Vietnam has been rocked by its largest corruption scandal to date after authorities last month arrested a prominent real estate developer over allegedly embezzling nearly €11.4 billion ($12.4 billion), the equivalent of more than 3% of the country's GDP.

In 2016, Vietnam's governing Communist Party began conducting a sweeping anti-corruption campaign. Since then, it has brought down a national president and senior government ministers, but the scale of the alleged graft involved in the latest scandal it uncovered raised questions about the true state of Vietnam's banking and property sectors.

The biggest corruption scandal in Southeast Asian history

On November 17, the Ministry of Public Security alleged that Truong My Lan, the chairperson of real estate developer Van Thinh Phat Holdings Group, had embezzled 304 trillion dong (€11.4 billion) from Saigon Commercial Bank, of which she was a majority stakeholder, over several years.

According to the ministry's statements, My Lan, who was first arrested last year, operated a vast network of more than 1,000 domestic and foreign subsidiaries as well as further shell companies that took out more than €40 billion in loans from the Saigon Commercial Bank, appropriating about a third of it through "ghost companies" she and her family and associates created.

In mid-November, the Ministry of Public Security also recommended the prosecution of a further 85 people, including 24 government officials and associates of Van Thinh Phat Holdings Group and Saigon Commercial Bank.

Days later, the Internal Affairs Commission of the Communist Party's Central Committee recommended opening investigations into another 23 state officials, including 12 from the State Bank of Vietnam, the country's central bank.

It is arguably the largest corruption scandal in recent Southeast Asian history. By comparison, the well-documented 1MDB scandal in Malaysia in the 2010s, which led to Malaysia's dominant party losing power for the first time ever, involved the theft of €4.1 billion from the country's sovereign wealth fund.   

Hanoi's anti-corruption campaign

The Communist Party of Vietnam embarked on its "blazing furnace" anti-graft campaign when Nguyen Phu Trong, the party's general secretary, defeated rival Nguyen Tan Dung — Dung was prime minister at the time and seen by many as allowing corruption to thrive.

The anti-corruption campaign has resulted in hundreds, if not thousands of party and government officials being dismissed in recent years.

In January, Nguyen Xuan Phuc resigned as state president and two deputy prime ministers were sacked over alleged corruption in the government procurement of coronavirus testing kits and the repatriation of Vietnamese nationals during the COVID-19 pandemic. 

Speaking this month, after the revelations about the latest scandal, General Secretary Trong said Communist authorities, "need to conduct the anti-corruption fight faster and in a more efficient manner." He added, "We won't stop here but will continue for the long term."

Officials under the graft spotlight

Tuong Vu, a political science professor at the University of Oregon in the US, said General Secretary Trong could now have his sights set on some more big-name targets, including the former party boss of Ho Chi Minh City, Le Thanh Hai, who is known as "the most corrupt official in Vietnam."

Hai was the political boss of the southern business hub for decades, and although he was given a wrap on the knuckles in 2020, when the corruption-busters found his committee had engaged in improprieties, he has so far avoided any real punishment for his alleged wrongdoings.

"It is possible that Hai is next. He's also known to be close to former Prime Minister Nguyen Tan Dung, who may still be a target," said Tuong Vu, referring to the political heavyweight whom Trong defeated in 2016. 

Indeed, it had been suggested by analysts that Hai and Dung may have been the two richest people in Vietnam at some point in the 2010s thanks to their alleged oversight of vast graft networks in southern Vietnam. 

"There is no doubt that more major scandals and arrests are forthcoming," said Michael Tatarski, a journalist living in Ho Chi Minh City who writes about Vietnamese politics in his Vietnam Weekly blog.

"A significant investigation into sand mining is underway," and it appears police are looking closely at the renewable energy sector and Vietnam Electricity, the country's largest power company, he added.

However, there are concerns that the scale of graft now being uncovered is denting economic stability.

Private sector feels the heat

When a number of private sector companies were hit with corruption allegations last year, it was suggested the anti-graft campaign was starting to affect business confidence. Reports leaked in the media claimed local government officials and civil servants were refusing to sign off on much-needed infrastructure investment deals for fear they would later be accused of corruption if the development projects didn't go according to plan.

Nguyen Khac Giang, a visiting fellow at the Vietnam Studies Programme at the ISEAS – Yusof Ishak Institute in Singapore, pointed out that this is not the first significant investigation into a private company, but it is by far the largest.

He says that in 2022, Trinh Van Quyet, chairman of property and leisure company FLC Group and its subsidiary Bamboo Airlines, was arrested on charges of stock market manipulation; while months later, Do Anh Dung, chairman of the Tan Hoang Minh property development group, was detained on suspicion of fraudulent appropriation of assets.

Tran Qui Thanh, chairman of Tan Hiep Phat Group, the country's largest private-sector beverage producer, was arrested in April over alleged misappropriation of assets.

Given what has transpired so far, the latest corruption scandal "might not further deteriorate business confidence in Vietnam, nor instill fear of being investigated," Giang said.

Indeed, other sources have made similar arguments, saying business confidence was more shaken by the first investigations into private sector corruption and that the business community in Vietnam has now become somewhat accustomed to the idea that the Communist Party might be staring over its shoulder.

'Total regulatory failure'

Among the many allegations against Truong My Lan and her associates were accusations that they had bribed investigators for years to get them to overlook Saigon Commercial Bank's financial discrepancies. This includes bribes reportedly paid to the then-chief of the State Bank of Vietnam's Inspectorate and Supervision Department.

"This was a total regulatory failure," said Zachary Abuza, a professor of national security strategy at the US National War College in Washington, who added that it should raise questions about the business practices of other banks, too.

"If Lan could bribe regulators with $5.2 million to overlook non-performing loans and other criminal behavior at [the Saigon Commercial Bank], why not other banks?" Abuza queried.

The latest corruption scandal also raises questions about political stability. Trong, the party chief, has torn up informal agreements on term limits and retirement ages that the Communist Party agreed to in the 1990s.

Trong, 79, is now in his third term in office and seemingly cannot step down as he's unable to find a trusted successor — the reason why he took on a third term in 2021, most pundits say. It remains unclear if he will try to run for a fourth term at the next National Congress in early 2026. 

"Anti-corruption has evolved from a means, to an end in itself. Combating corruption is seen as a way to uphold the party's legitimacy," said Giang. "This is the new normal of Vietnamese politics."

Edited by: Alex Berry