Embezzlement case shines light on Vietnamese corruption

Experts say the US$12.5 billion scandal is just ‘the tip of the iceberg.’
By RFA Vietnamese
2023.11.21
Embezzlement case shines light on Vietnamese corruption Truong My Lan, chairwoman of Van Thinh Phat Holdings Group.
Van Thinh Phat Holdings Group

A recent multi-billion dollar embezzlement scandal in Vietnam is just the “tip of the iceberg” in the country’s corrupt banking system – and the government is ill-equipped to address it, experts told Radio Free Asia.

Last week, the Vietnamese Ministry of Public Security released the conclusion of its investigation that found that Truong My Lan, the chairwoman of Van Thinh Phat Group, or VTP, had embezzled 304 trillion dong (US$12.5 billion) by using "ghost companies" and the Saigon Joint Stock Commercial Bank, or SCB, the group’s affiliate bank. 

The case is considered to be one of the biggest corruption cases in Vietnam ever and the value of the known embezzled funds amounts to about 6% of Vietnam’s GDP.

In its report released on Nov. 17, 2023, the ministry’s Police Investigation Agency recommended prosecuting 86 people involved in the case, including Lan, who should face charges of bribery, embezzlement and violating banking regulations.

Police also recommended prosecuting dozens of staff from SCB Bank and companies under the VTP Group for embezzlement and violating banking regulations, and two SCB staff and a former acting chief of the Inspectorate and Supervision Department under the State Bank of Vietnam for dereliction of responsibility.

Additionally it was found that in handling this case, inspectors were bribed to falsify their findings.

Structural problems

There are formidable structural problems in Vietnam’s banking system, Vietnam-based economic expert Bui Kien Thanh told RFA Vietnamese.

“Apart from the SCB scandal, real estate is another bubble that can pop [at any time] in Vietnam,” he said. “Banks give many loans [to real estate companies]. Big groups often borrow loans worth seven or eight times more than their asset value. No country’s [banking system] operates in that way.”

He said the apparent bubble indicates that the government is mismanaging the banks.

“And when the bubble bursts, the SCB story of US$12 billion would be just the tip of the iceberg only,” he said.

ENG_VTN_BRIBE_INVESTIGATION_11212023.2.jpg
A man rides a motorbike carrying corrugated iron past the State Bank of Vietnam in Hanoi on July 27, 2023. Credit: Nhac Nguen/AFP

According to the investigation conclusion, Van Thinh Phat Group established more than 1,000 companies, including subsidiaries and member companies both inside and outside Vietnam, many of which specialize in banking, stock investment, and real estate. 

A large number of these “ghost companies” were established just to take money from SCB bank for Lan’s use, according to the investigation conclusion.

SCB Bank and Van Thinh Phat Group’s subsidiaries were connected to each other through forms of cross-ownership, economics expert Nguyen Huy Vu told RFA. 

“Via SCB's banking system, SCB's capital and bonds of Van Thinh Phat Group’s subsidiaries are mobilized to be used for the Group’s projects. This created extremely high risks for depositors and [bond] investors.”

After the prosecutions and arrests of Truong My Lan and a series of other VTP leaders, many SCB depositors and those who bought VTP Group’s bonds and other products and services via SCB, took to the streets and gathered at SCB offices to demand their money back. 

VTP victims continue to hold demonstrations. They have even created their own groups on the social media platforms of Facebook and Zalo.

‘Like a pawn shop’

Thanh explained that the case shows weaknesses in the Vietnamese banking system. 

“Vietnam has over 30 banks, but [these banks] do not provide proper professional training to their employees,” he said. 

“The operation mostly focuses on mortgage lending, but actually functions like a pawn shop,” he said. “Bank employees do not really study whether the project is feasible and can repay the loan, they only look at the mortgages in the borrowing applications.”

He said such lax oversight is common in the Vietnamese banking system.

“As a result, [the loss] could be not just $12 billion but many more tens of billions of dollars that haven’t yet been discovered.” 

The Ministry of Finance estimates that the total bad debts of 28 banks increased by 52 percent in the third quarter of 2023 and some banks’ bad debts increased by two or three times, according to a report in the Inspection Newspaper, an official publication from the Government Inspectorate.

The government is clearly aware of bad debt but hasn’t been able to manage it effectively or efficiently, said Thanh.

“The government hands it over to the Vietnam Asset Management Company, but [they]cannot handle it. In brief, the State Bank has not fulfilled its role of examining and inspecting banks.”

Corruption in the banking system

The high-profile case has grabbed much public attention, prompting many to question the government’s management role given the enormity of the embezzlement tand that it occurred over a long period.

“The investigation conclusion shows the horrific level of crime committed by Van Thinh Phat Group,” Dang Dinh Manh, who worked as a lawyer in Vietnam for more than 20 years and currently resides in the United States, told RFA.

“However, what caught my attention the most was the legal aspect of the case. Accordingly, a series of legal barriers to ensure healthy control of business operations have all been effectively nullified by Van Thinh Phat with the collusion of more than a few government officials.”

The conclusion of the investigation agency said that all 18 members of an investigation delegation led by Do Thi Nhan, former chief of the Inspectorate and Supervision Department under the State Bank of Vietnam, had received bribes to change their inspection results and cover SCB Bank’s wrongdoings. As the delegation leader, Nhan received a bribe worth US$5.2 million, it said.  

“Perhaps the inspectors who received bribes in the Van Thinh Phat case had also committed crimes while inspecting other enterprises previously, but there were no mechanisms to stop them from doing that until the Van Thinh Phat case was discovered,” Manh said.

Thanh also expressed concern over the quality of the State Bank’s inspection and monitoring activities.

“Letting banks operate dishonestly without following the law is very harmful and dangerous,” he said. “Allowing the abuse of bank ownership to borrow money without any limits … does not follow the Law on Credit Institutions.”

According to Thanh, corruption is quite rampant in banking inspection activities in Vietnam and likely extend beyond the SCB case.

“Many other banks may have been in similar situations but have not been discovered.”

Translated by Anna Vu. Edited by Eugene Whong and Malcolm Foster.

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