A Dark Reality For Foreign Investors In Vietnam

With mounting publicity on Vietnam's war with corruption, the Supreme Court of New York has authorized international discovery on a corruption case involving high-profile investors across the United States, Vietnam, and Singapore. The move illustrates the growing damage unethical business dealings are having on the foreign investment climate and its impact on local economic development. It's also underlining the potential for positive transformation through government intervention.

The country is growing in popularity as many investors hope to shy away from China. This trend has quickened in recent years, with Vietnam demonstrating its economic integrity during COVID and the past decade. As one of the only countries in the area to grow economically during the pandemic and triple its GDP over the last 10 years, Vietnam has become an investors' paradise. That is until corruption allegations emerged.

An accomplished fund manager and managing member of a prominent capital management firm in New York has allegedly defrauded an investor, bribed government officials, and evaded taxes. Many business executives and investors in his Cayman Islands-exempted limited partnership are also involved with these alleged wrongdoings. The limited partnership entity was created for the main purpose of purchasing and holding an interest in a Vietnamese medical diagnostic testing provider in Ho Chi Minh City.

As stated in the case's docket, which has been spearheaded by investor Sam Perl, this medical company is the common denominator connecting the defendant and his conspirators to a web of lies and corruption. It is accused of being a corrupt organization that deals in bribery and tax evasion.

Before the defendant acquired the medical organization, he sought out Sam to find an investment opportunity in Vietnam. Sam left his job on Wall Street, immigrated to Vietnam, began conducting market research for the defendant's capital management company, and eventually invested in the medical company.

Presumably, the defendant saw this diagnostic testing provider as a lucrative investment despite his knowledge that the business heavily depended on bribes to public hospital doctors and government officials. The defendant assured Sam that he'd put an end to the illegal bribing activities, because of the risk of violating the Foreign Corrupt Practices Act (FCPA). But that was far from the truth.

Allegedly, shortly after acquiring the business, Sam had told the defendant that the company needed a complete upheaval. The current business model was more than illegal. It was unprofitable and operationally challenging. But Sam's suggestions were ignored and there wasn't much he could do; on the contrary, the defendant made sure that Sam was nothing but a figurehead who couldn't control the company's operations.

The allegation is that the medical company was already paying $1 million annually in cash bribes to officers of state-owned entities, to doctors and laboratory directors at public hospitals and clinics, and to the operators of private clinics in Vietnam that served patients who had been referred from the public healthcare system. In exchange for the bribe, these entities would supposedly send the medical organization samples for testing and analysis. When the defendant took control, he apparently paid government officials to delay the collection of overdue taxes, creating a completely unsustainable business model.

Unfortunately, the rabbit hole goes deeper. The defendant found his refuge in the morally ambiguous Vietnamese business environment. He has openly admitted to the company's exchange of funds, claiming that its 'commission payments' to doctors and government officials are perfectly legal because there is no contractual agreement between the two parties. This ludicrous claim is supported by the company's general counsel, who has allegedly bribed the Vietnamese tax authority to avoid years of unpaid taxes.

Sam reported numerous instances of the defendant's misconduct to his capital management firm's major investor, which manages $180 billion in assets, but they took no action to rectify the situation. In retaliation for whistleblowing, the defendant reportedly slandered Sam to his new prospective employer, causing his offer to be revoked within hours of acceptance.

At that point, it became clear to Sam that the defendant must have never intended to eradicate corrupt company practices. If anything, the reported behavior reached a new level after Sam's departure. The defendant used these supposed fraudulent tactics to break into the emerging COVID PCR testing market as the company's losses were mounting due to increasing expenditures on bribes.

While Sam's allegations against the defendant and his associates are still pending, this case exposes the dark reality of Vietnam's business environment. Since being acknowledged by the Supreme Court of New York, it's become evident that Vietnam's federal anti-corruption initiative 'Blazing Furnace' isn't doing enough to curb corruption.

Many wonder whether this anti-corruption initiative can boost trust from foreign investors and governments. If the Vietnamese authorities overlook smaller-scale corruption like that allegedly occurring at Sam's previous employer, vulnerable investors like him will be the ones to bear losses.

American businesses have contributed an upward of $12 billion in registered investment capital to Vietnam. However, protection for American investors is limited. These bureaucratic gaps perpetuate corruption and suffering, which damages the country's ability to attract foreign investment and provide for its population.

Therefore, the government's attempt to root out corruption must be expanded. Foreign investors like Sam Perl are vulnerable to becoming victims due to limited federal oversight. For existing corruption and future criminal activity to be adequately mitigated, the Vietnamese government must strengthen its crackdown in the private and public sectors while partnering with third-party entities and international bodies.

As corruption in Vietnam is exposed and the perpetrators are brought to justice, one can only hope that investors like Sam Perl are protected by stronger government oversight. Their exploitation illustrates the severe consequences of corruption on foreign individuals and the local business landscape.