5. Anti-corruption and integrity in SOEs
Tackling corruption and enhancing integrity in the SOE sector is crucial, as it is more prone to corruption exposure due to its high concentration in high-risk sectors. This chapter examines Viet Nam’s anti-corruption efforts at both state and SOE level. It addresses the legal regulatory framework for promoting anti-corruption and highlights some pressing challenges in ensuring transparency in the SOE sector. The chapter further assesses anti-corruption practices applied to SOEs, including the establishment of code of conduct for office holders, conflict of interest management, and declaration of assets and income.
The adoption of the Anti-Corruption Law (ACL) in 2005 was recognised by the international community as an important step to tackling the corruption issues affecting the country. It was the first of many government-wide initiatives on the subject, and the Act itself has been revised multiple times.1 Since the ACL’s introduction and its establishment of the Central Anti-Corruption Steering Committee described below, Viet Nam has seen a record number of Party officials disciplined in connection with corruption. The so-called anti-corruption drive in Viet Nam is termed Dot Lo (fire burning),
In 2009 the government adopted the National Anti-Corruption Strategy towards 2020 and an accompanying Action Plan. The Strategy centred around five pillars: (i) enhancing transparency of authorities and agencies; (ii) completing the economic management regime; (iii) building a fair and competitive business environment; (iv) improving supervision, surveillance, investigation and prosecutions of corruption cases; and (v) raising society’s awareness of its role in the fight against corruption. The National Anti-Corruption Strategy is meant to support the Socio-Economic Development Strategy for the period of 2011-20, which had an aim of enhancing the fight against corruption and wastefulness.
Together with the World Bank, Viet Nam launched a “Vietnam Anti-Corruption Initiative Program” series in 2011, 2013 and 2014 (VACI) (World Bank, 2013[1]). The initiative funded innovative approaches to tackling corruption. These strategies and programmes were launched at a time when corruption was still considered widespread and an impediment to socio-economic development. Around this time, Viet Nam was lagging behind fellow Asian countries on Transparency International’s Corruption Perceptions Index. Civil and political freedoms were limited as was the capacity of media and civil society.
In 2018 the Anti-Corruption Law was revised and, together with the Decree on internal audit, has had implications for SOEs’ company approaches to internal control and risk management as well as for their external accountability. The application of this law and relevant legislation to SOEs is explored below.
Stakeholders have indicated that the Communist Party takes corruption seriously and, at times, severely. It is conceivable that the Party’s prioritisation of corruption eradication means that corruption prevention and enforcement are given weight amongst government and state-owned entities. However, such massive anti-corruption drives by governments can have chilling effects – for instance in real estate investment as said to be the case in Viet Nam.
In January 2022, the Hà Nội People’s Court on Monday sentenced Vũ Huy Hoàng, 69, former Minister of Industry and Trade, to ten years in prison for “violating regulations on the management and use of State assets, causing losses and wastefulness”. The sentence was made at the appeal trial for Hoàng and three other defendants in a case, which related to the ministry, Saigon Beer – Alcohol – Beverage JSC (Sabeco) and HCM City, causing a loss of over VND 2.7 trillion (USD 118.9 million) for the State during the 2007-16 period. According to the indictment, the Saigon Beer – Alcohol – Beverage JSC (Sabeco), which is under the MoIT’s management, was given more than 6 000 sq.m of land at No. 2-4-6 on Hai Bà Trưng street in downtown HCM City for production and business purposes. Sabeco carried out procedures for land use rights and used capital contributions to set up Sabeco Pearl, a joint venture between the firm and a number of private enterprises, to implement a project building a six-star hotel, a trade and convention centre, and office space for lease on the land. Sabeco’s stake in this project to the private enterprises in the joint venture, causing a loss of over VND 2.7 trillion for the State.2
In such systems where one party dominates, attention must always be paid to the potential for the party to overrule legislation or hamper enforcement actions that are inconvenient or indicative of weaknesses within the Party. Specifically regarding SOEs, the Party’s presence and involvement in ‘control’ of the organisation (i) likely represents major shortcomings in the corporate control structure and (ii) may provide disincentives for other control bodies to fulfil their tasks as mandated. These and other challenges to SOE internal control and risk management are discussed in Section 11.3 and 13.10 in particular.
Despite improvements and reforms, corruption-related challenges have persisted in the country. When it comes to SOEs, Chapter 12 raises specific concerns about the confusing mix of state controls and business approaches that are both internal to the company, and its implications for the quality of internal control, the existence and meaning of risk management and disclosure and the autonomy of key roles. Indeed, a recent report prepared by the VCCI found that SOEs are particularly reliant on relationships-based appointments. Stakeholders indicated to the mission team that SOEs face corruption risks particularly with respect to public procurement. At the time of writing, the GIV was preparing a report on SOEs’ compliance with anti-corruption regulations. Though certain stakeholders hinted at some of the corruption-related challenges and irregularities occurring in SOEs, almost no one provided details.
5.2.1. The Anti-Corruption Law and SOEs
The main legislation bearing on SOEs with regards to anti-corruption is the ACL (No. 36/2018/QH14 in 2018). The law assigns responsibilities for anti-corruption not only to state and non-state organisations and companies but also citizens. It prohibits engagement in a broad range of acts of corruption, criminalising attempted corruption and passive or active bribery, including bribery of foreign public officials.
The Law applies to SOEs in two ways. On the organisational level, “state owned enterprises” – understood to be only wholly-owned – are categorised as “state organisations” while majority-owned SOEs are understood to be covered by provisions related to “enterprises and non-state organisations”. The ACL imposes more anti-corruption requirements on wholly-owned SOEs than majority-owned (or public companies). On the individual level, “representatives of the state in enterprises” – enterprises that are both wholly and majority owned – are categorised as “office holders” and subject to all related provisions.
The law requires wholly-owned SOEs, and in some cases particular SOE representatives, to implement select measures for preventing and, as needed, promptly acting on potential corruption, to protect the lawful rights and interest of reporting individuals and to provide information and comply with authorities. For both wholly and majority owned, there are minimum measures prescribed by the law to do with transparency and disclosure, conflict of interest and codes of conduct for office holders described below. The individual controls required in law however do not require implementation of an anti-corruption programme.
Government is mandated to adhere to directions of the Party in its governance and regulation of SOEs. Based on Party Resolutions adopted at Congresses, the government assigns sectoral ministries and committees to formulate SOE-related policies by sector or specialised area. The formulation of the enterprise’s strategy is based on the orientations of the Party, the State and the government, general socio-economic development strategy, as well as the national planning of sectors and fields related to enterprises.
Within a company, the BoC should have an important role to play insofar as they supervise SOE leadership and business operations and can, depending on the circumstance, initiate or be requested to initiative investigations, but there are major concerns about their ability to do so in practice. The head of the ‘state organisation’ – taken to refer to the CEO – should have direct responsibility for corrupt activities of the people under their management. The deputies assume prime responsibility for corruption within their fields and units and the head should bear joint responsibility (ACL, art. 72).
The ACL’s Article 7 assigns multiple actors with responsibilities for supervising and promoting anti-corruption, not only in state entities and companies but across society.
The National Assembly and Standing Committee of the National Assembly supervises anti-corruption works nationwide. The full-time Committee, established in 2009, is chaired by the Prime Minister and has the role of guiding, co-ordinating and overseeing anti-corruption activities. Their scope covers anti-corruption efforts across all of society and would encompass that of non-governmental actors as well. An Office was established to support the work of the Committee. In 2008, Steering Committees were established at the local level and generated some controversy around independence (U4 Anti-Corruption Resource Centre, 2012[2]).
Ethnicity Councils, committees of the National Assembly, within the scope of their duties and entitlements, shall supervise anti-corruption works under their management.
Judicial Committee of the National Assembly, within the scope of their duties and entitlements, shall supervise discovery and taking of actions against anti-corruption acts.
Delegates of the National Assembly, within the scope of their duties and entitlements, shall supervise anti-corruption works.
The People’s Councils, Standing Committees and boards of the People’s Councils, delegates of the People’s Councils, within the scope of their duties and entitlements, shall supervise anti-corruption works in their areas.
The government Inspectorate is responsible for managing corruption inspections, complaints and settlements. Created in 1956, it was given its anti-corruption mandate in the 2005 Law. It encompasses the Ombudsman function and Anti-Corruption Bureau which investigates corruption allegations, including in wholly-owned SOEs. According to the Law on Investigation, the GIV provides management over inspection work and can identify loopholes in relevant legislation and bring it to the attention of legislators. The Prime Minister can assign GIV with an investigation that involves SOEs that are not wholly-owned when the subject matter is complex or cross-cutting, in which case multiple entities may be involved. It also provides guidance to other inspectorates across government – for instance, it provides CMSC with guidance for their oversight of SOEs in the absence of the designated inspection unit – despite that CMSC can be the subject of GIV’s inspections. At the same time, the government also monitors the work of GIV when they are conducting investigations – sending delegations to oversee and inspect GIV’s performance. Line ministries are mandated to conduct inspections in majority-owned SOEs under their responsibilities, but it seems that such investigation pertains to ministries’ regulatory authorities. They report to the GIV as well as their own hierarchy within the ministry. The GIV has also organised biennial anti-corruption dialogues, including those on specific sectors in which SOEs operate.
The State Audit Office of Viet Nam (SAV), described in Chapter 4, has responsibility for verifying the accuracy and legality of state expenditure including that of SOEs. The SAV reports to the National Assembly, who appoints the State Auditor upon recommendation of the President (confirm). In the execution of their audits, the SAV has reportedly uncovered large amounts of state budget lost to fraud. The SAV and GIV have signed an MOU to enhance collaboration and avoid overlaps. In particular, they meet to co-ordinate their annual plans that will avoid visits to SOEs at the same time. They also share information gathered through on-site visits to facilitate their respective work. The SAV has a rotating schedule for audit of SOEs, but the GIV does not.
Other entities are afforded space in the promotion of business integrity in Vietnamese companies including SOEs. The VCCI has been particularly active in promoting and conducting research on issued studies related to business integrity. Since 2014, the VCCI has been working with UNDP and the Embassy of the United Kingdom on the “Business Integrity Programme”. The project partners issued in early 2021 a set of business integrity criteria for SOE and other companies’ use. In 2015, VCCI conducted an assessment on corporate governance of Vietnamese companies taking into account OECD Guidelines.
Code of conduct for office holders
Representatives of the state in enterprises – including members of the BoM, the BoD and the BoC – are subject to a code of conduct (art. 20), to rules on giving and receiving gifts (art. 22) and on managing conflict of interest (art. 23).
Office holders are subject to the code of conduct that bears on their performance of duties and in their social relations. The Code compiles social norms, permissible and prohibited actions that are meant to maintain integrity, responsibility and ethics of office holders. Prohibited actions include, inter alia, harassment, establishing or participating in or holding positions in of proprietorships or companies and from illegally issuing confidential information. Members of the BoM (or BoD), company Presidents, CEOs, deputy general directors, deputy directors, chief accountants and holders of other managerial positions of wholly-owned SOEs cannot sign contracts with enterprises owned by their spouses, parents, children or siblings to bid for contracts of their enterprises; must not allow their spouses, parents, children or siblings to hold positions of personnel management, accounting, treasurer or warehouse-keeper in their enterprises.
It also prohibits them from participating in transactions, trade of goods or services or conclusion of contract with their enterprises. As far as can be discerned, it appears that the law additionally requires that ‘heads and deputies’ of SOEs 100% owned by the state cannot contribute capital to enterprises in the same field, and nor can their aforementioned kin. However, the LOE allows for wholly-owned SOEs to engage in contracts and transactions with related parties (including those prohibited by the ACL) if approved by the BoM or the company’s President, CEO and Controllers (or BoD, or GMS, depending on the company form). As far as the mission team can deduce, limitations are applied to individuals engaging in contracts or transaction, while the company can enter into transactions if approved by the governing bodies on which they often sit.
Conflict of interest management
The state expects that SOEs will manage conflicts of interest of office holders (ACL, art. 23). An individual must report if they have or know of a conflict, including of office holders. When the office holder’s manager or employer finds that their integrity, objectivity or truthfulness of the office holder can be affected by a conflict of interest they should supervise, suspend or temporarily reassign the office holder. Provisions found in this and other laws related to declarations of assets and income, related party transactions and nominations of leadership positions in an SOE cobble together a more comprehensive picture of how SOEs can go about meeting the broader requirements of the law. For instance, the ACL is supported by a Decree describing the management of titleholders, office holders and representatives of state ownership interests in enterprises (Decree No. 159/202/ND-CP). It states that care must be taken to avoid any conflict of interest in the case that manager of an SOE, a controller, or a representative of state capital at an SOE assume multiple positions at the same time. The mission team learned that it is indeed common that leaders of SOEs hold multiple positions at once.
Transparency and disclosure
The ACL requires SOEs – both wholly and majority-owned – to disclose information about its organisational structure and operations, providing exceptions for “state secrets, business secrets and other information prescribed by law”. More specifically, they must disclose implementation of policies relevant to the lawful rights and interests of officials, the distribution, management and use of public funds, public assets or funds from other lawful sources. Wholly-owned SOEs are additionally required to disclose information about human resource management and the code of conduct for office holders. While the information should be accurate, clear, adequate and timely, SOEs are allowed to publish in one of a variety of formats. Should an SOE choose to post the information at the premises of the organisation, this would substantially limit the accessibility for a large swathe of stakeholders.
This requirement is included in the list of disclosures that SOEs must make pursuant to the 2020 LOE. Indeed, the LOE as well as other relevant legislation and decrees bear on the transparency (and integrity) of an SOE. The LOE requires board members, Controllers, Directors or CEO, and other managers of the company to declare their related interests, defined as: (i) the identification of enterprises that they own or in which they are shareholder as well as the ratio and time of ownership/shareholding; (ii) the identification of enterprises in which their related persons own, jointly own, or have separates shares in worth more than 10% of charter capital.
Declaration of assets and income
The law requires declarations of assets and income from those in positions of “deputy managers and above” in SOEs (wholly-owned) as well as from appointed representatives of state capital in enterprises (thereby covering officials in majority-owned enterprises). They must declare land use rights, houses, construction works, and other property attached thereto; previous metals, gemstones, cash, financial instruments and other real property that are each valued at VND 50 000 000 or more; and total income between two declarations. The mission team understands that said persons have to declare within ten days of employment and on an annual basis thereafter.
References
[2] U4 Anti-Corruption Resource Centre (2012), Overview of corruption and anti-corruption in Vietnam, U4 Helpdesk Answer, https://www.u4.no/publications/overview-of-corruption-and-anti-corruption-in-vietnam.
[1] World Bank (2013), The Vietnam Anti – Corruption Initiative Program 2014 Launched with The Theme’Transparency, Integrity and Accountability’, https://www.worldbank.org/en/news/press-release/2013/12/09/the-vietnam-anti-8211-corruption-initiative-programme-20.
Notes
← 1. The “Anti-Corruption Law” (No. 55/2005/QH11) was amended by Law No. 01/2007/QH12 in 2007, Law No. 27/2012/QH13 in 2012 and Law No. 36/2018/QH14 in 2018.
← 2. https://vietnamnews.vn/politics-laws/1119280/hn-peoples-court-sentences-former-minister-of-industry-and-trade-to-10-years-in-prison.html.