Over the past few years Vietnam has emerged as one of the most attractive investment destinations in Asia, driven by strong economic growth, pro-foreign investment government outlook, its increasingly central position in the global manufacturing supply chain, and its relative political stability. However, such perceptions have been undermined by recent developments in the Communist Party of Vietnam (CPV)’s ongoing anti-corruption campaign, often referred to by General Secretary Nguyen Phu Trong as the “burning furnace”.

The recent removal (or “forced resignation”) of three key national leaders – President Nguyen Xuan Phuc and two deputy prime ministers (DPMs) – on charges of corruption linked to their handling of the pandemic, is unprecedented in recent Vietnamese political history and took many Vietnam observers by surprise. In addition, the crosshairs have now been turned on the private sector, and while foreign businesses operating or investing in Vietnam are not the direct targets, their local partners and portfolio companies certainly are.

Arrests in the real estate industry

Since early 2022, there have been a series of high-profile arrests in the real estate sector, mostly related to stock price manipulation and corruption in acquiring state land assets. Real estate is not a surprising target given the high corruption risks. As all land in Vietnam is technically public property, government officials have significant discretionary power over its use – power that can be abused by vested interests.

To date, the anti-corruption drive has taken down several prominent Vietnamese property developers, including FLC Group’s chairman Trinh Van Quyet, Tan Hoang Minh Group’s chairman Do Anh Dung and, most recently, Van Thinh Phat Group’s (VTP) chairwoman Truong My Lan. While there is genuine intent by the CPV to clean up the private sector and send a positive message to international investors, this latest anti-corruption drive is undoubtedly driven by politics.

The cost of political connections

Like many prominent businesspeople in Vietnam, the three property developers recently caught up in the campaign are deeply politically connected. But these three have something in common: their political connections comprise rivals of Trong, who is maneuvering to have his protégé elected when he steps down by the next Party Congress in 2026.Trong, aged 78 and now in his third term, has already received two age waivers. Like fellow communist leader Xi Jinping in China,  Trong has made anti-corruption a core theme of his leadership, warning that it is an existential threat to the party’s legitimacy. He has also used the anti-corruption drive to clip the wings of opposing political factions, curtailing their ability to meaningfully challenge him and his allies in 2026.

Of the recent arrests, Lan is the most curious case: a Chinese-Vietnamese business tycoon who began her career as a retailer of hair accessories, she maintained a low profile while building a property empire that includes some of the most prestigious real estate assets in Ho Chi Minh City. Insiders have long speculated that her political connections have played a crucial role in her rise to becoming one of Vietnam’s richest businesspeople. Now, it seems, those same connections have been instrumental in her downfall. 

Economic cost

The anti-corruption campaign is already damaging the economy. Value is being destroyed as real estate and capital markets have become collateral damage in political fights. Approvals for licensing for thousands of projects have been delayed as mid-level government officials are reluctant to make decisions on projects that could fall under investigation, thus increasing costs and confusing and frustrating foreign investors. Control Risks understands that at present, more than 1,500 companies in Vietnam are under government scrutiny for their connections to VTP and Lan. Lan’s arrest led to a run on the deposits of the HCMC-based Saigon Commercial Joint Stock Bank (SCB), which was widely believed to have close relations with VTP, despite denials by the bank. The State Bank of Vietnam – Vietnam’s central bank – repeatedly tried to reassure depositors that SCB had not been affected by the scandal, with little success.

Lan’s arrest has put many other local businesspeople at risk of investigation and placed multiple prominent real estate developers on the verge of bankruptcy as they maintain opaque cross shareholdings and investments in her corporate empire. An example is one of Vietnam’s largest real estate companies, which was found to hold at least USD 500m in debt linked to Lan and her businesses – none of which appeared on its books. On the day Lan was arrested, the real estate company was just a few months from defaulting, leaving its partners, investors and third parties with the possibility of losing hundreds of millions of dollars.

Just the beginning

The campaign shows no signs of abating. In October 2022, the government announced that probes in 2023 will focus on finance, banking and real estate, and we expect political in-fighting to become more visible closer to this year’s CPV’s mid-term congress. Although this has not yet been publicly reported, Control Risks understands that several prominent Vietnamese corporates are being targeted for investigation, which has prompted a flurry of asset fire-sales and dissipations by their owners and family members. There is a high likelihood that their foreign partners and investors will find themselves inadvertently caught up in the campaign – indeed some already have and are struggling to contain the reputational, legal and financial fall-out. 

The political maneuverings are an additional worry for foreign businesses. While Phuc’s role as president was largely ceremonial, his presence was reassuring to the international business community given his credibility as an economic manager and position as an advocate of foreign investment throughout his 15 years as a national level political leader. The removal of the two DPMs will undoubtedly create uncertainty over the trajectory of policy making, at least in the short-term. 

How to avoid getting burned

Given the rapidly evolving situation, Control Risks strongly advises businesses with planned or actual investments, projects or operations in country, particularly those in the sectors most exposed to the anti-corruption drive, to closely monitor political developments in country. We also suggest businesses proactively map out their current or planned partners’ or investment targets political and business connections, to better understand their potential exposure to government scrutiny, particularly given the speed at which the CPV can launch enquiries and investigations. Even businesses that are not directly exposed to investigation may have to factor in delays to ongoing or new projects, given that approval processes for permits and licenses in many sectors have almost ground to a halt. Lastly, having a comprehensive stakeholder management strategy in place is critical to being able to respond quickly and effectively to any potential investigation or enquiry from the authorities.