For several years, Truong My Lan held meetings on the 39th floor of the sleek Times Square tower in the heart of Vietnam’s commercial hub, Ho Chi Minh City. There, in a room that acted as her command centre, she allegedly wove a $12 billion tapestry of fraud and corruption, according to the police reports that form the basis of a court case against her.
Authorities allege there were “ghost” companies, payoffs to government officials and a bank she illegally controlled that disbursed loans to herself and her allies worth about 11% of the nation’s 2022 GDP. Her personal driver secretly shuttled millions of dollars in cash across the city’s chaotic streets, police say. Twenty-four government inspectors — whose jobs are responsible for ensuring the health and safety of the banking system — are alleged to have taken Lan’s money to cover up violations.
The woman behind Van Thinh Phat Group, one of Vietnam’s most moneyed real estate empires, now awaits a trial starting on March 5 — and a possible death sentence or imprisonment if found guilty. More arrests are expected in a probe that has contributed to a virtual freeze in the nation’s bond and real estate markets, as bureaucrats fearful of being swept up in police investigations slow-walk approving legal documents.
The country’s largest-ever fraud case is among a slew of high-profile proceedings following from the Communist Party of Vietnam’s crackdown on corruption. It highlights the developing economy’s challenges as it courts foreign investment to become a global electronics hub for companies like Apple Inc. and Samsung Electronics Co. The scandal also raises questions of whether the government has the capacity to safeguard the banking system, bond market and overall economy amid an explosion of wealth.
“The government regulators are overwhelmed,” said Zachary Abuza, an expert on Southeast Asian politics at the National War College in Washington, D.C. “They can’t keep up with the growth of the economy. Look at the volumes of money pouring into the country. They just don’t have the manpower. And they’re so poorly paid.”
Vietnam is a one-party state where foreign media, including Bloomberg News, have limited access to documents such as police reports and reporting is heavily reliant on the local state-owned media. The foreign ministry, which handles enquiries to the government from foreign media, said in a statement that the party’s policy is to resolutely fight corruption “and to handle those who violate the law with strict punishments.” The government aims to “strengthen citizens’ trust in the party” and create a transparent business environment, it said.
Lan recognises she may have violated the law, but “she didn’t intentionally commit those violations, nor try to cause damage to the state and depositors,” her lawyer, Giang Hong Thanh, said in a telephone interview. He added that Lan is willing to cover any economic damages that the court rules she is responsible for.
Pace of change
In recent years, Vietnam has emerged as one of Southeast Asia’s biggest economic success stories. Disbursement of foreign direct investment rose to more than $23 billion in 2023, up 3.5% from the previous year. In a country where the average annual worker’s salary is about $4,000, the number of Vietnamese with a net worth of more than $30 million soared 82% in the five years to 2022 to 1,059, according to the Knight Frank Wealth Report.
But the country is struggling to keep up with the rapid pace of change. Like the Chinese government, which has pursued a sweeping anti-corruption drive as the economy has grown, Vietnam’s leaders see graft as a risk to their hold on power. Communist Party Secretary Nguyen Phu Trong’s crusade to root out avarice is now years old, with no obvious end in sight.
The anti-corruption campaign has touched the highest levels of government and virtually all sectors of society. Former President Nguyen Xuan Phuc stepped down in January last year after taking “political responsibility” for corruption cases during the pandemic. Two deputy prime ministers who respectively oversaw the health and foreign affairs ministries were dismissed that same month. Fifty-four other individuals were convicted last year in a case involving millions of dollars of bribes tied to government-directed “rescue” flights for Vietnamese trying to get home while Covid-19 raged.
Even in this landscape, Lan’s case stands out for its audacity and breadth.
The Supreme People’s Procuracy of Vietnam has prosecuted VTP Group’s chairwoman for allegedly embezzling more than $12 billion from Saigon Commercial Bank, or SCB, between Feb. 2018 and Oct. 2022 — a sum that surpasses the market capitalisation of most Vietnamese banks. A separate investigation is looking into alleged fraudulent appropriation of assets from bond issuance tied to the developer. Another police probe is examining allegations of money laundering tied to Lan and her husband, Hong Kong businessman Eric Chu, according to the Ministry of Public Security’s Cong An Nhan Dan newspaper. Neither SCB nor Chu’s representatives responded to requests for comment.
“This was a black eye for regulators,” said Willie Tanoto, a director in Fitch Ratings’ Asia-Pacific financial institutions team. “There are rules to prevent this from happening and it is unnerving that she managed to get around them for so long,” he said of Lan’s alleged control of SCB.
“Disclosure and transparency requirements in Vietnam have some catching up to do.”
Taste for opulence
Like many of Vietnam’s newly minted rich, Lan, 67, rode the rising wave of post-war capitalism in the country. She is no stranger to the local media, who covered her activities as a philanthropist and socialite, and has never hidden her taste for opulence.
She began selling cosmetics at the age of 16 and got into the restaurant and hotel sector after marrying Chu, according to the South China Morning Post. In 1991, Lan founded VTP Group, which says on its website that it was Ho Chi Minh City’s first private company.
Its projects spanned residential properties, offices, hotels and shopping centers, among them a block-long marble mall complex that includes a yet-to-open Mandarin Oriental hotel, a Rolls-Royce showroom and a Tiffany & Co, incongruously located across a square from the People’s Committee of Ho Chi Minh City. A VTP Group crown jewel was the Reverie Hotel Saigon Times Square, which features marble and gold-plated elevators, a lobby with seven-meter ceilings and a custom-made, emerald-green Baldi Monumental clock worth $500,000, according to a hotel manager. Guests of its two top-end suites — with prices starting at $12,000 a night — are whisked from the airport in a Rolls-Royce Phantom Dragon or, for another $10,000, delivered to the hotel by helicopter, the manager said.
On a night in October 2022, police came for Lan as she prepared for bed in her penthouse not far from the Times Square tower, according to local media reports. News of her arrest set off a panic among depositors of SCB, resulting in a bank run that led the State Bank of Vietnam to take control of the lender and assure its clients their savings were safe.
SCB’s depositors suspected what government and bank officials would not say at the time: that Lan and VTP Group were tightly tied to the lender.
Police allege that Lan illegally controlled more than 90% of SCB by paying 27 individuals and entities to acquire stakes in the institution. SCB disbursed loans of more than $43 billion to Lan and her allies between 2012 and Oct. 2022, according to police allegations reported by Tuoi Tre News. According to news outlet VnExpress, Lan told police that she had had to become a shareholder to ensure the merger that formed SCB was successful, and that she had used her own money and funds borrowed from friends to help the bank restructure its debts.
Lan and other VTP Group officials were initially detained over the alleged embezzlement of tens of thousands of dollars in 2018 and 2019. The probe took on a much wider scope after investigators discovered a notebook belonging to Lan’s personal driver, who meticulously recorded ferrying a total of about 108 trillion dong ($4.4 billion) and $14.7 million in cash to VTP Group’s headquarters, Lan’s home and other locations between Feb. 2019 and Sept. 2022, according to Tuoi Tre News, citing a police report. The money came from bank loans and bond issuances from VTP Group’s related companies, according to local media, which cited the police.
Now more than 700 VTP Group units have been frozen by Vietnamese authorities, and its 156 developments are under government control. Authorities have seized millions of dollars in cash, luxury cars, yachts and property from Lan and other defendants while freezing more than 1.8 trillion dong in bank accounts, according to a statement on the government’s website.
The Ministry of Public Security is also prosecuting 85 others they say are tied to the case, including Do Thi Nhan, a former State Bank official accused of accepting as much as $5.2 million in bribes. Lan’s husband Chu, who sold property at fire-sale prices in 2023 amid his wife’s legal woes, has since been detained in Vietnam, according to local media. Nhan’s representatives did not respond to requests for comment.
‘Investors have lost trust’
Lan’s arrest was part of a national anti-graft campaign that upended Vietnam’s property sector, which was already plagued by oversupply of high-end projects. The crackdown led to a dramatic slowdown in corporate bond issuances, triggering a liquidity crunch and missed payments by borrowers.
“Investors have lost trust in the bond market,” said Hanoi-based economist Nguyen Tri Hieu, who is a consultant for three local credit ratings agencies. This year, about 279.2 trillion dong of corporate bond payments are due, including 115.7 trillion dong of property bonds, according to the Vietnam Bond Market Association. Many companies may struggle to make payments, he said.
Banks, leery of real estate projects, tightened loans to property developers, and newly cautious bureaucrats stalled approvals for new projects.
In Ho Chi Minh City, where unfinished construction sites dot the skyline, just a handful of projects cleared the myriad required government approvals in 2023, said Troy Griffiths, a deputy manager of Savills based in the city. The bottlenecks may ease this year as Prime Minister Pham Minh Chinh pushes officials to accelerate procedures and banks to improve developers’ access to credit, he added.
The woes of the nation’s property market have also weighed on the economy, which missed growth targets last year. More than 1,200 projects are frozen due to liquidity problems as developers struggle to access funding, according to BMI, a unit of Fitch Solutions. “Policymakers may soon be compelled to prop up developers to ensure uncompleted projects are eventually delivered and thus avert social unrest,” it said in a Jan. 15 research note.
The government’s aggressive criminal investigation and new regulations show Vietnamese officials understand the need to protect the integrity of the banking system, Fitch Ratings’ Tanoto said. So far, the Lan investigation has not revealed a widespread institutional problem, he added.
Inadequate whistleblower protection and financial transparency regulations make it more difficult to detect graft and fraud cases, but Vietnam is not the only country grappling with corruption and its regulatory system has improved significantly in the last decade, Tanoto said.
Vietnam’s National Assembly in January passed a law to increase transparency in the banking system, parts of which go into effect this summer. The regulation requires banks to publicly disclose information about shareholders who own 1% or more of a lender’s charter capital and reduces the stakes institutional shareholders can hold in banks.
The tougher requirements are a good step, economist Hieu said. The government needs to put in place severe penalties for banks that fail to uphold them so the regulation has teeth, he added.
It will take years for Vietnam to clean up its culture of corruption, which weighs on economic growth, Hieu said. “It’s embedded in the system,” he said. “It’s in every corner of society. You have corruption in the villages, the provinces, even with the police on the streets.”