Compliance in emerging countries as Vietnam

On 16th August 2016, the Supreme People’s Prosecutor of Ho Chi Minh City sentenced to 30 years' imprisonment for the loss of 417 million US dollars, the ex-boss of VietNam Construction Bank (VNCB) because of a “deliberate violation of credit and borrowing’s rules”. An intensive fight against corruption carried out by the High State authorities and the Vietnamese Communist Party. This campaign is related to a recent initiative to buy "bad debts" held by local banks in order to permanently purify the Vietnamese banking market. It is an important legal issue, topic of the conference organized by the Association of International Business Lawyers (AJAI) on 2nd April 2015 with prestigious speakers as French Professors Mr. GHOZI and Mr. GRIMALDI and Vietnamese teachers Mr. DO Van Dai and Mr. NGUYEN Ngoc Dien.

Indeed, Vietnam wishes to adopt the new compliance standards, a concept assimilated by lot of executives of international companies. According to Professor Antoine GAUDEMET, Professor at Panthéon-Assas University (Paris II), the compliance can be defined as "the process ensuring the respect of legal and ethical standards applicable to the company and its managers/employees”. Corporate social responsibility (CSR), environmental standards or the fight against corruption are linked to this notion. Compliance is rooted in the Common law/Anglo-Saxon legal system and this concept was developed in the United States with its economic liberalism and collateral blame against financial obstructions (corruption, money laundering, etc.). 

France-Vietnam: similar objectives?

Surprisingly, France has not yet integrated this UK-US notion of compliance, living up to its interventionist policy. Vietnam, one of the last communist states of the world, seems not the best destination to develop this concept… Nevertheless, these two nations have both decided to adapt their legal systems after the recent global economic crises caused by important frauds. In France, the Sapin II law, adopted by the Senate last July 2016, appears as the beginnings of a true compliance policy. 

In Asia, according to Brian BURKE, head of legal department at the Chinese office of SHEARMAN & STERLING, "The demand for specialized advice is expected to continue to grow in Asia, where economic opportunities often go hand in hand with compliance risks.” The minimization of these rules by a foreigner may be or severely punished or else totally ignored by the Asian authorities! The compliance offers a third way between impunity and criminal conviction", said attorney at law Laurent COHEN-TANUGI during a conference. The compliance must be adopted by any emerging countries wishing to assert themselves on the international scene, like Vietnam, which wants to consolidate its position as the 2nd most favored destination in terms of FDI in Southeast Asia. 

Compliance in France

Compliance is a variable concept, which varies between companies and sometimes between the head offices of the same company. Similarly, the differences between the different legal systems led to the extraterritorial application of US laws against French companies (Alstom, BNP Paribas) who were legally disenfranchised and levied heavy fines. That is why France reacted with the new powers of “Parquet national financier” against money laundering and corruption. The Sapin II law, considered to be a UK Bribery Act “made in France”, wants to impose an obligation of prevention against the risks of corruption at the expense of companies and provide a legal framework for the notion of compliance.

This obligation may be proposed by the prosecutor before the initiation of criminal proceedings for corruption or traffic in influence, whether internal or international. The monetary penalty may go as far as to 30% of the average annual turnover and may be accompanied by an additional compliance penalty, executed under the control of the Anti-Corruption Agency.

France adopted a legal arsenal for compliance and these initiatives participate to the emergence of new missions assigned to legal counsels or law firms. “The Compliance Officer” and “the Data Protection Officer” are mandatory in some cases according the European Regulation of 27th April 2016. Knowledge of legal/ethical standards and management/communication/IT tools are necessary to make a systemic assessment of compliance within a company to avoid criminal prosecution. There are new issues for companies who should seek assistance of legal practitioners, particularly in emerging countries in Southeast Asia such as Vietnam.

Compliance in Vietnam

Vietnam is a very attractive country for foreign investors. The government wishes to continue its efforts to improve the business environment: a review of Law on Enterprise, Law on Investment, Law on Real estate trading… Nevertheless, Vietnam remains a complex country for a foreign investor. The country achieved a score of 31/100 at the last “Transparency International's Corruption Percentage Index”. 

For example, Vietnam has also the most complex and time-consuming tax systems within ASEAN. Pursuant to compliance, all foreign-invested entities are required to have their annual financial statements audited by an independent firm. Statutory audits in Vietnam are accomplished in accordance with the Vietnam Standards on Auditing while financial reporting must be directed in accordance with Vietnamese Accounting Standards (VAS). Standards in Vietnam can often diverge significantly from those utilized in a company’s home market and should, therefore, be studied closely to ensure that all aspects of reporting and review are in compliance. 

Similarly, to maintain compliance with Vietnamese law it is advisable for foreign companies to conduct an internal and global legal health check: corporate governance update, commercial and labour, internal rules, consumer data protection, contracts review… before controls of Vietnamese authorities∗

The compliance is an essential issue in corporate governance, pushing companies to reform their internal policies, even if the implementation of this new concept remains complex until now. Indeed, a subtle balance must be found between, on the one hand, harmonization of legal systems around the concept of compliance; And, on the other hand, taking the particulars of each State, particularly in emerging countries where the assimilation of this notion must not hinder their economic growth and modernization efforts.

∗ Vietnam has long ago settled a legal arsenal and a legal environment conducive to the development of the compliance: measure of Penal Code No. 15/1999 / QH10, adopted by the National Assembly on 21st December 1999 and amended in 2009; The Anti-Corruption Law No. 55/2005 / QH11, adopted by the National Assembly on 29th November 2005; Decree No. 59/2013 / ND-CP concerning the implementation of certain articles of the Anti-Corruption Law (Decree 59); And Decision No. 64/2007 / QD-TTg (Articles 3, 5, 9, 10 and 12) of 10th May 2007 concerning the issue of gifts to officials. 


Article by Me Caroline Chazard & Alexandre Michel - FIDAL Asiattorneys