Vietnam

Vietnam Corruption Report

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Snapshot

Vietnam_230x152.pngCorruption continues to be pervasive in Vietnam’s business environment. Companies are likely to experience bribery, political interference and facilitation payments in all sectors. The land administration, construction sector, and public administration are especially prone to corruption. The Vietnamese Penal Code and the Law on Anti-Corruption criminalizes public sector corruption, in the form of attempted corruption, facilitation payments, extortion, abuse of office, fraud, money laundering, and active and passive bribery. Punitive measures range from fines to capital punishment, depending on the severity of the corruption case. Enforcement of the anti-corruption framework is lacking. Gifts are criminalized by law, but there are exceptions for special occasions gifts with a value below VND 500,000. Facilitation payments are illegal but common in practice.

Last updated: September 2017
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Judicial System

There is a high risk of corruption in the Vietnamese judiciary as court functions are restricted by political influence, a lack of transparency and a weak legal system (ICS 2017). Bribes and irregular payments in exchange for favorable judicial decisions are perceived to be common (GCR 2015-2016). Judicial officials often demand bribes from lawyers (BTI 2016). Reportedly, one in five businesses chose to avoid the Vietnamese court system due to concerns about bribery (ICS 2017). About a quarter of Vietnamese believe most or all judges are corrupt (GCB 2017). Companies report insufficient confidence in the judiciary’s independence and the efficiency of the legal framework in relation to settling disputes and challenging regulations is rated poorly (GCR 2016-2017).

The judiciary also suffers from a lack of adequately trained judges and arbitrators, nepotism, political influence, and extremely low wages (ICS 2017). Judicial appointments are normally only for five years, after which judges have to be reappointed by the Communist Party, further strengthening the control over the judiciary (ICS 2017). The law states that courts should recognize and enforce foreign arbitral awards, but in practice, Vietnamese courts may reject such enforcement on the grounds that the award is not in line with basic principles of the Vietnamese law (ICS 2017). When accepted, foreign arbitration awards may take years to enforce (ICS 2017). Enforcing a contract is less costly and time-consuming than the regional average (DB 2017). Vietnam has ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Vietnam has not yet signed the Convention on the Settlement of Investment Disputes.

Police

Corruption is widespread within the ranks of Vietnamese police and thus carries a high risk for businesses (HRR 2016). One-third of surveyed companies indicate that police officers expect gifts during meetings (VBF 2017). More than half of Vietnamese citizens consider most or all of the police to be corrupt (GCB 2017). Companies report that police services are unreliable in enforcing law and order (GCR 2016-2017). Over half of companies pay for private security (ES 2015). Provincial and local police forces have significant degrees of discretion in their activities (HRR 2016). Officers sometimes act with impunity (HRR 2016).

Public Services

There is a very high risk of corruption in Vietnam’s public services sector, especially in the form of gifts and facilitation payments. Over nine out of ten companies indicate they expect to give gifts to officials to “get things done”, and about one in seven expect the same when acquiring an operating license (ES 2015). One in four Vietnamese citizens considers most or all local government councilors to be corrupt (GCB 2017). The two biggest issues cited by companies are complying with burdensome, and at times inefficient, regulations and the high number of regulatory inspections, which most businesses believe are exploited to extort informal charges (GCR 2016-2017, PCI 2016). Nearly half of businesses paid a bribe during an administrative inspection in 2016; however, the inspector requested the bribe in less than one in ten cases (PCI 2016). In the remaining cases, either the manager himself offered the bribe or the bribe was offered out of a belief that it is simply common practice (PCI 2016). Many businesses believe that due to a large number of legal loopholes, rent-seeking opportunities and facilitation payments remain a common practice (CENSOGOR 2017). Businesses frequently encounter requests from government officials to use a third party intermediary when paying for government services; this may be a mechanism used for hiding inappropriate payments to government officials (VBF 2017). Foreign investors face different business licensing processes and restrictions compared to domestic firms (ICS 2017). Nepotism in the public sector has become a systemic problem, and has been worsening in recent years (PAPI 2016). In the Province of Thai Nguyen, only one in seven respondents believe paying a bribe to gain state employment is not necessary (PAPI 2016). The practice of government officials paying for promotions is also said to have led to demands of informal cash payments from officials who are trying to recover their “investment” in this manner (VBF 2017). The problems in the public sector are further reinforced by a lack of willingness to fight corruption, a lack of transparency, and inadequate mechanisms for accountability (ICS 2017).

Recent reforms have made it easier for businesses to enter the Vietnamese market by increasingly digitizing the business registration procedure (ICS 2017). Investors should be aware that decentralization of licensing procedures has, in some cases, streamlined the process and reduced processing times, while it has also led to regional differences and interpretations of investments laws and regulations (ICS 2017). A lack of clear guidelines may also prompt local officials to refer back to national authorities, which could cause additional delays (ICS 2017). Licensing procedures frequently take longer than the time frame mandated by the law (ICS 2017). Starting a business requires more steps, but takes the same time and is less costly compared to elsewhere in the region (DB 2017).

Land Administration

Corruption risks when dealing with Vietnam’s land administration are very high. A quarter of businesses report they expect to give gifts when obtaining a construction permit (ES 2015). Companies have insufficient trust in the protection of their property rights (GCR 2016-2017). Investors report that public officials may increase requirements for land-use rights for foreign companies when permits must be renewed, especially if there is competition from national companies (ICS 2017). Government-Private Partnerships are a high-risk area for corrupt practices due to the fact that public officials make decisions in these types of partnerships outside state agencies and formal due process (UNDP 2017). All land is collectively owned in Vietnam; private ownership is thus not possible (ICS 2017). Land leasing for renewable terms of 50 years and up to 70 years in poorer areas of the country is possible (ICS 2017). Property may be expropriated if it is deemed necessary for “social-economic development”, but the term is very loosely defined (ICS 2017). There are widespread complaints of corruption, delayed compensation and a lack of transparency and due process in the government’s program of confiscating land to make way for infrastructure projects (HRR 2016). In the last decade, the number of complaints filed with the government about land disputes has increased dramatically to the point where they now make up seventy to ninety percent of all complaints and petitions (HRR 2016). Foreign investors should be aware that they may be exposed to land disputes when buying into a local company (ICS 2017). Vietnam is in the process of building a national land registration database; some areas have already digitized their records (ICS 2017). Registering property in Vietnam takes less time than the regional average (DB 2017).

Infrastructure development relating to the Third Rural Transport works as well as Da Nang Priority Infrastructure Investment Projects were widely affected by bribery leading to a debarment from the World Bank for companies involved (World Bank, Feb. 2015). The World Bank debarred construction firm CDM Smith in 2017 for failing to disclose a subcontract to a local company on the Da Nang Priority Infrastructure Investment Project (Public Now, Jun. 2017).

Tax Administration

Corruption in the Vietnamese tax administration is a high risk for companies. Companies indicate that irregular payments and bribes are common when making tax payments (GCR 2015-2016); one in four companies expects to give gifts when meeting tax officials (ES 2015). A third of companies report receiving requests to issue ‘dummy invoices’ where the value of goods or services is lower or higher than the actual one, indicating inappropriate advantages such as bribery being given, or of tax evasion or avoidance of customs duties (VBF 2017). Nearly half of citizens consider most or all customs officials corrupt (GCB 2017). Vietnam’s tax administration is extremely inefficient and has been known to fail to detect tax evasion (BTI 2016).

Companies cite tax regulations and tax rates among the most problematic factors for doing business (GCR 2016-2017). There have been reports of foreign companies having to dispute tax audits that retroactively apply taxes on companies; Vietnam’s continued fiscal deficit and a need to find sources for revenue are said to be the cause of this (ICS 2017). Paying taxes requires more than twice the amount of time compared to elsewhere in the region (DB 2017).

Customs Administration

Companies should take note of the high risks of corruption in Vietnam’s customs administration. Companies report that irregular payments and bribes are very common (GETR 2016). Nearly half of companies indicate that customs agents frequently ask for facilitation payments or bribes to avoid delays (VBF 2017); in another survey, three out of five enterprises engaged in Foreign Direct Investment reported having paid “unofficial charges” in customs procedures (CENSOGOR 2017). Companies indicate that burdensome import procedures, tariffs, and corruption at the border are the most problematic factors for importing (GETR 2016). Businesses are not satisfied with the efficiency of the clearance process and the time predictability of import procedures (GETR 2016). The expenses and time required to comply with import and export regulations are slightly below the regional average (DB 2017).

Public Procurement

Public procurement carries high risks of corruption. Over half of companies indicate they expect to give gifts when securing a government contract (ES 2015). Companies indicate that diversion of public funds and favoritism in the decisions of officials are both common (GCR 2016-2017). Nearly nine out of ten companies surveyed believe that they have been disadvantaged in one way or another during procurement procedures and almost three out of four companies believe that government procurement contracts are typically won by companies with strong ties to provincial governments (PCI 2016). Private companies are reportedly unable to compete with state-owned enterprises (SOEs) for procurement contracts; over two-thirds believe SOEs have an unfair advantage (PCI 2016). SOEs are particularly able to more easily obtain land, capital, and benefit from political favors (ICS 2017). Many private firms resort to subcontracting to SOEs rather than competing directly (PCI 2016). Concerns have been raised about special interest groups influencing “mega projects” (ICS 2017). A 2014 report produced by the National Assembly found that over ninety percent of procurement, engineering, and construction projects were awarded to Chinese companies (ICS 2017).

The wave of privatization of large state-owned companies has resulted in politicians appointing themselves, friends and relatives as executives (Guardian, Apr. 2015). Vice Minister of Industry and Trade Ho Ti Kim Thoa was fired in August 2017 after allegations were made that she had committed wrongdoing in buying and selling shares of the company where she was the chairwoman of its directors (Bloomberg, Aug. 2017). Three contractors on a World Bank backed project in the Mekong Delta were blacklisted in 2017 by the World Bank after it was found that the contractors had engaged in fraudulent practices, including misrepresenting information in the bidding process and inflating prices (Vietnam Net, Sept. 2017).

Natural Resources

There is a high risk of corruption in Vietnam’s natural resources industries, including in the mining and energy sectors, due to lack of accountability and transparency, weak governance, and close ties between the government and business (TI 2017). Vietnam’s licensing regime has also been criticized for lacking transparency (NRGI 2017). The Vietnam Chamber of Commerce and Industry (VCCI) found in a survey that more than four out of five mining firms admitted they had “informal expenses” amounting to ten percent of revenue and over seven out of ten firms said they rely on “relationships” to access information (Vietnam News, Aug. 2016). The VVCI also questioned a constant demand for expansion of exploitation rights from mining companies while they reported low revenues, suggesting corruption (Vietnam News, Aug. 2016). Vietnam scores poorly when it comes to government transparency and reporting requirements (NRGI 2017). Many contracts in the sector are not publicly disclosed, with the exception of state-owned PetroVietnam which has disclosed some contracts on its website (NRGI 2017).

A 2017 report found that timber smuggling from Cambodia into Vietnam is a widespread issue (EIA 2017). The report details how the smugglers pay bribes to officials in Gia Lai Province as well as customs and border army personnel amounting as much as USD 45 per cubic meter of timber in order to clear the timber into Vietnam (EIA 2017). Vietnam has indicated for over a decade that it is considering joining the Extractive Industries Transparency Initiative; close ties between the Ministry of Industry and Trade and the state-owned natural resource extraction companies is said to have stalled the process (Vietnam Net, Sept. 2016).

Legislation

Vietnam has a comprehensive anti-corruption legal framework in place, yet enforcement remains problematic and most indictments of high-level corruption are perceived to be politically motivated (ICS 2017, Forbes, Aug. 2017). The principle anti-corruption statute is the Law on Anti-Corruption, which criminalizes corrupt practices by public officials. Offenses include active and passive bribery, abuse of powers, embezzlement and fraud. As the law targets the public sector, not the private sector, legal entities are not held liable under anti-corruption laws (NRF 2016). Several anti-corruption provisions in the Penal Code, overlaps with the law on anti-corruption. Penalties for active bribery include imprisonment a prison term of either up to 20 years or a life sentence and a monetary fine of up to VND 50 million. Passive bribery may also incur life imprisonment or capital punishment, a fine of up to VND 100 million, confiscation of property, and a prohibition on holding public office for five years (NRF 2016). Vietnam’s Anti-Corruption Law requires government officials to declare their assets. Officials do not have to disclose gifts of a value below VND 500,000 (roughly USD 20), including gifts for the purpose of special occasions (sickness, weddings, New Year, etc.). Gifts offered with an unclear purpose or with a corrupt intent must be reported (NRF 2016). Facilitation payments are not distinguished from bribes (NRF 2016). Several government agencies can investigate and prosecute corruption offenses. Whistleblowers are protected under the Law on Anti-Corruption and the Law on Denunciators, but face harassment by the state in practice (Vietnam Law & Legal Forum, May. 2016). Of all whistleblowing protection requests received, the relevant agencies only processed a third of all submissions (Vietnam Law & Legal Forum, May. 2016). Public Procurement is regulated through a patchwork of laws; more information provided by the World Bank may be found here. Money Laundering is prohibited by the Money Laundering Act.

Vietnam has ratified the UN Convention on Anti-Corruption, but has not signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Civil Society

Freedom of speech is enshrined in Vietnam’s constitution, but in practice, the government restricts the freedom of speech by using broad national security and defamation laws (HRR 2016). Criticism of government leaders, the party, or questions about policies on sensitive matters are severely restricted (HRR 2016). The police is known to use violence, intimidation, and raids on the homes of journalists working on sensitive topics in order to silence them (FotP 2016). Access to information is severely restricted and not mandated by law (FotP 2016). The press environment is considered ‘not free’ (FotP 2016).

Freedom of association and assembly are very restricted in Vietnam, and organizations or groups with rights-oriented agendas are commonly banned (HRR 2016). The registration process for international and local organizations receiving foreign development assistance is difficult and politicized (HRR 2016). Civil society has become more active and has grown in recent years (BTI 2016). Their ability to advocate for policies has increased, but they are still required to work within the framework established by the Vietnamese Communist Party (BTI 2016).

Sources

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