1. It's been observed that corruption in the non-state sector "has been growing rampantly and with complexity, especially in the areas of loaning, bidding, contracting, and in unofficial costs like gifts, tours, or job generation". Will this law prevent or stop these various modes of corruption?
OM: Whether the law can prevent or stop these various modes of corruption depends on how well the law is enforced. Even if the law is written perfectly, without effective enforcement of said laws, they will only remain meaningless words on paper. Therefore, whether a law has a preventative or deterrent effect depends on how well the law is enforced. However it must be stated clearly that it is not possible for a law to stop all acts that it forbids – that is not possible in any country, for any law.
"Modes of corruptions" mentioned above can be classified into three categories: activities within one non-state actor, activities between two or more non-state actors, and activities between non-state actors and state actors.
Corruption in the areas of bidding, lending, contracting occur between non-state actors or between non-state and state actors. The regulation of commercial activities between non-state actors should be left to the realm of civil and contract law, and potentially criminal law for very serious offences to define what is legal and what is not, rather than corruption law, as these transactions are conducted purely in the private sector.
As for corruption between a non-state and state actor, including official costs, it is more efficient and realistic to target the corruption within the state actor rather than the non-state actor. Corruption in this situation can only happen if the state actor is susceptible and willing to receiving bribes, embezzlement or can be easily "bought". Anti-corruption law should ensure that state actors are deterred from receiving bribes and unofficial costs, and criminal law should ensure the punishment of non-state actors for carrying out such activities. On top of that, private companies are profit-driven. No business would like to increase their costs unless absolutely necessary. Unfortunately without such unofficial costs, the private businesses are unlikely to be able to get anything done at all, as the authorities and state actors may purposefully hinder or create difficulties for the non-state actors. Thus, many non-state actors, especially SMEs, must make the sacrifice of engaging in corruption and bearing the costs in order to keep their businesses going. The prevention of such various modes of corruption must begin with the state sector.
Will this create difficulty in how businesses function well without government experts' advice? The law forbids consultation but does not imply to forbid meetings or restrict communications. Will this be a loophole?
OM: It is reasonable to forbid government officials to consult other individuals and organizations in the non-state sector on information related to state secrets, secret work and work in which they have the authorization in or have part of the authorization in, as this may affect national security and public order. As for consultation with state actors, it should be clear what purpose of the consultation is, the position and security clearance of both parties sharing and receiving the information, and whether the consultation is necessary.
However, in order for this provision to be effective, there must be a clear definition as to what constitutes "state secret" or "secret work", to avoid abuse of the law such as state actors unreasonably withholding information from non-state actors. On top of that, the inclusion of only consultation is also potentially a loophole, unless the law is left open on purpose. Therefore a clear definition for "consultation" is also needed to clarify which acts constitute consultation and is thus forbidden.
3. How would this affect FDI and foreign businesses in Vietnam and their needs to remain "private" as they call themselves?
Nguyen Quang Vu, a business lawyer from Venture North Law Limited, told local press that the provisions are "irrational". He also said that private firms have their own regulations about asset transparency and control and supervision over all activities of their heads. Thus the state should not interfere in their activities. Private firms often have many stakeholders, whose interests are protected by the law and the firms' regulations. The stakeholders are responsible for their assets, not the state.
Do you agree with him? Why/why not?
OM: Private firms may have their own regulations about asset transparency and control supervision over the activities of their employees and executives. I agree with the fact that laws should not interfere with businesses' activities. The firms may have internal motivations to do this, for example to prevent embezzlement and abuse of corporate funds, ensure business efficiency and trust.
Having said that, some external motivations can also be useful. Providing clear laws on the illegality of such acts can also incentivize businesses to create internal regulations that comply with laws, but also give the businesses a legal recourse in the event that an individual within their company does abuse the regulations. Without legal consequences, the only recourse for a business in such situations may be to dismiss and civil action against the individuals. The additional severity from legal consequences can be both a deterrent and correctional mechanism.
The key point here is that the law-makers must find a balance between upholding the benefits of anti-corruption whilst not overly impeding upon the business' interests, and also comply with the provisions of international agreements of which Vietnam is a member.
4. What's your comment on the expansion of Vietnam's anti-corruption fight to private sector? Considering the existing Criminal Law also covers these entities with specific punishments? What else can the government do? Do you foresee any chilling effect this law would have on legitimate private business?
OM: As mentioned in question 3, corruption within the non-state actor can be classified into three categories: corruption within one non-state actor, corruption between two or more non-state actors, and corruption between non-state actors and state actors.
The justification for expanding corruption to include the non-state sector is that such corruption reduces competition in the market, negatively affects the businesses' operations and in turn hampers the country's economy as a whole. Expansion of corruption to the non-state sector will also be consistent with Criminal Code 2015 regulating the responsibilities of individuals within private businesses for acts of embezzlement and bribery.
It is clear that the intention behind including non-state actors in the new Anti-corruption law is to target corrupt acts of individuals in a non-state actor, especially those that operate on a large scale such as public companies, commercial banks and investment funds which handle extremely large sums of money and can potentially impact the rights and benefits of many other individuals and businesses. Although many of such acts are also already covered by the Criminal Code 2015, nevertheless the duplication in the Anti-Corruption Law may hold a symbolic significance, to clearly signify the severity and also moral and political implications of such acts.
The law also needs to find a balance between regulating and preventing corruption in the private sector, but also a law not too intrusive that it over-burdens legitimate private businesses, especially SMEs where they are less likely to have the resources to bear the costs.Thus the current inclusion of the whole private sector in anti-corruption law is too expansive. The law should not be all-inclusive, but perhaps include only certain private sector actors to avoid over-burdening the private sector because the Criminal Code 2015 covers large parts already. Overlapping regulations do serve nobody.
Please do contact Dr. Oliver Massmann under omassmann@duanemorris.com or any other lawyers in our office listing if you have any questions on the above. Dr. Oliver Massmann is the General Director or Duane Morris Vietnam LLC.
Under Vietnamese jurisdiction, competition sector is generally governed by Law on Competition No. 27/2004/QH11 issued by National Assembly dated 3 December 2004 ("Competition Law").
Nevertheless, Penal Code No. 100/2015/QH13 dated 27 November 2015, as amended and supplemented in 2017 ("Penal Code") which has just come into effect on 1 July 2017 is also to cover competition-related crimes by creating potentially severe penalties for both individuals and institutions including monetary fines and imprisonment.
At the time of this alert, it is not purely clear when to apply administrative sanction under Competition Law and when the violation is serious enough to be deemed as a crime under Penal Code. Another query would be how to determine if a crime is conducted by an individual or by a company, given that such individual is working for the company in question. In other words, whether the penalty will impose on the individual offender or on the company for which he/she is working is still arguable.
While awaiting further guidance on how these new offences will be interpreted as well as their full implications in light of the competition scheme in Vietnam, we have outlined the basic information in this legal alert, mainly focusing on the penalties applicable to a violating company.
(viii) Conclusion in order for one or more parties to win a tender for supply of good and services (bid-rigging).
Following to this, Article 9 of Competition Law prohibits all agreements that fall under foresaid items (vi), (vii) and (viii); whereas agreements falling under items from (i) to (v) are only prohibited where the combined market shares of the parties to the agreement is at least thirty per cent (30%), subject to certain potential exemptions under Article 10 of Competition Law.
More specifically, Article 118 of the Competition Law provides a fine of up to ten per cent (10%) of the previous year's turnover of the offender in case of breaches under Article 9.
On the other hand, the new Penal Code now drastically alter the regime for regulations on anti-competitive agreements, especially for a legal entity being a company.
Imposing obligations not directly related to the subject matter of the contract.
Putting that aside, we note that the sanction for a company may increase to VND 5 billion (equivalent to US$ 220,000) or the operation suspension of up to 2 years once any of the statutory aggravating circumstances appears. Further, penalized companies, in addition to potential fines, may be prohibited to carry out certain business activities as well as to raise capital for the up-to 3-year duration.
As addressed at the very beginning, it is being expected form the law-making team that there would be clarifications on (i) whether conduct will be subject to administrative penalties under the Competition Law or to criminal prosecution under the Penal Code and (ii) the proposed scope of activity that may bring on liability for individuals conducting the prohibited agreement.
Bottom line, a company should consider thoroughly reviewing its business practices to ensure not to fall under the scope of sanctions from both Competition Law and Penal Code perspectives.
Also important, there exists a legal risk where the conduct of company's employees is somehow attributed to the company. With a view to minimizing such risk, it is strongly recommended that the company, in its internal policies, including without limitation to the Internal Labor Regulations ("ILR"), should expressly addressed its employee's independent and separate obligations, i.e. not in connection with those of the company in light of competition violations, assuming that such employee's breaches are not employment-related assignments. On this basis, Company would very unlikely to bear the penal liability for what its employee does outside the contractual job description.
VIETNAM – Gaming and casino laws – Where does Vietnam stand now?
On 20 January 2017, the Government issued a long-awaiting casino business Decree No. 03/2017/ND-CP. This Casino Decree for the first time allows local Vietnamese to gamble at specific casinos approved by competent authority on a 3-year trial basis. According to public media, only 02 casinos are open to Vietnamese individuals on a 3-year pilot scheme, which are located within complex resorts in Phu Quoc District, Kien Giang Province (South Vietnam) and Van Don District, Quang Ninh Province (North Vietnam). A small likelihood that Ho Tram Resort would join the list.
Four days later, the Government issued Decree No. 06/2017/ND-CP, which also for the first time legalizesinternational soccer betting in addition to horse racing betting and greyhound racing betting. This Betting Decree together with the Casino Decree have fully opened the door for gaming business in Vietnam.
The issuance of these Decrees is the Government's attempt to retain tax revenue resulting from casino activities and limit foreign currency loss to other neighboring countries. According to a survey, Vietnam loses about USD800 million in tax revenue annually from gamblers who cross the border to Cambodia. The loss may continue rising if the restrictions applied to local Vietnamese are not fully lifted in the future, as Vietnam's ultra-rich population has been growing faster than any economy in the world (320% from 2006 -2016. The highest growth is expected to continue during 2016- 2026 (about 170%).
These Decrees take effect in the midst of rising tourists, especially mid- and high- income ones to Vietnam. In July 2017, the United Nations World Tourism Organization ranks Vietnam as the 7th country with highest tourism development speed, only after Nepal and Korea in the region. The General Statistics of Vietnam also announced that in the first six months of 2017, international tourists to Vietnam increase by 30.2% compared with the same period last year. Tourists from Asia mainly account for those visiting Vietnam, followed by European visitors. We expect an increasing number of gamblers from Macau, Hong Kong and China will visit Phu Quoc this year.
Almost right after the issuance of the Casino Decree, many foreign investors have looked at Vietnam's casino market such as Las Vegas Sands, Banyan Tree, Crown, Chow Tai Fook and Sun City. Although the Casino Decree sets out a 3-year trial period, investors should not wait until such period lapses. The casino Decree is the best opportunity ever for them until now and they have been waiting for this for too long already (about 8 years). It could be risky to invest as no one knows what might happen after these three years. However, as said, the opportunity is out there and investors should rush to meet the 3-year deadline. The Casino Decree sets out very strict conditions for foreign investors to be qualified for the Certificate of registration of investment in casino-included entertainment complex, including the requirement that the project contain at least hotels, service, tourism, commercial and entertaining areas and conference centers. The minimum investment capital must be USD2 billion. Thus, for new investors, it will take them around two years to apply for the license and build the complex. For existing investors in Vietnam, they will need at least one year to expand the project to meet requirements in the Casino Decree.
History shows that casino establishments are often located in difficult economic-socio areas or areas where national security must be balanced. Thus, investors should consider these factors in addition to the investment project's level of contribution to local tourism development and budget. Currently, there are seven licensed casinos in Lao Cai, Mong Cai, Do Son, Bac Ninh, Ha Long and Da Nang. Four complex resorts are now at the development stage, namely Van Don (Quang Ninh), Nam Hoi An (Quang Nam), Phu Quoc (Kien Giang) and Ho Tram (Vung Tau).
Casino business, as defined by the Casino Decree, means prize winning games on (i) electronic gaming machine with prizes (i.e. – men vs. machine) and (ii) gaming table with prizes (i.e. – men vs. men).
Gaming machines used for prize-winning business for foreigners. These are defined as gaming machines with prizing programs and special equipment for casino games. Prize-winning electronic gaming machine means a specialized electronic device to play prize-winning games installed therein. The playing process between players and machines is entirely automatic.
Prize-winning electronic games are lottery games played on prize-winning electronic game machines by players who pay money and may win money.
Gaming machines which the players receive prize not to be converted into cash or kind any form, or to be converted in small things such as toys, candies, etc. and not being gaming machines for prize-winning business for foreigners.
If an investor wants to do business in gaming machines Type 1 (import, distribute or do prize-winning business), they must have a Certificate of satisfaction of conditions for business issued by the Ministry of Finance. One of the conditions to get such certificate is they must have a "tourism residential establishment which has been classified as five star or higher by the competent authority". An investor then needs to cooperate with such hotels in Vietnam on a BCC contract basis.
If an investor wants to do business in gaming machines Type 2, there is no restriction on foreign ownership. However, the machines must satisfy certain technical requirements and if they intend to open a gaming shop, such shop must also comply with conditions in law.
Meanwhile, casino business is also treated as a conditional business sector the satisfaction of which is evidenced by a certificate of satisfaction of casino business conditions ("Casino Business License"). A casino must be located inside a larger resort complex or the like. Local Vietnamese will be permitted to gamble at specific casinos approved by competent authority on a 3-year trial basis (i.e. – calculating from the first day opening of the authorized integrated resorts) if they are 21 year-old or above and has monthly salary of VND10 million (about US$440) or more, just to name a few conditions. Number of gaming tables and gaming machines depends on investment size. That is, for each US$10 million lot that the investor actually releases, a package of one gaming table and ten gaming machines are permitted.
Growing mid to high income people will have more demand for high class integrated resorts. If the Vietnamese are allowed to gamble, development in integrated resorts with casino is a smart decision to make profit in Vietnam. In addition, the government will benefit from tax payments from these resorts and casino businesses.
If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann underomassmann@duanemorris.com. Dr. Oliver Massmann is General Director of Duane Morris Vietnam LLC.
At the time of this article, the Law on Amendment and Supplementation is presumably in the technical correction phase at the National Assembly and the final official version will take some weeks or even months to be passed. But based on the latest draft submitted for the National Assembly's approval dated 10 March 2017, we understand that some of the key changes in the Law on Amendment and Supplementation in light of related-employment crimes are as follows.
Crime of illegal dismissal of employees is still existing!
First and foremost, it is worth noting that crime of illegal dismissal of employees shall be subject IMPRISONMENT/ JAIL of up to one (1) year.
Strictly speaking, it is most likely that the law-makers of Vietnam do not have any intension to lighten the statutory penalties for this crime. Therefore, for avoidance of legal risks, all and every employers and/or their persons-in-charge are strongly recommended to stay as cautious as possible whenever conducting any behaviors (including but not limited to illegal dismissal acts) that may make the dismissed employees or their families fall into difficult situations or go on strike.
With respect to this crime, Law on Amendment and Supplementation expressly introduces a formal checklist of (a) hard, harmful or dangerous works and (b) extremely hard, harmful or dangerous works for the purpose of determination of the crime.
In addition, one more additional penalty has just been supplemented where the offender in question might be forbidden from practicing his/her profession or doing certain jobs for up to five (5) years.
(iii) up to twelve-year imprisonment.
Please be noted that prohibition of the offender from holding certain positions or doing certain jobs for up to five (5) years may also be applied as an additional penalty.
to keep your managing team informed of these new stipulations soonest possible.
We are fully qualified and very pleased to assist you with your implementation of these necessary actions.
Following the issuance of the Investment Law (2014), the Government of Vietnam is speeding up the drafting of a new decree (the Draft Decree) guiding trading and distribution of foreign invested economic organizations (FIEOs) in Vietnam. The Draft Decree, once issued, will replace Decree 23 on trading and distribution of foreign invested enterprises dated 12 December 2007 (Decree 23).
What is new in the Draft Decree?
Applicable Entities Foreign investors and FIEOs with 51% or more foreign ownership (if acting as an investor in another entity) Basically, all FIEOs and local companies.
Forms Investment registration certificates or 'approval' of the DPI in case of formation of new entities or acquiring existing local companies respectively Sub-licenses such as licenses, certificates, etc. In case of trading and distribution by FIEOs, it is the approval for sale and purchase of goods of the DOIT.
Other activities directly related to the purchase and sale of goods'.
Comparing with Decree 23, albeit referring to a variety of trading related activities (e.g. – advertisement, promotion, etc.), mainly subjects trading and distribution by FIEOs to baby permits. Hence, with activities being specified as above, it is more likely that licensing authorities would request all Conditional Businesses to be subject to baby permits. If this is the case, this fact can be seen as a 'one step back' in terms of relaxing licensing process for foreign investment. Specifically, licensing authorities will be given discretion in granting baby permits for Conditional Businesses which are in fact fully opened to foreign investment.
Previously, investors applying to setup a trading/distribution FIE need only to obtain an IRC which simultaneously serves as a baby permit. However, with the delegation of the IRC licensing authority from the provincial people's committees to DPIs under the Investment Law, it is still unclear as to licensing process for issuance of baby permit.
The Draft Decree gives the answer. DPIs and the DOITs are responsible for the IRCs and baby permits respectively. DOITs are required to obtain approvals of the MOIT and, under some circumstances, relevant State bodies. This new licensing process, when implemented, will effectively create a 03-layer approval for FIEs which are (i) IRCs at DPI; (ii) baby permits at DOIT and actually approvals at MOIT. This is even more critical because in order for the DPI to issue IRCs including Conditional Businesses they, as a matter of practice, often seek the DOIT/MOIT's greenlight. As such, 04 rounds for approvals would be required for some service sectors that Vietnam has been open to foreign investors for years under its respective international treaties.
Issuance of a decree on trading rights and distribution activities of foreign invested economic organizations (FIEOs) in Vietnam.
As said, the DOIT will be responsible for issuing baby permits. In doing so, it must first seek greenlights of the MOIT.
d.FIEOs with foreign owner holding not more than 35% voting shares (in case of joint stock companies) or 35% charter capital or a lower voting ratio stipulated in charter (in case of limited liability companies).
With respect to FIEOs in item (b) and (c) above, it is not clear as to whether such exemption applies to FIEOs established before or after the effective date of the Draft Decree.
c.Retail outlets other than the first one having total area of less than 500m2 in the same commercial centers.
The Draft Decree introduces more specific metrics to measure ENT criteria including geographic size of the relevant area, number of existing retail outlets, possible impacts of retail outlet to be applied on the stability of market, population density and possible contribution of the retail outlets to the socio-economic developments of the area.
FIEOs send the application file to the licensing authority for issuance of baby permits per post, online or direct submission.
The licensing period varies by nationalities of the investors/FIEOs. For example, investors from jurisdictions which have entered into international treaties with Vietnam on market access, the period for the MOIT and other State bodies to give opinions will be 07 working days only. Other investors (e.g. – investors from BVI or other tax heavens) may suffer a 15-day licensing period. The direct licensing authority (e.g. – the DOIT) will issue baby permits within 05 days from the date of receipt of greenlights of the MOIT and other relevant State bodies, if any. In case of refusal, explanations must be given to the applying entities.
Please contact Oliver Massmann under omassmann@duanemorris.com; in case you have questions on the above. Oliver Massmann is General Director of Duane Morris Vietnam LLC.
The final draft of the casino decree ('Casino Decree') has been passed by the Ministry of Justice and Government's Office. It is now on the table of the Politburo for their comments, which are as always, the most important. It is expected that the Casino Decree would be issued on 1 July 2016. Nevertheless, there is no absolute guarantee on this prospect. This is because in order for a decree to become effective, it must be publicized on Official Gazette first and waits for a 15-day period from the first publication on the Official Gazette.
For many reasons, the text of the Casino Decree has not been made public. The Ministry of Finance has been successful in keeping the draft Casino Decree under secrecy. Again, whether Vietnamese residents are permitted to enter casinos in Vietnam is a big question that may wait for decision of the highest level of Vietnam's political system.
Recently, the Ministry of Public Security (MPS) has proposed a draft decree that lists casino as a conditional business which is subject to license of the MPS with respect to social orders. A very interesting point is that the draft decree only prohibits Vietnamese from playing on gaming machines. It is important to note that no such prohibition is mentioned with respect to Vietnamese's playing in casinos. This may give a hint that Vietnamese may enter casinos if they are 'permitted'. This fact corresponds to provisions of the new Penal Code that makes it very clear that only 'illegal' gambling is punished.
So, though not 100% sure, more likely that Vietnamese may enter casinos and gamble but with specific conditions.
At present, pending the issuance of the Casino Decree, all projects on casino are put on hold. we will follow up and keep you updated.
Please do contact the author Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
1) In your opinion, what are the most important features of the new investment law from an investor's perspective?
It is considered as the most-investor friendly investment law ever in Vietnam. It provides clearer investment procedure timeline, consolidated conditional business sectors, defined capital ratio to be qualified as foreign investors which determines which licensing procedure applies. Notably, it explicitly states that there would be no investment registration certificate required for M&A transaction.
2) What impact do you expect these to have? How effective do you think this law will be?
The investment environment will become more attractive. Investors would face less burdens and unexpected statutory requirements. A new wave of M&A is expected to come. However, the real effectiveness of this law would need to be assessed at a later stage when the implementing decrees are issued. As long as these documents have not been adopted, positive changes that the new investment law is said to bring are just theoretical.
3) How does this law fit in with the current investment climate of Vietnam, and the growth and development path the country is taking?
Vietnam is making great efforts to integrate into the world's economy. The EU-Vietnam FTA is at the final stage whereas the TPP is also expected to be concluded soon. The Government of Vietnam is fiercely improving the business and investment environment and making great attempts to achieve key economic indicators of top regional countries until 2016. Resolution No. 19/NQ-CP/2015 of the Government dated 12 March 2015 has set out the Government's strong commitments and positive changes to improve the business environment and strengthen the economy's ability to compete in 2015 and 2016 by pushing for reforms to reduce time-consuming and burdensome administrative procedures; enhancing governmental offices' transparency and accountability; and adopting international standards. These positive changes could be seen clearly in the tax, insurance and customs related sectors.