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Public sector corruption in Vietnam

Public sector corruption in Vietnam

Looking at everything from Nepotism to tainted suppliers.

Efforts to tackle corruption in Vietnam are failing, said the Communist Party chief, Nguyen Phu Trong, in May this year. Based on our work in the country, this is not especially surprising. We frequently hear first-hand accounts of dishonest dealings that, taken together, and considered along with other surveys of malfeasance, point to a commercial sector characterised by pervasive corruption. We have extracted from our research some of the most common ways in which these practices manifest themselves in state-run companies and set them out below, but first, we highlight three of the most high profile corruption cases from the past six months.

Recent prosecutions: too little, too late? 

Inner-workings of state-run companies

We have investigated mainly state-owned companies (SOEs), in sectors such as oil and gas, construction, logistics and finance. We highlight some of the common themes to emerge from these here:

Tainted suppliers. We have heard accounts of directors of state-run companies holding ownership stakes – either directly themselves but more usually via a family member or other proxy – in companies that provide equipment or services to the state-run business. In some cases, these entities are shell companies that exist solely to facilitate corrupt transactions.

In certain cases suppliers have patrons in the companies they sell to who are more senior in the hierarchy than their direct counterparts. This means that they are not in danger from losing contracts, even if their performance is sub-standard or services too expensive.

Kickbacks for contracts. We understand that kickbacks are often given on procurement contracts by private companies as well as by other state-owned firms. The proceeds of these kickbacks are often distributed through several layers of officials.

Nepotism. This is probably the most frequent complaint we have heard when interviewing contacts about the inner workings of Vietnamese SOEs. In one recent example, we investigated an energy company where it was alleged that several of the company’s directors had obtained their positions via family contacts. One of the directors – someone with no experience in the energy sector – had secured their position many years before with backing from a relative, a former senior member of the Communist Party of Vietnam, and his contact, a senior official in a national energy company.

Nepotism is not only about helping a relative find a job. We have been told reports that senior officials often install trusted associates into lower levels of management. This is to ensure a steady stream of corrupt payments, which in turn enables them to further their own career by, in some cases, purchasing more senior positions in the Community Party.

Leadership conflict. While the CEO of a state-owned business is nominally in charge of the firm’s operations, it may be that he is stifled by rival power centres in the same company. One example we encountered recently was a CEO who did not have effective control of the company because the son of the company’s chairman was in charge of several of the company’s subsidiaries and was setting his own agenda.

These issues were not present in all of the companies we looked at: some were well-run and largely corrupt-free organisations. But despite some high profile prosecutions, unless the government starts to clean up the rot in the state-owned sector, it seems likely that its latest effort to deal with corruption will have limited impact, and that international concerns over exposure to corruption and reputational risks in Vietnam will continue to contribute to the country’s sluggish growth.

Published: 8th July 2014