Compliance in Vietnam - A Regulatory Perspective

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COMPLIANCE IN VIETNAM
A REGULATORY PERSPECTIVE
DUANE MORRIS VIETNAM LLC
© 2013 Duane Morris LLP. All Rights Reserved. Duane Morris is a registered service mark of Duane Morris LLP. Duane Morris – Firm and Affiliate Offices:
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High risks for
company and
individual employees
Loss of reputation
Damage claims
against
company
Fines for employees
Criminal sanctions
for employees
Damage claims
against employees
Corruption register /
blacklisting
High fines for
company
Why is compliance important ?

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Compliance Issues
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• Competition
• Employment
• Anti-Corruption/Bribery
• Anti-Money Laundering
• Seal Management
• Record Retention
• Insider Trading
• Intellectual Property
• Promotion
• Advertisement
• Website
• Foreign Exchange
• Foreign Loans
• Tax
Et cetera . . .

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• Competition Law
• Employment Law
• Anti-Corruption Laws
Whistle
blower
Focus of this Workshop

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The Story of a Whistleblower
5 Image source: University of Nebraska–Lincoln

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Date: 12:35 pm 2 April 2014
From: 123whistler @yahoo.com
To: HR@bigconstructions.com
Subject: Report regarding internal corruption
Dear Management,
I took part in meetings where Mr. Smith agreed to fix prices with our
competitor Boringdrill. On other occasions, I witnessed how he met
with outside consultants and negotiated payments to certain officials
in relation to the Alpha bridge project. Mr. Smith also threatened
having me fired, if I ever reported this story, and offered me
2,000,000,000 dong to keep my mouth shut.
An anonymous email

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What is management to do?
Image source: milos milosevic via Compfight cc

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In an ideal world . . .
• The company has a compliance manual
• The company acts immediately
• The company has a records retention policy
• The company contacts competent counsel
• The company notifies authorities, if necessary
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Flow
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Allegation
(Email etc.)
Possibly
True
Seek Legal
Counsel
Inform
Authorities
Gather
Evidence
Documents
incl. ESI
Witnesses
“Litigation
Hold”
Clearly false
allegation
Find the
Author
Disciplinary
Action?
Pursue
Litigation?
Veracity
at the beginning…

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and then…
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Allegation
(Email etc.)
Possibly
True
Seek Legal
Counsel
Inform
Authorities
Gather
Evidence
Documents
incl. ESI
Witnesses
“Litigation
Hold”
Clearly false
allegation
Find the
Author
Disciplinary
Action
Pursue
Litigation
Veracity
Internal
investigation
Review
procedures
Find
witnesses
Maintain
witnesses
Witnesses
Statute of
limitations
Special
employees
Internal
Trade Union
Female
employees
Manager of
Trade Union
District Labor
Federation
Lawsuit
petition
Lawsuit
fees
Restrict access
to database
Consider the
disgruntled
Investigate
data
Retain a risk
consultant
External
investigation
Support
authorities
In-house
counsel
External
counsel
Hold meeting
of key leaders
Check emails/
Internet history
Servers, network
desktop, media
Third parties
Employees
Non-employees
…

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Analyzing the Accusation
Truth
Possibilities
Speculations

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• Author – anonymous?
• Access to employee IT systems?
– Trace Internet traffic on the same date
• Consider disgruntled employees/ non-
employees/ third parties
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Date: 12:35 pm 2 April 2014
From: 123whistler @yahoo.com
Email Header

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1st Issue – Anti-Competition
• Antitrust / Competition Law issue
• Could this have happened?
– Potential contacts with the competitor?
– Suspicious circumstances (price movements)?
– Customer complained about high prices and no
choice / notoriously require price cuts
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I took part in meetings where Mr. Smith agreed to fix
prices with our competitor Boringdrill.

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• “The department’s enforcement actions not
only help to ensure justice is served, but also
deliver a valuable return to the American
people”
U.S. Attorney General Eric Holder, 9 January 2014
• US $1.39 billion, EC €1.88 billion in FY 2013
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Antitrust Fines are Big Business
Source: U.S. Department of Justice, European Commission

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• Cartels – agree to restrain free competition:
– Price-fixing (auto part suppliers cases)
– Bid-rigging (public procurement)
– Market allocation / division
• Monopoly (economic concentration)
– Forming monopolies (mergers)
– Abuse of dominant position / exclusionary conduct
• Per se violation / rule of reason
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Competition Law in a Nutshell

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• Coercion, defamation,
disruption, misleading
advertisement, multi-level
marketing, etc.
Unfair Business
Practices
• Economic concentration
• Abuse of dominant market
position
• Agreement in restraint of
competition
Anti-
Competitive
Conduct
Vietnam Competition Law

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Case 1: Monopoly abuse of VINAFCO
• VINAPCO had abused its monopoly and cut off
supplies to Jetstar Pacific Airlines without
justification in 2008.
• Fine: more than VND3.3 billion
(~USD165,000)
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Vietnam Competition Cases

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Case 2: Price-fixing in Insurance Sector
• In 2008, 15 insurance companies reached a cooperative
agreement on the level of motor vehicle insurance
premiums. Then 4 more insurance companies
subsequently became involved in this price-fixing
agreement. These 19 companies account for 99.79% of
the national motor vehicle insurance market.
• Fine: 0.025% of their total turnover in 2007 (the year
preceding the year in which the price-fixing agreement
was implemented). (VND 1,700,000,000 ~USD89,000)
• Administrative fees of VND 100,000,000 (~USD4,800)
were charged also.
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Vietnam Competition Cases

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TIPS
DOs
• Remain calm and polite;
• Be co-operative;
• Take notes;
• Refer to lawyer;
• Refer to Senior
Management;
• Refuse legally privileged
documents (i.e certain
communications with
lawyers).
DON’Ts
• Answer question without
authorization from
Lawyers/Senior
Management;
• Answer general questions
(i.e. those are unrelated to a
specific document);
• Volunteer information;
• Volunteer documents (unless
recommended by legal
team);
• Leave investigator(s)
unsupervised

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2nd Issue - Bribery
• Anti-Corruption Law issue
• Could this have happened?
– Your company’s bid was not the lowest
– Your company has never won such projects
– Miraculously fast decision by the authorities
– Accounting issues
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I witnessed how he met with outside consultants and
negotiated payments to certain officials in relation to
the Alpha bridge project.

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• US Foreign Corrupt Practices Act 1977 (“FCPA”)
• UK Bribery Act 2010
• Vietnam Anti-Corruption Law
(adopted 2004, amended 2007 & 2012)
• Vietnam Penal Code
(adopted 1999, amended 2009)
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Anti-Corruption Laws

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Comparison of Anti-Corruption Laws
US FCPA UK Bribery Act VN Corruption Law
Coverage Extraterritorial,
Very broad
Extraterritorial,
Broad
Within the territory of
Vietnam
Conduct Give, offer, promise Give, offer, receive,
failure to prevent
Give, offer, receive
Targets Foreign officials Any person State officials
Fines Twice the loss or
twice the gain and
disgorgement*
Unlimited Max. 5 times of the
bribery amount
Prison
Terms
Max. 5 years Max. 10 years Death penalty (for the
receiver); Life sentence
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Top 10 FCPA Settlements
No. Company Total Resolution Year
1 Siemens AG $800 million 2008
2 KBR/Halliburton $579 million 2009
3 BAE Systems $400 million 2010
4 Total, S.A. $398 million 2013
5 Snamprogetti/ENI $365 million 2010
6 Technip S.A. $338 million 2010
7 JGC Corp. $219 million 2011
8 Daimler AG $185 million 2010
9 Weatherford $153 million 2013
10 Alcatel-Lucent $137 million 2010
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Source: U.S. Department of Justice

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• FCPA has BROAD jurisdictional reach
• Any contact with U.S. establishes jurisdiction to prosecute FCPA violation
– Use of U.S. mail, telephone, or wire systems
 Includes fax or email sent from foreign country to U.S.
– Use of U.S. banking network
 2 recent examples: Siemens AG and Halliburton/KBR
– Foreign entity with stock trading on U.S. stock exchange
 Includes foreign companies with American Depository Receipts (ADRs)
– Foreign citizen acting as:
 Agent of U.S. entity
 Agent of foreign company that lists stock on U.S. stock exchange
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Why should we care about FCPA?

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Source: US DOJ
Countries Implicated Most Frequently
In Corporate FCPA Enforcement Actions
2009-2013 (July)19
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8
7 7
5 5 5 5
4 4 4 4 4 4 4
3 3 3 3 3 3 3 3 3
China
Nigeria
Iraq
Indonesia
Mexico
Greece
Karakhstan
Poland
Thailand
Argentina
Brazil
Egypt
India
Russia
SaudiArabia
Vietnam
Angola
Bulgaria
Croatia
Macedonia
Malaysia
Panama
Serbia
SouthKorea
U.A.E

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Case 1: Nexus Technologies, Inc. 2010
Three overseas Vietnamese siblings: Nam Nguyen, An Nguyen and
Kim Nguyen -- key managers of Nexus Technologies, Inc. have
conducted an act of bribery involving a Vietnam State official in order
to obtain big contracts and projects in Vietnam
Prison terms:
• Nam Nguyen: 16 months + 2 years to be observed
• An Nguyen: 9 months + 3 years to observed
• Kim Nguyen: 2 years suspended sentence + USD 20,000
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FCPA Cases involving Vietnam

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Case 2: Veraz Networks, Inc. 2010
Veraz conducted an act of bribery involving a Vietnamese
State official (Director of a State Telecommunication
Company) and other Chinese officials in order to develop
business relationships.
Fine: USD 300,000
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FCPA Cases involving Vietnam

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Case 3: Daimler AG 2010
Daimler – a German car brand
conducted bribery acts with State
officials from at least 22 countries all
over the world, including Vietnam
for the purpose of business
facilitation.
Fine: USD 185,000,000
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FCPA Cases involving Vietnam

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Case 4: Aon Corporation 2011
AON is a Delaware corporation that provides risk
management services, insurance, and reinsurance
brokerage worldwide. It is found to have carried out acts
of bribery with officials from Bangladesh, Costa Rica,
Egypt, Indonesia, Myanmar, United Arab Emirates and
Vietnam.
Fine: USD 16,260,000
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FCPA Cases involving Vietnam

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Corruption Perception index 2013
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Rank Country
1 New Zealand
1 Denmark
3 Finland
3 Sweden
5 Singapore
Rank Country
14 UK
18 Japan
19 US
36 Taiwan
46 South Korea
53 Malaysia
80 China
Rank Country
94 India
102 Thailand
114 Indonesia
116 Vietnam
127 Russia
157 Myanmar
160 Cambodia
Clean More corruptNot too bad
Source: http://www.transparency.org

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3rd Issue – Labor Code
• Labor Law issue – Who can fire and how?
– Identifying information about the author
– Does the company have registered Internal Labor
Rules?
– New Labor Code and regulations (2013)
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Mr. Smith also threatened having me fired . . .

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Internal Labor Rules (ILR)
• Cover details on working
conditions
• DOLISA registration
required for legal effect
– Without registered ILR,
disciplinary actions have no
“teeth”
– Risk of wrongful termination
actions
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Trade Unions (TU)
• New Labor Code (2013)
requires TU involvement
– ILR registration
– Disciplinary action
• TU fees
– Employer must pay 2% of
all employee’s incomes
– TU members (employees)
pay 1%
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• Register Internal Labor Rules
• Set up the Internal Trade Union
• Make a separate civil training agreement
• Maintain the records
• Be aware of different practice of different
DOLISAs and labor authorities
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Pieces of advice

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4th Issue – Duty to Report
• Protect the whistleblower from retaliation
• VN Penal Code - Non-denunciation of crimes
– “Any person who knows a crime is being prepared,
carried out or has been completed but fails to
denounce it shall bear penal liability for having
failed to denounce it.” Article 22.
• Obligation to report to the authorities
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. . . if I ever reported this story . . .

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5th Issue – Death Penalty etc.
• VND 2 billion = Death Penalty threshold
– But under VN Law only bribes to officials are
covered
– UK Bribery Act covers bribes to any person!
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. . . and offered me 2,000,000,000 dong to keep my
mouth shut.

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• Ensure the expenditures are transparent
• Obtain written confirmation that payment of expenses is
not contrary to local laws;
• Provide no additional compensation beyond what is
necessary to pay for actual expense incurred;
• Accurately record the expenses on behalf of the state
officials.
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Tips of safeguards!

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• Excessive commissions to third-party
agents or consultants;
• Unreasonably large discounts to third-
party distributors;
• Third-party “consulting agreements” that
include only vaguely described services;
• The third-party consultant is in a different
line of business than that for which it has
been engaged;
• The third party is related to or closely
associated with the state officials.
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Red flags with third parties

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Whistleblowing cases in Vietnam
Case 1: Hoai Duc Hospital, Hanoi
• The hospital was denounced to copy the blood test
results of one patient and gave it to many others.
• The whistleblower was rewarded.
• Violators were prosecuted for crime of abusing positions
and/or powers while performing official duties
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Whistleblowing cases in Vietnam
Case 2: Lino SJC , Danang
• Lino’s clients received an
anonymous letter which spoke
against Lino products. They then
returned the products.
• Lino entreated support from
authorities.
• The whistleblower has not been
identified.
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Lessons from the Whistleblower
1. Compliance Manual
2. Regular Compliance Training
– Defense against “failure to prevent”
– Prevention is cheaper than the cure
3. Data retention policy
– Emails, documents etc.
4. IT systems policy
5. Internal Labor Rules
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What to do?
Recommended corporate compliance policy
• Fair competition
• Integrity in business dealings
• Principle of sustainability
• Upholding foreign trade laws
• Preserving equal opportunity in securities trading
• Proper record-keeping and transparent financial reporting
• Fair and respectful working conditions
• Intellectual property rights
• Conflict of interest
• Cooperation with the authorities
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Typical disciplinary process
• How to suspend someone against whom an allegation is made
• Possible traps for dealing with investigations
• Implications for special targets
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Transparency to be increased in Vietnam
• Those who conduct corrupt acts shall be publicly
handled irrespective of their positions. Arts. 4.2
& 4.5 Law on Anti-corruption 2004
• New requirement on “Transparency of assets
and income” under Law on Anti-corruption 2012
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Record Retention Policy
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Retention terms
• Lifetime of the enterprise: License, certificate,
approval, minutes and resolution, shareholders’
profiles…
• Definite term: not exceeding 70 years
Invalid documents which include duplicate information
and/or documents that are not necessary any more need
to be destroyed. However, the destruction of documents
must be recorded in minutes and such minutes must be
saved by the company for at least 20 years from the date
that they are destroyed.

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Thank you very much!
omassmann@duanemorris.com
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Duane Morris Vietnam LLC