VIETNAM-FINANCE: Large Cash Transactions Set to Become History

By IPS Correspondents Reprint | | Print |

Tran Dinh Thanh Lam

Ho Chi Minh City, Jul 6 2005 (IPS) - Large cash transactions that now grease Vietnam’s economy may soon be history if authorities seriously implement a new money laundering law that is expected to come into force from Aug 1.

“This (law) is essential for Vietnam’s effort in fighting terrorist financing. However, if not fully prepared it could generate several bad results,” Nguyen Van Hoa, a city banker told IPS in an interview.

Hoa admitted, however, that less than a month away from the day the decree comes into force most bankers and customers had only vague knowledge about what could alter profoundly the way business is conducted in this country.

When Prime Minister Phan Van Khai visited the United States late last month he announced that Vietnam was ready to combat terrorism, and the new money laundering law is seen as a move in keeping with Phan’s promise. Experts from the International Fund (IMF) and the World Bank (WB) have been urging Vietnam to issue a law on money laundering to stanch criminal activity they believe is emerging in Vietnam.

These experts have warned that Asia’s cash-based economies are hot spots for money laundering, and Vietnam, situated as it is on a crossroads, would be the ideal place for criminal activity to flourish if the country ignores the issue.

“Delay over its (the new law) release would evoke concerns from international financial organisations over transactions with Vietnamese banks or financial institutions,” IMF expert Peter Skonka said.

In support of the law the Ministry of Public Security, this month, announced the detection of an international ring that resorted to laundering up to 20 million dollars of ‘hot money’ through investments in real estate and businesses. Officially called ‘Decree No 74’ the new law is expected to provide a legal framework that will help Vietnam fight shady transactions once it comes into effect on Aug 1 and set up systems that provide guidance for reporting and investigation.

After that date, any transaction made in cash or gold worth 200 million VN Dong (nearly 12,700 US dollars) or more, or transactions related to any saving accounts worth 500 million VN Dong (31,000 US dollars) or more, would come under surveillance.

Bankers have been asked to report on 13 types of “suspected transactions” to the laundering prevention centre set up by the State Bank of Vietnam (SBV).

But, as pointed out by several bankers, a shortage of information could hamper efficient and easy implementation of the new money laundering decree.

Further, they point out that lack of information has given rise to rumours and speculation and businessmen worry about how intrusive the new law would be and hamper the privacy and confidentiality they legitimately need.

“The majority of commercial banks are not ready to undertake new responsibilities while their customers worry that their personal accounts would be scrutinised,” city banker Hoa said.

“I used to think that putting money into the bank was safe and secret; but now I must think twice each time I put 500 million VN Dong into my savings account,” said Le Hung Van, who runs an electronics shop in the city.

“With all these troubles, people will shift back to their traditional way of savings – buying gold or US dollars,” Van told IPS. “The result (of the money laundering decree) is that instead of saving money through the banks, people will buy gold, US dollars or real estate.”

“We risk losing a lot of saving accounts,” banker Hoa lamented. One of SBV’s long-term policies is to reduce people’s habit of dealing exclusively in cash and indeed a separate decree on cash is said to be underway to limit the amount of cash that businesses could use in their transactions.

According to SBV officials, once a certain limit is crossed on a particular transaction businessmen must deal through the banks and this would automatically help restrict financial abuse

“As the decree on cash limitation is not in place, businesses could get back to their old practice (paying cash), especially for big-value transactions,” Hoa remarked.

In Vietnam, high-value transactions – buying a car, a house, property – are done in cash and using gold and domestic or foreign currencies and the practice has the advantage of being rapid and practical.

Mai The Bay, a prosecutor at Vietnam Supreme People’s Procuracy, said money laundering emerged in Vietnam as a result of graft or smuggling with those who those who earn ‘dirty money’ through corruption or smuggling using it to buy land or property.

But Tran Van Thong, a lawyer with office in HCMC remarks that as long as the State does not completely ban the use of cash in big transactions, cash that is exchanged outside the banking system remains clean and launderers would have no need “wash” their money through the banks.

Cao Van Phu, director of Technet, an import-export company that conducts large transactions and therefore could be summoned for explanation said the new law could be cumbersome. “Minor errors could see our banking account frozen,” Phu said.

“Corrupt banking officials might also blackmail businesses that happen to have some irregular transactions,” Van said adding to a list of negative possibilities.

Although bankers contacted by IPS rejected such fears, most admitted that their own banks were not prepared for the new decree. “We are already overburdened and cannot take on new responsibilities – recognize, classify and report suspicious transactions,” said a banker who declined to be named.

Some bankers are believed to have asked the government to postpone the new decree till the end of the year but all concurred that a decree banning the use of cash in big transactions was unavoidable.

“We should encourage people not to use cash,” said lawyer Hoang who believes that buyers of new cars, houses, and properties should be compelled to pay through banks to be eligible to register their new possessions.

“A cash-based economy is a paradise for money launderers, but we can change it by limiting the use of cash,” Hoang said.