Mathieu Tromme, co-founder of the Partnership for Research in International Affairs & Development (PRIAD), contributes the following guest post:
In 2012, the Financial Action Task Force (FATF) placed Vietnam into its International Cooperation Review Group (ICRG) mechanism–often referred to as FATF’s “blacklist”–due to FATF’s determination that Vietnam was not making sufficient progress in addressing deficiencies in its anti-money laundering and combating financing of terrorism (AML/CFT) regime. For Vietnam, this blacklisting was most unwelcome news. Like many other countries, Vietnam had suffered from the global economic downturn, and FATF’s blacklisting threatened its tenuous recovery. Landing on FATF’s blacklist increases a country’s risk profile, affects its credit rating, hampers international trade and investment, and impedes access to the international banking system (due to the enhanced customer due diligence which FATF requires). In response, Vietnam enacted a Money Laundering and Counter-Terrorism Law in 2012 (which took effect in early 2013). After the Asia Pacific Group made an on-site visit to verify Vietnam’s action plan, FATF once more declared Vietnam technically compliant. The country came off the FATF blacklist in February of 2014.
At the same time as this was happening in 2012, FATF issued a revised and consolidated set of 40 AML/CFT recommendations (from an original 40 + 9 “special recommendations” on terrorist financing), which ushered in a number of new standards and evaluation criteria. Of particular interest in Vietnam is Recommendation 30 on “Responsibilities of Law Enforcement and Investigative Authorities,” according to which jurisdictions are now expected to conduct pro-active parallel investigations into both the predicate offence and possible money laundering and terrorist financing offences. Moreover, under this Recommendation, jurisdictions are expected to designate a competent authority which can expeditiously identify, trace, and initiate actions to freeze and seize proceeds of crime. In Vietnam, meeting this new recommendation will be a real challenge, and might again threaten to land it on the FATF blacklist.
Although Vietnam now has a panoply of substantive and procedural laws on money laundering, terrorist financing, anti-corruption and asset recovery (thus satisfying FATF’s first criterion), Vietnam’s main difficulties will concern FATF’s second criterion: effective application of its AML/CFT regime. Vietnam’s track record is mixed at best. Government figures suggest that in 2014, specialized units investigated 415 cases of embezzlement worth approximately US$316 million, of which only about 22.3% was recovered. (Other statistics from the Supreme People’s Procuracy a somewhat higher recovery rate, but either way the overall percentage recovered is small.) Up to now, there hasn’t been a single prosecution for money laundering contrary to Article 251 of the Penal Code despite there being many cases where prosecutions could have been made. Challenges with implementing the AML/CFT regime (and Recommendation 30) can be roughly grouped into three categories:
- In Vietnam at the moment, anticorruption in general, and financial investigations in particular, are the remit of a wide number of state bodies, including the Ministry of Justice (the focal point on asset recovery), the Communist Party’s Inspection body, the Government Inspectorate, the State Audit, the Ministry of Public Security, the Supreme People’s Procuracy, the Supreme People’s Courts, and the FIU under the State Bank of Vietnam. This fragmentation of responsibility makes it difficult to determine which are the “competent authorities” to handle AML/CFT issues, and may impede effective action.
- Vietnam needs to step-up the quality of investigations, and ensuring there is appropriate technical knowledge to pursue cases expeditiously and effectively. As a bare minimum, moving forward, stakeholders involved in providing specialized money-laundering capacity-building would be well served to recall a few basic principles on how to conduct training (catalogued here). On a related note, the focus of investigators and prosecutors often tends to be the predicate crime only, for example the drug trafficking or fraud, and not much thought is given to broadening the scope of the investigation to use the concept of “following the money” to identify accomplices and the proceeds of crime, which can then be made the subject of restraint and ultimately confiscation.
- Despite the flurry of laws Vietnam has passed on AML/CFT issues, several important areas for improvement remain, such as the system for seizing and freezing of assets (including the need for more use of non-conviction-based forfeiture), and the lack of a proper asset management system under a clearly identified state institution.
FATF’s third assessment criterion includes a consideration of the levels of corruption in a country. Although more subjective, it could also pose a problem for Vietnam given the recently released 2014 CPI Index, where Vietnam’s position remained unchanged from three years ago, ranking 119th globally.
If Vietnam is to avoid a return to FATF’s blacklist, it must take aggressive measures to address these institutional deficiencies ahead of its next FATF review. Because FATF standards are getting stricter, simply passing new laws at the last minute like last time will not be enough.