) mechanism, which has been in the works since 2020.
The DPPA mechanism allows large buyers to purchase electricity from renewable energy producers. The government has yet to release detailed regulations on the DPPA, prompting business groups to state that further delays could hinder the attractiveness of foreign investment.
“Investors that are used to operating in Vietnam expect to see some housekeeping,” said Seck, who noted that, in time, the good governance efforts will bring more stability to the system. “The question is: How much further and longer will this anti-corruption campaign go on?”
From: Law.com International