Vietnam wants to take China's place as a new factory of the world - but a $12 billion financial fraud case is getting in the way

Vietnamese property tycoon Truong My Lan looks on at a court in Ho Chi Minh city on April 11, 2024.

A mega-fraud case has rocked Vietnam, shining a spotlight on the emerging economy that is positioning itself as an alternative to China.

On Thursday, Vietnamese real-estate tycoon Truong My Lan was sentenced to death for her role in a $12.5 billion fraud that took place over the course of a decade - which amounts to about 3% of the country's GDP. Prosecutors allege the damage from the fraud could reach $27 billion.

Lan, the chairwoman of real-estate developer Van Thinh Phat Group, was arrested in 2022 over the fraud case. She was found guilty of embezzlement, bribery, and violating banking rules.

Lan has denied the charges and intends to appeal, according to media reports.

The high-profile fraud case has scandalized the country and is raising questions about the one-party state. Vietnam has emerged as a top location for manufacturing outside China as global companies seek to diversify their supply chains.

For context on the scale of the Vietnam fraud case, consider the 1MDB case, which rocked Malaysia and the world when it started to unravel in 2015. In that scandal, investigators estimate senior officials stole $4.5 billion from the Malaysian state fund. The Lan case is looking at figures nearly three times that size.

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Vietnam wants to take China's place as a new factory of the world - but a $12 billion financial fraud case is getting in the way

Beijing says Evergrande and its tycoon founder committed a $78 billion fraud. That would rank it as one of the biggest financial frauds ever.

Foreign direct investment in Vietnam reached a record high of $36.6 billion in 2023, according to official data.

Hanoi's corruption crackdown has hit Vietnam's economy

Lan's fraud case is just one in Vietnamese Communist Party Secretary Nguyen Phu Trong's sweeping corruption crackdown.

Notably, two Vietnamese presidents have resigned in two years amid the crackdown. The Vietnamese Communist Party did not specify the reasons for their resignations, but they have been linked to the country's anti-graft campaign.

The so-called "Blazing Furnace" corruption crackdown has hit investment and market sentiment as investors question if Hanoi can secure the integrity of its banking system, bond market, and economy amid the country's rapid economic growth. Vietnam's GDP grew 5.05% in 2023 and 8.0% in 2022.

"The government regulators are overwhelmed," Zachary Abuza, a Southeast Asian expert at the National War College in Washington DC, told Bloomberg in March. "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."

Foreign investors have been "cautious" since news of Lan's case broke, Trang Bui, the country head of Cushman and Wakefield, a commercial real-estate services firm, said at a press conference in December, per Nikkei.

Vietnam's benchmark VN-Index tanked 33% in 2023 on the back of the anti-corruption campaign. It is up 12% this year to date.

For now, government officials are scrutinizing approvals for licenses and projects, slowing down bureaucratic processes even more.

"Especially now, everyone is scared," Bui said, per Nikkei. "It's a big cleanup."


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