Is Vietnam's corruption fight going too far?

The alleged mastermind of arguably the largest corruption scandal in Southeast Asian history was sentenced to death in Vietnam last week as the country's communist government ratchets up its anti-corruption campaign.

Truong My Lan, 67, was charged with the embezzlement of around  $12.5 billion  (€11.7 billion), the equivalent of around 3% of Vietnam's 2022 GDP, from the Saigon Joint Commercial Bank (SCB).

She also illegally owed a majority share of the bank, and was found guilty for allowing loans that resulted in losses of €25.2 billion.

The Ho Chi Minh City court said that her actions "not only violate the property management rights of individuals but also pushed [the bank] into a state of special control, eroding people's trust in the leadership of the [ruling Communist] party and state."

Prosecutors had demanded the death sentence, arguing that Lan should be "ostracized from society forever," according to local media.

Tuong Vu, professor and director of the US-Vietnam Research Center at the University of Oregon, said the Communist Party wanted to send a message to Vietnamese society that it "is serious about fighting corruption" and to remind the business community not to be "too greedy" and under the illusion that it can escape investigations from the authorities.

Death sentence a 'double-edged sword'

However, the sentencing of Truong My Lan to death is a "double-edged sword," said a senior member of the European business community in Vietnam, who requested anonymity. 

"On the one hand, it shows that Vietnam is serious about tackling corruption and that is to be welcomed," they said. "But, from a European sentiment point of view, the death penalty is not something that could be condoned."

Brussels "strongly opposes the death penalty at all times and in all circumstances," EU spokesperson Peter Stano told DW.

Vietnam ratified the International Covenant on Civil and Political Rights in 1982, which strictly limits the application of the death penalty to "the most serious crimes," Stano said.

He added that the EU has called on Vietnam "to introduce a moratorium on any imposition of capital punishment, with a view to its abolition."

It's possible that an appeal court will overturn the death sentence, said Le Hong Hiep, a senior fellow at the ISEAS–Yusof Ishak Institute's Vietnam Studies Program in Singapore.

In the past, he noted, courts have meted out death sentences to pressure defendants into revealing more information about their crimes, helping the state to recover the losses.

"If Lan becomes more cooperative, it is possible that her sentence may be reduced to life imprisonment," Hiep said.

However, analysts reckon that the Communist Party has to balance offering clemency in return for more information on the whereabouts of stolen assets with the apparent deterrence factor of Lan's death sentence.

"The prevalence of cross-holdings between banks and private enterprises, as well as the practice of related-party lending by private banks, poses significant risks to the banking system and the economy as a whole," said Hiep.

"The government appears determined to prevent another banking scandal like SCB from occurring, and Lan's death sentence serves as a strong message to bank owners that they must cease illegal business practices or face severe consequences," he added.

Vietnam extends anti-corruption net

In 2016, Nguyen Phu Trong, the Communist Party general secretary, unleashed a large-scale anti-corruption campaign that has now resulted in the dismissal or imprisonment of thousands of party officials and business leaders.

Two state presidents, including President Vo Van Thuong last month, have resigned for allegedly failing to curb corruption.

Lan and her family made a small fortune in the hotel and restaurant sector during the heady days of unchecked capitalism in the 1990s, after the Vietnamese Communist Party adopted a market economy in 1986.

In 2001, she headed up a merger between the beleaguered Saigon Joint Commercial Bank (SCB) and two other lenders. State prosecutors, who reportedly provided literal tons of printed documents as evidence, claim that Lan used the bank as her own personal cash dispenser.

According to the prosecution, Lan acquired around 90% of a stake in SCB through shell companies and proxies despite Vietnamese law prohibiting individuals from holding more than 5% of the shares in any bank.

She then appointed compliant officers at the bank who approved dodgy loans to fictitious companies run by Lan and her associates, with reports that she was the recipient of 93% of all the bank's lending.

State inspectors were bribed not to question the legality of these payments. A former chief inspector at the central bank was handed a life sentence for accepting a $5 million bribe.

Starting in early 2019, she allegedly withdrew more than $4 billion in cash from the bank and stored it in her home.

Rumors of Lan's corruption have swirled for years, not least because she and her close associates have purchased vast swathes of prime real estate in Ho Chi Minh City.

Her husband, Eric Chu Nap-kee, a Hong Kong national, was sentenced to nine years in prison for his role in the scandal, while her niece was given a 17-year prison term. Four executives, including central bank regulators, were handed life sentences.

Concerns over Vietnam's banking sector 

In recent years, Vietnam's so-called "blazing furnace" anti-graft campaign has increasingly targeted private companies, especially those in the financial sector.

The campaign has created an image of Vietnam as a country that is cleaning up the sort of endemic corruption rife in many Southeast Asian states.

At the same time, however, Vietnam's rating in Transparency International's 2023 Corruption Perceptions Index dipped from 42 to 41 on a 0-100 scale where 0 means highly corrupt.

Moreover, the scale of the corruption uncovered in recent years has raised questions about how much of the rot remains within Vietnam's economic system.

There are now concerns about the caliber of Vietnam's banking sector, especially given how easy it seemingly was for Lan and her associates to pilfer €11 billion from a private bank.

The trial of involving another vast fraud case in the stock market involving Trinh Van Quyet, former chairman of real estate developer FLC Group, is likely to start this year.

Prosecutors are seeking the conviction of at least 51 people involved in this scandal after investigations were wrapped up in February. 

Anti-graft efforts can also affect decision making at the local level. State officials have reportedly grown so fearful of being accused of wrongdoing that they are now hesitant to make risky decisions, especially over much-needed infrastructure projects. A wrong decision could prompt extra spending, which could lead to them being charged with the loss of state money.

Edited by: Wesley Rahn