Record-Breaking Financial Fraud: Businesswoman Sentenced to Death in Vietnam Over $44 Billion Scam
Hanoi, Vietnam - The global financial crisis of 2008 underscored the significance of proper bank management and increased regulatory oversight. However, as the case of Truong My Lan, a Vietnamese businesswoman, demonstrates, such measures have not been universally effective.
The Scheme: Over $44 Billion in Loan Fraud
On April 11, 2024, Lan was sentenced to death for orchestrating a massive $44 billion (£35bn) loan fraud scheme at Saigon Commercial Bank (SCB). The 55-year-old circumvented Vietnamese law, preventing anyone from owning more than 5% of a bank’s shares.
- Utilized hundreds of shell companies and other methods
- Amassed ownership of over 90% of SCB's shares
- Over 93% of the bank's lending portfolio consisted of her loans
- Nearly 10% of Vietnam's GDP in 2024
The Scale of Corruption: Impact on the Financial Sector
On numerous occasions, Lan withdrew billions of dollars in cash and stored them in her basement, making it clear that the fraud had reached extraordinary levels.
- Despit her appeal of the verdict
- Exposed inherent vulnerabilities in banks
- Risk of deposits being used to fund loans
- Banks hold only £1 in reserves for £9 lent
Consequences: Bank Run and State Control
SCB faced a bank run after Lan’s arrest in 2022, leaving the bank under state control ever since.
- Averted similar situations through regulations
- Banks must hold greater capital and liquidity
The Impact of Corruption on the Financial Sector
The breathtaking extent of corruption at SCB sheds light on its potentially damaging impact on the financial sector. Numerous studies have illustrated how corruption diminishes banking stability, reduces lending, and increases the risk of banking crises.
- Vietnam's decades-long struggle with corruption
- Blazing Furnace campaign to eliminate corruption
Arguments For and Against Corruption
Despite Vietnam’s efforts to combat corruption, there are debates over its potential social benefits. Proponents argue that corruption can lubricate an otherwise stagnant economy by “greasing the wheels,” permitting businesses to bypass red tape.
- Contributes to Vietnam's economic growth since 2010
- Tripling in size
Challenges in the Fight Against Corruption
Research suggests that financial regulations targeting corruption are generally effective but that excessive regulatory power can cultivate corrupt practices. Regulators can offer regulatory favors, subsidies, and government contracts in exchange for bribes.
- International cooperation essential
- Basel Committee on Banking Supervision protects against corruption
Conclusion
While the scale of corruption in Vietnam is unlikely to unfold in Western economies, continuous diligence and vigilance will remain critical in maintaining high standards and preventing the very corruption that regulation aims to prevent.
(George Kladakis is a Finance Lecturer at the University of St Andrews)
Published 25 April 2024, 08:33 IST