Nominees and ‘Backyard Companies’: How Vietnamese Officials Conceal Their Illicit Wealth
Not a single Vietnamese leader or official has been named in the Pandora Papers, which has shed light on global leaders squirrelling their wealth away from the eyes of the taxman. As the saying goes, the absence of evidence does not necessarily mean the evidence of absence.
The Pandora Papers, which were published by the International Consortium of Investigative Journalists on 3 October, sent shockwaves across the world. The Papers reveal that 336 politicians and public officials, including 35 current and former national leaders in more than 91 countries and territories, have used offshore tax havens to hide assets worth hundreds of millions of dollars. However, no Vietnamese politicians or public officials have been named in the Papers. Does it mean that corruption in Vietnam is not as serious as in some other countries?
According to Transparency International’s Corruption Perception Index, Vietnam was ranked 104 out of 180 surveyed countries in 2020. Since 2016, the anti-corruption campaign led by Vietnamese Communist Party (VCP) General Secretary Nguyen Phu Trong has led to the prosecution of dozens of high-ranking officials, including a former Politburo member, several former ministers and more than 30 military and police generals. Last week, nine generals in the Vietnam Coast Guard were disciplined for corruption and mismanagement, with two expelled from the Party and seven stripped of all Party positions. Following internal disciplinary measures, some of them will also face criminal prosecution.
As such, the absence of Vietnamese politicians and government officials in the Pandora Papers does not mean that Vietnamese officials are less corrupt than their foreign counterparts. A more plausible explanation is that they have other ways, though less sophisticated but still effective in the Vietnamese context, to hide their illicit wealth. One common measure is to use nominees to hold assets in Vietnam on their behalf.
The lack of an independent press and active civil society makes it easier for them to hide their illicit wealth from public scrutiny.
This practice is common among officials who are required to declare their assets by law. The nominees can be their relatives, associates, or even hired persons. In many cases, even if they don’t declare all of their assets, there is a low chance that their false declaration will be detected. This is because official databases on individuals’ registered assets remain fragmented. The lack of an independent press and active civil society makes it easier for them to hide their illicit wealth from public scrutiny.
At the same time, there is no effective formal mechanism to verify the asset declarations of officials. In most cases, authorities can only verify an official’s sources of wealth and assets when they are subject to an official investigation due to allegations of corruption or mismanagement, often exposed in an unrelated incident. Meanwhile, routine inspections have proven to be largely inefficient in detecting illegal assets of corrupt officials. In 2017, for example, only three senior officials in the whole country were found to have declared their assets dishonestly.
Using nominees is also related to the common practice of setting up so-called ‘backyard companies’ (công ty sân sau) to either hold assets or gain unfair business advantages. ‘Backyard companies’ refer to companies established by family members or cronies of politicians, government officials, or senior managers at state-owned enterprises (SOEs). The relatives and cronies exploit their connections with the politicians and officials to gain exclusive access to business opportunities, such as winning contracts for government-funded projects. This practice is so common that at a conference on SOE reforms in 2018, then Prime Minister Nguyen Xuan Phuc claimed that some officials he knew had not only one or two but even up to 14 or 15 ‘backyard companies’.
A recent example of using nominees to hold assets and set up ‘backyard companies’ is that of Nguyen Duc Chung, the former chairman of Hanoi. Chung was found to have interfered in the bidding process to give three government-funded service contracts to Nhat Cuong, a company owned by a crony of Chung. In another case, Chung asked Hanoi authorities to select Arktic Trading Service Company Limited as the importer and supplier of a water cleaning agent for purifying lakes in the city, although the city could purchase the chemical directly from a foreign supplier at a much lower price. Notably, although two individuals seemingly unrelated to Chung were registered as Arktic’s shareholders, authorities later found out that they were actually nominees, and Nguyen Thi Truc Chi Hoa, Chung’s wife, is the ultimate owner of the company.
Chung’s exposure, however, remains a rare instance. In most other cases, officials can get away with their corruption and successfully shield their illegal assets from public scrutiny using nominees and ‘backyard companies’.
In his opening speech at the fourth plenum of the VCP Central Committee on 4 October 2021, General Secretary Nguyen Phu Trong stressed that the party should not only ‘prevent and repulse’ corruption, but also proactively ‘attack’ it. Towards this end, the Party should put into place more rigorous mechanisms to detect false asset declarations by officials. Given the limited resources and the lack of independence among formal corruption-fighting institutions in Vietnam, allowing the press and civil society to play a more active role in this process is essential. Cashless payment should be promoted, and anti-money laundering measures tightened so as to bolster the ability of financial forensic investigators in tracking down money trails. Stronger legal and institutional mechanisms to prevent officials from using nominees and ‘backyard companies’ should also be considered.
With no Vietnamese politicians or officials named in the Pandora Papers, Vietnamese leaders can breathe a sigh of relief for now. However, for them as well as the Vietnamese public, this should not be a cause for celebration. Instead, it should be a cause for concern as it implies that Vietnam’s anti-corruption mechanisms remain weak, and corrupt officials can still find safe havens for their illicit wealth right inside the country without being detected.
Le Hong Hiep is a Senior Fellow and Coordinator of the Vietnam Studies Programme at ISEAS – Yusof Ishak Institute.