Law and effect – Vietnam

Even Uncle Ho would struggle

moneylaunderingbulletin.comVietnam is fertile ground for launderers. Weak oversight and regulation of the financial sector do not help, Michael Tatarski finds in Ho Chi Minh City.

Predicates aplenty

According to the US State Department’s International Narcotics Control Strategy Report (INCSR) from March 2017 [1], Vietnam’s exposure to illegal financial activities will probably grow in the future as its economy continues to diversify and international trade increases.

The report states that “sources of illicit funds in Vietnam include public corruption, fraud, gambling, prostitution, counterfeiting of goods, and trafficking in persons, wildlife, and drugs”. Remittances sent to the country from overseas Vietnamese crime groups are a prominent source of illegal funds, particularly income from the shipment of narcotics and wildlife products.


Christopher Batt, AML/CFT (anti-money laundering and combating the financing of terrorism) advisor at the United Nations Office on Drugs and Crime (UNODC) office in Hanoi, shares these concerns: “They [Vietnam] have a rapidly growing economy and a lot of that is based on the fact that it’s still cash-based, and that in itself does create some vulnerabilities and risks for money laundering,” he said. “Particularly when you can still purchase large-value goods and commodities, including land and property, with bags of cash.” Such transactions are, understandably, difficult to track and monitor.

Terror financing is slightly less of a concern, although Vietnam law enforcement needs to remain vigilant as terror groups (and related terrorist financing) are operating in some nearby jurisdictions, Batt noted. Nonetheless, given the high risk of money laundering, authorities need to be careful. “We constantly urge the Vietnamese to be watchful because if you are a financier or a fundraiser for a prescribed terrorist organisation and you’re looking for somewhere to park your cash for a while, you might think of a country that’s generally got no immediate terrorist threat so might not be as vigilant as it should be,” Batt explained.

New law

Vietnam’s AML/CFT regime is currently in transition – a new Penal Code took effect on 1 January 2018. “Contained within that revised penal code are regulations on AML offences, and that is the law which the authorities should then be relying on when they start looking at investigations,” Batt said. Work is currently underway by the authorities (the State Bank of Vietnam – the central bank; the ministry of finance; and the ministry of public security) to provide guidance to prosecutors and police to help with implementation of the new regulations. More detailed provisions regarding money laundering are being drafted and will be integrated into the code, but these rules have yet to be released.

The new penal code has two sections on financial crimes: Article 300 covers terrorist financing, though it only contains three brief bullet points – these include 5-10 years’ imprisonment for persons who mobilise or provide financial support, including money or property, to individual terrorists or terrorist groups; 1-5 years for those who prepare to commit the above crimes; and the potential confiscation of property of such offenders.

Article 324 provides more detail on the ML offences, said the UNODC: it authorises prison terms for using banks and financial institutions to process illicit funds and also for concealing the origin of criminal proceeds (including property). Prison terms depend on the sums involved – for example, 10-15 years for value over US$22,000.

The new penal code is, in part, a response to Financial Action Task Force (FATF) criticism in 2008 when numerous deficiencies were cited, notably in the 2005 anti-money laundering decree No.74/2005/ND. [2]

The State Bank of Vietnam’s (SBV) Financial Intelligence Unit (FIU), (established in 2005) has been directly involved in drafting the new penal code and has worked with FATF and the Asia/Pacific Group on Money Laundering (APG) to strengthen its AML/CFT enforcement as well: Batt says: “It was a new area of work for them, so it wasn’t surprising that when they were assessed back in 2008 they didn’t have an appropriate AML law.”

International assessment

“A lot of the work by Vietnam between 2009 and 2014 was based around… the technical side of the legal framework,” he said. In 2014, Vietnam was duly released from FATF’s ongoing review process for jurisdictions with major AML/CFT shortcomings, but significant challenges remain, and a new FATF mutual evaluation review looms – it is scheduled for 2019.

“The next assessment will focus on a wide range of issues such as banking supervisory visits; what action is being taken against banks that are not reporting suspicious transactions when they perhaps should have; the number of police investigations into money laundering investigations; and the number of prosecutions.”

US critique

In its report, the US State Department explains that while it considers Vietnam is technically compliant with current AML/CFT international standards, its banking supervision of AML policies and procedures is inadequate. Additionally, “cross-border controls remain weak and demonstrate little serious effort to tackle the instances of bulk cash smuggling and wildlife trafficking”.

State-owned enterprises (SOEs) in heavy industry sectors such as petroleum represent a key threat in the State Department’s view as they often receive favourable treatment from regulators and may enjoy ‘partial oversight’, creating opportunities for corruption.

Regional reckoning

In its 2009 report on Vietnam, APG highlighted multiple deficiencies in the country’s AML/CFT regime: as an example, the SBV introduced obligations for both banking and other credit institutions, but only the banking sector had put the necessary measures in place.

At the same time, no central government ministries besides the SBV had issued AML guidelines, and no AML/CFT on-site inspections had been carried out by financial sector supervisors from the central bank or the finance ministry. Such deficiencies were largely corrected by 2014, according to FATF, but the next assessment will determine their effectiveness.

In late 2010, Simon Dilloway, an AML expert at the UK-based Lopham Consultancy, arrived in Vietnam on behalf of the UNODC to help rewrite the Vietnamese government’s guidance manuals for investigating and prosecuting money laundering and terrorist financing crimes. He found that officials had little practical knowledge of the issue. “The central bank knew what the situation was but they were hamstrung by the usual problems of corruption, lack of reporting by the financial sector and lack of clarity on the law,” he said. “They were a long way behind the ball with international obligations.”

While Vietnam has since strengthened its regulations on paper, this has yet to be matched by actual enforcement, and there is an important deadline approaching.

Deadlines approach

The government is currently working on a national risk assessment for AML/CFT – an  FATF condition of release from ongoing review in 2014 – to identify the threat landscape and evaluate the regulatory and law enforcement response.

Vietnam needs to have completed its risk assessment by the time FATF’s 2019 mutual evaluation rolls around: “That might seem a long time away, but it’s not,” Batt said. The pressure of this assessment, combined with the implementation of the new penal code at the start of next year and the lack of detailed AML/CFT guidelines, may well make for a difficult situation. “My concern is that Vietnam could find itself having quite a challenging mutual evaluation and not necessarily be able to display effectiveness across all the key sectors,” Batt explained.

That said, in terms of international ML/TF/sanctions threats, Vietnam does not currently face high risks. “When it comes to North Korea, Vietnam is involved only insomuch as it’s part of the United Nations family and it’s working with all the different UN sanctions that have been issued over the years,” Batt noted. “I’m not aware of any occasions where that’s [UN sanctions on North Korea] been breached” by Vietnam.

However, Batt said Vietnamese prosecutors and investigators do not always understand the benefit of pursuing money laundering as a means of preventing predicate crime, and it will take time to change this mindset and implement tighter enforcement. “It’s really just a case of getting them to shift the way that they look at criminal investigations. It’s a completely different approach.”

There’s much work to be done: Vietnam has never prosecuted anyone for money laundering under the existing legislation, said Batt, meaning law officers lack experience in the field.




thg 2 27 2018


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