As of 1 January 2010 directors and company management in Vietnam face an entirely new level of liability for violations of the Securities Law. Already burdened with a great deal of personal liability for ensuring the proper conduct of their responsibilities, management in Vietnam may now be arrested and imprisoned for their actions. According to newly issued amendments to the Criminal Code, three violations have been codified as criminal offenses: intentional fraud in reporting, insider trading, and securities price manipulation.
Taking each in turn, the crime of intentional fraud in reporting is targeted at disclosure requirements outlined in the Securities Law. There is little else to clarify the elements of this crime other than that the fraud, in addition to being with intent, must cause serious consequences. The definition of serious consequences is used throughout the new statutes without definition and creates a worrisome uncertainty for enforcement, especially in light of the maximum term of imprisonment.
Insider trading requires knowledge of confidential information of a public company. More, this information must be of such a nature as to be able to “have major influence on the price of securities of the public company.” If the knowledge is subsequently used, whether by the privy party or through disclosure to a third party, for the purchase or sale of securities that results in a large profit, it is a criminal offense. Again, “large profit” is undefined.
Finally and perhaps most vaguely, is securities price manipulation. The statute forbids two actions: collusion to purchase or sell securities with the aim to create artificial supply or demand, and conduct of securities transactions in a manner that causes or influences another person to continue to buy or sell. That’s it. There is no clarification of what collusion means, how to determine whether supply or demand is artificial, or how to determine when a person is influenced by a securities transaction. All of these terms are subject to judicial interpretation, and as Vietnam is a still developing civil law system, that interpretation is very much ad hoc and, almost as equally, arbitrary.
For each of the securities crimes, there is panoply of penalties from which the court can choose. Fines, of course, are available; removal and permanent bar from practice; volunteer labor from one to five years; non-custodial reeducation for up to three years; and imprisonment for anywhere from six months to seven years depending on the severity of the crime and the number of accomplices.
These criminal statutes come as the newest addition to a slowly increasing effort by the Government to impose corporate governance requirements on public companies. From the barebones Securities Law four years ago that contained admonitory language but little in the way of actual enforcement power, to a more comprehensive corporate governance regime in 2007, to this current institution of criminal liability for securities offenses the Government is demonstrating its intent to at least appear to be tough on corruption in the corporate environment.
Whether that intent is simply for appearance’ sake, or something more substantial is yet to be seen. Recent arrests of Jetstar Pacific Vietnam’s director and BIDV’s deputy director, however, both suggest that from here on out corporate corruption in Vietnam will no longer be allowed to occur with the same degree of impunity as it has previously enjoyed.