Vietnamese Corruption: Navigating Between Business, the Party, and the Pirates

The recent corruption scandal involving real-estate tycoon Truong My Lan illustrates the still very opaque relationship between business and the party in Vietnam. Both are highly interlinked, and rarely do scandals occur. 

Recent Western press articles regularly report anti-corruption activities in Vietnam, and major changes in the top political leadership, often linking the two. The most recent is the Truong My Lan case. Yet, high levels of corruption persist. This is quite normal. Logically, corruption in Vietnam is not, normally illegal – at least not yet.

Such reports tend to ignore the simple fact that while the Party rules from behind the façade of the Vietnamese state, the Party itself is a façade for deeper structures of power and position. Such facades are familiar to those who study such regimes, labelled as Communist. The National Assembly, for example, has very little power, despite what one may read in the Constitution – its members are chosen by procedures, controlled ostensibly by the Party. I write ostensibly  for the Party itself, which is proclaimed to be a coherent entity, controlled by procedures and with its apparent hierarchies, is also a façade, behind which are the people and their groupings that really possess political power. As a very well-informed Vietnamese put to me “there is not a single Party, but many Parties.”

What do the people occupying these positions want? Politburo Directive # 15 of 2007 is very secret, though of course well-known in Vietnam (saying it exists is said to be illegal). Technically it is 15-CT/TW 7/7/2007 and it was replaced by 26-CT/TW 9/11/2018, which is also secret. References can be found in the Vietnamese Wiki, for example, and in scholarly work. It states clearly that corruption by Party members is only illegal (in the commonsense meaning of the word), if the relevant Party body has issued a permit for the relevant state bodies to investigate and prosecute. Otherwise, it is not illegal – Party members cannot be investigated or prosecuted.

But Vietnam is not a basket case and has a vibrant and competitive economy. Logically, people in positions of power want this. So, what are the chances that corruption will become, normally, illegal? What are the prosects for change? When might “pirates turn into businesspeople,” for of course they can.

In 2022 I published an article (based on some very good Vietnamese research, mostly from within Vietnam) that argued that: “These rough calculations suggest that corrupt earnings in Vietnam, adding payments by businesses to those in education and health, likely amount to at least 25-30% of GDP and may be much higher.”

Nobody knows exactly where Vietnamese GDP sits, but with a population around 100 million and perhaps US$5000 per capita, that implies US$500 billion, or a flow of corrupt earnings yearly of the order of US$200 billion. At these levels, the resulting stock of assets accumulates fast. And this makes it very interesting, because at those levels of corrupt earnings they are better seen as a form of property, so the funds are capitalised and reinvested.

Some funds, not a high share, are invested overseas, but mostly they stay in Vietnam. invested into private companies through a classic intermediation process that mainly uses Vietnam’s commercial banks. This may explain, as such officials are basically rentiers who do not involve themselves in their clients’ affairs, why the financial services sector in Vietnam is so large as a share of GDP. Officials securing these corrupt earnings tend to be organised in groups, and passive in their relations with their “clients.” It is piratical – pay us or you will be in trouble – but the evidence suggests that businesses paying off officials are left alone as the corrupt officials act as “arm’s length” part-owners of these businesses.  Such people then need investment advice to manage the resulting (and fast-growing) portfolios, and it seems they get it.

The recent widely publicised case that saw Truong My Lan sentenced to death for penetrating the Saigon Joint Stock Commercial Bank has required the State Bank to reconstitute up toUS$24 billion to maintain confidence and protect the Bank’s creditors. This is very interesting, as there are likely a large number of very angry officials who have seen Truong My Lan and her associates run off with their reinvested money, and this speaks to possibly changing tensions between their interests simultaneously as “pirates” – those who use their positions to extract these payments, and as “businesspeople” – those who are concerned with the value of their portfolios.

Who are the people who sit behind the facades of the Party and State in Vietnam, enjoying these corrupt earnings? Details are of course unclear, but, drawing upon excellent scholarship, we can see a continuity of political behaviour running through the history of what is called “Communism” in Vietnam, that helps explain the challenge. This began from the earliest days of the exercise of state power through and within a Communist façade, around 1945, through to the 1980s to the start of the Vietnamese Economic Miracle around 1992.

This historical “thread” – the continuity of behaviour and of people – shows the underlying nature of power in Vietnam; the simple and natural tendency for those occupying positions behind the façade of the state, and then behind that the façade of the Party, to seek to attain their own goals within the wider Vietnamese (and international) context. Before 1954 they were mainly concerned with leading the anti-French struggle. The following take-over of existing assets, such as factories and plantations, in the north after 1954 was not driven by a logic that reflected formal Communist ideology, nor a drive to deploy Soviet notions of central planning to drive “socialist construction.” In a sense, they were not really Communists. “Ideology” is best seen as simply part of the façade. Rather, control over these assets was acquired by those whose positions enabled them to do so.

The large aid programs from the Soviet bloc and China to the north from the late 1950s, which created the beginnings of an industrial base, saw factories allocated to those in suitable positions. This allocation of state assets into the hands of those “behind the façade” before 1975 showed that their distribution simply did not reflect the logic of central planning. It is therefore not surprising that these firms would rather easily seek to exploit market opportunities, especially once, in the early 1960s, free market prices rose above those set by the state. They were criticised for doing so, but not severely. Those occupying positions of power held tightly to this way of preserving their power and control over assets, demonstrating continuity, both before and after 1975 and national reunification.

In the early 1980s, Soviet advisors accompanying the large Soviet bloc aid program started to push for compliance with central planning’s norms but were ignored. This would have involved moving these factories out of the hands of some, to the hands of others, where they could be harnessed to a Soviet-style push. The historical continuity – the “thread” – was not broken: similar things to what had occurred in the north happened in the south after 1975 as people with solid positions behind the facades of Party and state used them to gain access to southern economic assets.

From 1979 to the 1980s businesses “wearing SOE [state-owned enterprise] clothes” pushed for greater access to profits. After 1992, the historical thread slightly changed direction, as control over such businesses shifted upwards to officials sitting higher in the Party, which required payment patterns to shift. The first three decades of the Vietnamese Economic Miracle that started around 1992 therefore were in many ways simply a recalibration of what those whose families and relationship structures started off with in the late 1940s.

This formidable “stability of power and position” occupied by people behind the façade of Party and state institutions explains in part the nature of Vietnam’s economic growth. At these levels of corruption, most countries would exhibit macroeconomic instability and sluggish growth, with foreign investors requiring considerable luck and courage. But this is not the case in Vietnam.

What we can assess from the papers about Vietnamese corruption is that a great shift from “pirates to businesspeople” is not yet evident. Only if corruption by Party members starts appearing as normally illegal will this be reflected in the pattern of investigations and prosecutions. This does not yet seem to be the case. The history of it all is however striking, as is the excellent research undertaken within Vietnam, that lets us know much about what has been going on, and clearly informs considerations by those in the Party about how to get what they want.

Adam Fforde is an Adjunct Professor at the Victorian Institute for Strategic Economic Studies, Victoria University, and an Honorary Professorial Fellow with the Asia Institute, University of Melbourne.

This article is published under a Creative Commons Licence and may be republished with attribution.