Van Thinh Phat case tests investor confidence in Vietnam

The case highlights lax government oversight of the financial system, observers say.

By RFA Vietnamese2024.04.16

A Vietnamese court decision handing Truong My Lan a death sentence for masterminding a multi-billion fraud has been met with shock by international observers who say the chairwoman of developer Van Thinh Phat was likely protected by high-level officials who should share some of the blame.

Last week, Ho Chi Minh City’s People’s Court convicted Lan, 68, of bribery, embezzlement and violating banking regulations. More than 80 others were given lengthy prison terms for their involvement.

Lan owned 91.5% of Saigon Commercial Bank and over 10 years ordered bank officials to approve more than 2,500 loans to shell companies she controlled, causing the bank to lose the equivalent of US$27 billion.

Lan ordered subordinates to bribe auditors at the State Bank of Vietnam to cover her tracks, according to state media. Head banking inspector Do Thi Nhan received US$5.2 million in bribes, while deputy chief inspector Nguyen Van Hung received US$300,000, the reports said.

The case demonstrates poor management capacity and has damaged trust of the Communist Party and government, experts said, and will cause foreign investors to think twice before betting on the Southeast Asian nation.

The case is “unprecedented … even on a global scale,” said U.S.-based attorney Dang Dinh Manh. He called the failure of prosecutors to hold officials from the Ministry of Finance and State Bank accountable “highly unreasonable.”

“This reflects the regime’s irresponsibility towards the financial system, the national banking system, and the rights and interests of innocent people,” he said. “Given the current political situation in Vietnam, maintaining an authoritarian regime without control over state power continues to be a favorable condition for serious corruption.”

‘Unstable’ financial system

Experts interviewed by international media outlets described the sentence as a part of the “Blazing Furnace” anti-corruption campaign launched by Communist Party General Secretary Nguyen Phu Trong and suggested it would harm Vietnam’s image at a time when foreign investors are seeking to move their operations out of neighboring China.

They called the Van Thinh Phat case an example of a power struggle within the senior ranks of the party that is shaking investor confidence and questioned why more high-level officials weren’t held responsible when the scandal occurred under their watch.

The case shows that Vietnam’s financial sector is “unstable,” said Vu Tuong, the head of the political science department at the University of Oregon. And while the government may hope that it would reflect a determination to fight corruption, it also lays bare poor management capacity, he said.

“The political impact is a decline in trust in the Communist Party and the government,” Tuong said.

Observers noted that the court ruling focused only on punishing Lan and Saigon Commercial Bank, and recovering assets, while failing to address how to compensate the bank’s customers, who were the direct victims of the fraud.

Van Thinh Phat Group and its affiliates were accused of illegally issuing bonds to raise money from investors from 2018 to 2020. Lan’s company issued 25 bonds worth US$1.24 billion, all through proxies, and sold to buyers through Saigon Commercial Bank.

Last week’s verdict ignored the losses of an estimated 42,000 victims who bought the fraudulent products.

Investigators have said Lan will face additional charges in another trial that will address the bond fraud, although investors are likely to bear some of the blame for failing to thoroughly research Van Thinh Phat Group and the high-interest rate it promised.

Compensating victims

Manh, the U.S.-based attorney told RFA that the thousands of customers who deposited money into Saigon Commercial Bank should be made whole.

“Returning the exact amount of money stolen from the victims is entirely justifiable and legal,” he said in an interview. “The exclusion of the 42,000 victims from the legal proceedings … was a deliberate action aimed at identifying all assets being seized by the prosecuting authority from Van Thinh Phat Group, Lan, and other defendants as illegally acquired property for confiscation.”

Manh said that involving them in the second phase of the case, if that trial proceeds, “would be entirely meaningless” as the seized assets would no longer be available at that point.

“Therefore, the 42,000 victims will have been robbed twice,” he said.

Tuong at the University of Oregon said that the fact that Saigon Commercial Bank hasn’t been dissolved suggests that Vietnam’s government is trying to save it through debt restructuring negotiations or by finding a buyer who is willing to purchase the debts at a reduced price.

“As long as Saigon Commercial Bank allows customers to withdraw money freely, we cannot definitively conclude that the customers have suffered losses,” he said. “If depositors demand withdrawals from the bank en masse, and Saigon Commercial Bank does not have enough money … then it must declare bankruptcy or the government must dissolve it.”

“If I were one of the businessmen who wasn’t arrested,” he said, “I would transfer my capital abroad as soon as possible, because I don’t know when it will be my turn.”

Translated by Anna Vu. Edited by Joshua Lipes and Malcolm Foster.


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