Vietnamese Businesswoman Sentenced to Death for $44 Billion Corporate Fraud at Saigon Commercial Bank

The Shocking Case of Truong My Lan

In a groundbreaking case, a Vietnamese businesswoman, Truong My Lan, was sentenced to death on April 11, 2024, for defrauding Saigon Commercial Bank (SCB) of $44 billion. This incident raises significant questions about the vulnerabilities of banks and the destructive effects of corruption on the financial sector.

Bypassing Legal Limits

Lan, who intends to appeal the verdict, circumvented Vietnamese law restricting anyone from having more than 5% of a bank’s shares. She utilized hundreds of shell companies to assume control over 90% of the bank.

Obtained 93% of the bank’s total lending portfolio
Nearly 10% of Vietnam’s 2024 GDP

Withdrawals and Bank Run

This fraudulent activity allowed Lan to withdraw large sums of cash, reportedly stored in her basement. Post-arrest, SCB faced a bank run, necessitating continued state control.

Challenges for Banks

Banks rely on deposits to fund loans, maintaining just £1 for every £10 deposited as a reserve for withdrawals. In scenarios where significant cash is demanded, banks could fail to meet depositor demands, triggering a bank run.

Regulation and Corruption

To mitigate potential situations, banks are subject to stringent regulations, as the financial crisis of 2008 demonstrated. However, corruption poses a significant threat to banking stability, leading to an economy’s stagnation.

Impact on the Economy

Decreases lending
Increases the risk of banking crises

Vietnam’s Fight Against Corruption

Vietnam, plagued by corruption, introduced the “Blazing Furnace” campaign in 2024 to target politicians and business leaders.

The Complex Role of Corruption

The debate surrounding the role of corruption in economic growth is intricate. While proponents argue that it enhances business efficiency and bypasses bureaucratic obstacles, it can also hinder growth.

Balancing Regulation and Checks

Striking a balance between regulation and checks and balances is vital, as regulatory bodies themselves can be prone to corruption, perpetuating opportunities for fraudulent practices.

International Cooperation

International cooperation among countries can help counter corruption in the financial sector. The Basel Committee on Banking Supervision, comprising advanced economies, adopts regulatory guidelines collectively and monitors information exchanges, shielding citizens and states from corrupt practices.

Ongoing Vigilance

As the global community remains cautious against corruption and its potential risks, continuous attention is needed to evolve and fortify the existing regulatory framework to withstand manipulation and the emergence of new risks.

[Truong My Lan’s case is an illustration of George Kladakis, a Lecturer in Finance at the University of St Andrews, writing for The Conversation]

Publication Details

Published on April 25, 2024, 08:33 IST