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Tackling money laundering

Phung Thi Thanh Thao
As part of the Vietnamese government's efforts to stabilise the country's economy and bolster its anticorruption campaign, a new Law on the Prevention and Combating of Money Laundering No 07/2012/QH1 was passed in the June 2012 session of the National Assembly. Coming into force on January 1 2013, this law builds on Decree 74/2005/ND-CP, and significantly expands the definition of money laundering, as well as the monitoring and reporting obligations of financial institutions and other organisations nationwide.

Some of the most significant changes are set out below.

Money laundering defined

The new definition of money laundering expands an earlier explanation set out in Decree 74. It creates criminal liability for individuals or organisations involved in legitimising money or assets obtained as the result of a crime, by way of: any activity listed in the Vietnamese Criminal Code; assisting an individual or organisation in legitimising the source of money or assets obtained through criminal activity; and, possessing property that was knowingly obtained as the result of a crime.

Reporting obligations

Under the new law, two types of entities are obliged to file a report. The first is financial institutions, meaning those licensed to conduct banking, insurance and securities activities. The second is individuals and organisations conducting relevant non-financial business. Such business includes: gaming with prizes; casinos; real-estate brokerage, management and trading floor operations; precious metal and stone trading; accountancy, investment, legal and notary services; and services involved in the establishment, management and operation of companies.

Know-your-customer (KYC)

A key provision of the new law is the know-your-customer requirement, which applies to reporting entities. This requirement stipulates that an entity must identify a direct customer as well as the ultimate beneficiary of a service.

The law defines beneficiary as:

  • an individual who possesses an account, and has the controlling right where a customer conducts a transaction for the beneficiary; or
  • an individual who has the right to control a legal entity or an entrusted investment agreement.

In general, customers may be classified in one of two categories: low risk and high risk. The law leaves the manner of classification to the discretion of the reporting entity, but it does state that the following types of customers and transactions should be categorised as high risk:

  • foreign customers (and their relatives) considered to be politically exposed persons by the State Bank of Vietnam (SBV);
  • agent-bank relationships;
  • transactions relating to new technology;
  • transactions subject to special supervision (for example, high value, abnormal and complicated transactions, and transactions with entities domiciled in countries or domains that are registered with the Financial Action Task Force or SBV); and
  • business transactions by referral.

Information reporting, provision and retention

To fulfil their reporting obligations, entities should report the following transactions to the SBV:

  • high value transactions, meaning cash, gold or foreign currency transactions with a total value equal to or exceeding the amount specified by the Prime Minister;
  • wire transfers, if the total value exceeds the amount listed by the SBV; and
  • suspicious transactions, meaning any abnormal or irregular transactions.

Temporary measures

While two temporary measures specified in Decree 74 have been dropped (non-implementation of a transaction and temporary detention of an offender), a new temporary measure has been added. It states that entities subject to the reporting regime must delay a transaction and submit a report to the relevant authorities in two circumstances. The first is when parties related to the transaction are named in the blacklist issued by the Ministry of Public Security. The second is if they have reason to believe that the transaction is in any way connected to criminal activity. The report to the SBV must be made within three days of discovering the transaction.

Prohibited activities

A new provision on prohibited activities is set out in the law, two of which should be considered carefully. The first activity is establishing or maintaining an anonymous account or an account with a false name. The second is establishing or maintaining business transactions with a bank established in one country or domain without a tangible presence there, and without being subject to the management and supervision of the relevant authorities in that country or domain.

It is encouraging to witness the efforts of Vietnam's Government as it addresses global concerns relating to money laundering. With the combined support of both international and domestic partners, Vietnam is on track toward implementing effective anti-money laundering policies consistent with international standards.

Phung Thi Thanh Thao

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