Vietnam’s political landscape was overshadowed by a dual spectacle of mourning and scandal. The nation was in an official state of mourning for Communist Party General Secretary Nguyen Phu Trong, a leader renowned for his vigorous “Blazing Furnace” anti-corruption campaign that saw the fall of numerous high-ranking officials. Amid this solemn period, another significant corporate fraud trial commenced in Hanoi, drawing widespread media attention and public scrutiny.
While the scale of the FLC (Finance, Land, and Commerce) scandal is smaller compared to the infamous Van Thinh Phat scandal led by businesswoman Truong My Lan, which culminated in her death sentence in April 2024, the FLC case remains highly significant. The trial of Trinh Van Quyet, once Vietnam’s wealthiest individual in 2021, highlights the pervasive issue of corporate malfeasance in the country.
Established in 2010, FLC quickly evolved into a vast conglomerate with 17 subsidiaries spanning real estate, resorts, golf courses, and the second-largest privately-owned airline in Vietnam, Bamboo Airways. Quyet, the 49-year-old tycoon behind this empire, was arrested in March 2022 along with his two sisters on charges of stock market manipulation, property appropriation, and fraud. The case extended to include 47 other individuals, among them FLC executives and regulatory officials, with at least one executive still at large.
Quyet is accused of orchestrating a $156 million “pump and dump” stock fraud between May 2017 and January 2022. Using 500 brokerage accounts opened by his family members, he manipulated FLC’s stock price by creating an illusion of high demand. This fraudulent trading drove the stock prices up artificially. In many instances, his sister would cancel stock purchases at the last moment, further enhancing the false perception of demand.
In another fraudulent scheme from 2014 to 2016, Quyet’s family and employees at FLC Faros Construction falsified documents to inflate the firm’s charter capital from VNĐ1.5 billion ($59,000) to VNĐ4.3 trillion ($169 million). This deception made the loss-making private company appear financially robust when it was publicly listed, with corrupt officials facilitating the process. The quick sale of 391 million of 430 million shares they controlled netted $142 million, causing a stock price collapse and significant losses for other investors.
Overall, the various fraudulent schemes saw the value of FLC shares surge between 70% and 1,700%. Additionally, Quyet’s sale of large shareholdings without notifying financial regulators, a mandatory requirement for corporate executives, prompted an investigation by the Ministry of Public Security in January 2022.
FLC case underscores several critical issues:
- Regulatory Complicity
The scandal highlights the complicity of regulators in the fraud. Similar to Truong My Lan’s massive fraud at Saigon Commercial Bank, poorly paid regulators played a key role in enabling the scheme. This raises a crucial question: who regulates the regulators? Without effective financial regulatory oversight, Vietnam’s capital markets, corporate governance, and foreign investment prospects could be severely hampered. The Ministry of Public Security’s effective investigation into the fraud demonstrates their competence, but the lack of proactive regulatory oversight allowed the fraud to escalate to such proportions. - Investor Confidence and Market Stability
Vietnam’s stock market, though relatively small, provides a vital investment avenue for Vietnamese citizens, especially amid limited confidence in the national currency. Many Vietnamese invest in gold and real estate, with the latter often proving risky due to debt-laden property firms and stalled projects. The domestic credit crunch triggered by the VTP scandal in late 2022 exacerbated defaults and left many investors with unfinished real estate. The stock market, where individual investors dominate, represents another crucial investment channel. Widespread fraud, such as Quyet’s, significantly undermines investor confidence, hurting the burgeoning middle class. Quyet’s fraud, despite being straightforward, had far-reaching impacts, affecting nearly 100,000 victims. Although Quyet has paid some $8.3 million in restitution, it is merely a fraction of the total damage. - Economic Ramifications
The FLC scandal’s repercussions extend to the broader economy. As one of the largest private companies in Vietnam, FLC’s operational challenges post-fraud have been substantial. The Ho Chi Minh Stock Exchange delisted FLC due to the fraud, and trading was suspended on the Hanoi Stock Exchange. The company’s efforts to unwind the fraud and restructure have been largely unsuccessful, leading to significant workforce reductions.
Bamboo Airways, a subsidiary of FLC, underwent painful restructuring in late 2023, reducing its workforce by 60%, closing international routes, and returning aircraft to lessors. Despite these efforts, the airline required government intervention, with Deputy Prime Minister Le Minh Khai pushing for a bailout involving the ministries of finance and transportation.
Moreover, FLC owes the government over $31 million in back taxes, a burden ultimately borne by taxpayers. The government’s injection of $24 billion into the Saigon Commercial Bank bailout this year underscores the high cost of corporate malfeasance for Vietnamese citizens.
The first half of 2024 saw foreign investors sell $2 billion in Vietnamese-listed shares, reflecting a lack of confidence in the market. Such corporate scandals raise serious questions about the regulatory capacity of Vietnam’s fast-growing $430 billion economy, which heavily relies on foreign investment.
The FLC fraud trial, occurring amid the national mourning for a leader who championed anti-corruption, serves as a stark reminder of the ongoing challenges in Vietnam’s corporate and regulatory environments. The case highlights the need for robust regulatory frameworks and effective oversight to prevent similar frauds in the future.
For Vietnam to maintain its economic growth and attract foreign investment, it must address the systemic issues that allow such frauds to occur. Strengthening regulatory bodies, ensuring transparency, and holding complicit officials accountable are crucial steps. The government’s efforts in investigating and prosecuting fraud are commendable, but proactive measures to prevent such incidents are equally important.
The FLC scandal is a wake-up call for Vietnam, emphasizing the need for vigilance and reform in its financial systems. As the country mourns a leader who fought against corruption, it must also look forward, committing to stronger governance and a more transparent, trustworthy economic environment.
