ABN-AMRO Bank Pays Police USD 4.5 million

UNCLAS SECTION 01 OF 02 HANOI 002995 SIPDIS STATE FOR EAP/MLS AND EAP/EP TREASURY FOR CAROL CARNES AND SUSAN CHUN STATE PASS USTR DAVID BISBEE TREASURY PASS FRB SAN FRANCISCO/TERESA CURRAN SIPDIS SENSITIVE E.O. 12958: N/A TAGS: EFIN ECON ETRD EINV VM SUBJECT: ABN-AMRO Bank Pays Police USD 4.5 million REF: HANOI 2314 HANOI 00002995 001.2 OF 002 (U) This cable contains sensitive information and should not be placed on the internet. ¶1. (SBU) Summary and Comment: After months of investigation by the State Bank of Vietnam (SBV),Vietnam's central bank, and the police, the Dutch bank ABN-AMRO reportedly acquiesced with a police order to pay USD 4.5 million to settle a foreign exchange dispute with the state-owned Industrial and Commercial Bank of Vietnam (Incombank). The ABN-AMRO case has attracted much international attention as an example of lack of transparency, and of elite involvement in the legal system, on the eve of Vietnam's entry into the WTO. End Summary and Comment. State Bank of Vietnam (SBV) backs police allegations -------------- -------------- ¶2. (SBU) In August 2006, the state-owned Industrial and Commercial Bank of Vietnam (Incombank) filed a lawsuit against ABN AMRO demanding payment of USD 5.4 million it claimed was lost in unauthorized foreign exchange deals with the Dutch bank ABN AMRO. Following this legal action, the SBV conducted separate investigations at both Incombank and ABN AMRO. The investigations finished at the end of September and the SBV's final report was signed in October, but has never been published. Initially, observers expected that SBV's involvement was going to reduce tension in the case, and that the SBV report would be in favor of a settlement. Instead, the case was handed over to the police, and the SBV's final report apparently backed police allegations that the Dutch bank ABN AMRO had committed criminal infractions (reftel). Police allegations -------------- ¶3. (SBU) The police reportedly focused on what it considered to be 504 speculative foreign exchange transactions made with Nguyen Thi Quynh Van, the suspected trader of the Incombank's branch in Hai Phong city. The police nonetheless subsequently requested ABN AMRO pay back the money that was lost, alleging the bank should have known that it was dealing with an unlicensed trader from Incombank, and hence, had breached local banking regulations. They cited a regulation on the books supposedly confirming wrongdoing by the Dutch bank, but which had not been routinely enforced to that point. ABN-AMRO cried foul. As widely reported in the local and foreign press, the case has raised concerns in the foreign business community about police strong-arm tactics in what many banking professionals would see as a routine banking practice. GVN Leadership Instructions -------------- ¶4. (SBU) On October 30, Vietnam's Office of the Government issued Official Letter 6250/VPCP-V.I giving the Prime Minster (PM)'s instruction to the police, the prosecutors, the SBV and concerned agencies to bring the case to trial quickly. The PM was quoted publicly telling concerned agencies to ensure transparency in the trial process, to minimize state loss, and to prevent any impacts on the investment climate. The PM also asked the Ministry of Public Security (MPS) to coordinate with the Ministry of Foreign Affairs, the SBV and the People's Supreme Procuracy to directly inform the representative of ABN AMRO of the violations by its employees. In addition, the PM highlighted the GVN's direction in settling this case that if the violators honestly confessed their faults and compensated for the loss to recover the consequences, they might be considered for a reduction or exemption of criminal liability according to laws. ¶5. (SBU) Official Letter 6250/VPCP-V.I also asked the SBV to investigate foreign exchange transactions between the state-owned Bank for Agriculture and Rural Development and ABN AMRO and other foreign banks, and to report back to him. In addition, the PM requested the SBV to rectify and strengthen supervision of foreign exchange business at commercial banks. ABN-AMRO's Decision -------------- ¶6. (SBU) ABN AMRO had consistently denied any wrongdoings. It believed that its foreign exchange trades with Incombank were in accordance with common market practice, as well as the legal and HANOI 00002995 002.2 OF 002 regulatory framework being enforced by the relevant authorities at the time. ABN AMRO Asia's Chief Executive Officer recently said the bank was working with relevant authorities to try and find a solution to the dispute. On November 25, however, the press reported that ABN AMRO has acquiesced with the police order and paid a total of USD 3.8 million and VND 12 billion (equivalent to a total of USD 4.5 million) to the temporary seizing account of the MPS's Investigation Office held at the Hanoi State Treasury. ¶7. (SBU) When Incombank filed the lawsuit against ABN AMRO, it was reported that there would be a trial. The trial was postponed, however, pending investigations into the case. Now with ABN AMRO reportedly agreed to pay according to the police order, some think there may not be a trial. Some speculate ABN AMRO may have simply decided that its reputation is worth more than USD 4.5 million so it decided to swallow the loss to prevent further damages to its image and further harassment. Comment -------------- ¶8. (SBU) The ABN AMRO case highlights one of the major problems of doing business in Vietnam: lack of transparency. Many here firmly believe that the reason the finger of blame was pointed at the foreign bank, and that (at the same time) there was no trial, is that Incombank's Nguyen Thi Quynh Van is under the direct protection of a very senior political or security sector leader. By "paying the bill," the Dutch allow that political system here to sweep the actions of the protected person under the rug. Financial players wonder how they can operate effectively when the regulatory situation is so unclear and subject to manipulation. ¶9. (SBU) Why did they do it? ABN AMRO officials earlier vigorously asserted their lack of wrongdoing and maintained they operated in accordance with the law. The abrupt turnaround and reported payment to settle suggest doubts about the bank's confidence that it could get a fair shake in the legal system. It has been very difficult to get straight factual information from the Vietnamese government on this case. SBV declined to provide a copy of the PM's letter. Even a request in writing for information, as the SBV recommended, has remained unanswered. Thus, observers have had to rely heavily on whatever has been published by the state-controlled press. Overall, the handling of the ABN AMRO case sends a negative signal to potential investors, particularly in the financial sector, at a time when the country is working to attract foreign investment. End comment. MARINE 4