Thi Diep Nguyen Anh Thu Le June 20 2022 Should contracts contain anti-corruption clauses? LNT & Partners | Corporate & Commercial - Vietnam Thi Diep Nguyen, Anh Thu Le Corporate & Commercial Interactions unavailable in preview. IntroductionDo Vietnamese enterprises concern themselves with anti-corruption when drafting contracts?Why should an anti-corruption clause be included?What are the consequences of failing to pay proper attention to anti-corruption while drafting contracts?Sample anti-corruption clauseCommentIntroductionCorruption can occur in various contracting areas, ranging from employment contracts to business cooperation agreements, and can negatively influence the entire implementation of the contract. In recognition of this, companies from countries with a long legal history are more frequently inserting anti-corruption terms in their contracts. Integrity and transparency between parties and in the business environment in general are ensured by addressing anti-corruption issues from the contract drafting stage. Therefore, contracting parties in Vietnam should give this clause proper consideration.Do Vietnamese enterprises concern themselves with anti-corruption when drafting contracts?Anti-corruption was not a major concern in contract drafting in Vietnam until recently, when the country underwent significant integration, and international investors expressed their interest in expanding their businesses in the country.In contrast to some developed countries, where companies who commit corruption, bribery or other similar violations are almost certain to be boycotted and even face bankruptcy or loss of reputation, in Vietnam, almost no enterprises have been inspected or found to be guilty of corruption. As a result, Vietnamese businesses rarely consider or recommend incorporating an anti-corruption clause in their contracts. The previous Criminal Code and Anti-Corruption Law in Vietnam had no clear restrictions on the roles and duties of businesses in anti-corruption or consequences for businesses that allow corruption to occur. In other words, in Vietnam, an anti-corruption clause was not a "must-have" when drafting contracts.However, the Criminal Code 2015 and the Anti-Corruption Law 2018 have both since made significant improvements. Enterprises now have responsibilities such as checking, detecting and denouncing acts of corruption in a timely manner.(1) Further, those in positions of power and authority in businesses that conduct corrupt activities listed in the Criminal Code will face the same penalties as those in government agencies.(2) These stricter legislative guidelines are assisting Vietnamese enterprises in changing their minds about the need of inserting anti-corruption clauses in their contracts.Why should an anti-corruption clause be included?First, integrity and trust are inextricably linked. By stipulating an anti-corruption provision, the parties can ensure that during the process of negotiating, drafting, signing and performing the contract, no bribe, gift or other undue advantages have been granted or promised concerning the contract by a party to competent parties for taking advantage of their influence over the operation of the enterprise or organisation, or for personal gain.(3) Thereby, the reliability and feasibility of the contract will be enhanced and become more sustainable.Second, the anti-corruption provision helps to ensure the market's competitive equality. Parties that follow the law and compete on their own merits will contribute to the growth of the entire market. Instead of being influenced illegally, winning a bid or successfully signing a contract should be entirely based on the enterprise's genuine capabilities and the freewill agreement between the parties. As a result, the contracting parties will intentionally endeavour to improve their own capacity and quality rather than looking for illegal ways to reap instant gains. This is a long-term advantage that will enhance both the economy and people's quality of life.Last, it assists organisations in avoiding major risks. As previously stated, corruption is regulated in the Criminal Code 2015 with the maximum penalty of life imprisonment or death. Although legal entities are exempt from the Criminal Code's sanctions, the Anti-Corruption Law 2018 imposes specific responsibilities on corporations in order to prevent corruption. As a result, complying with the law by putting a suitable clause in the contract would help the company in reducing liability risk and avoiding becoming mired in complicated legal proceedings.What are the consequences of failing to pay proper attention to anti-corruption while drafting contracts?Termination or reluctance to enter into a contract is a possibilityBefore signing the contract, the company may have to go through a capacity assessment and anti-bribery policy as a part of the transaction procedure. If meeting the prerequisites for defining terms or anti-corruption programmes is impossible, the transaction will be difficult to complete, especially if the company wants to work with companies and organisations from nations that have signed the Organization for Economic Cooperation and Development's (OECD's) Convention Against Bribery of Foreign Public Officials in International Business Transactions. Bribery is an obstacle to global collaboration and causes enormous harm to businesses that wish to integrate.When there is corruption in the cooperation process, the parties will face severe consequencesEven if the agreement is made, the absence of an anti-corruption clause that binds and reminds parties of their responsibilities and limits will increase the likelihood of a violation. Corrupt activity can result in criminal convictions, as previously stated. In addition to the cost of a financial penalty that may be imposed as a result of a case being prosecuted, there will inevitably be a diversion of important time in settling the proceedings. Further, if a contract is obtained through corrupt means, all payments made as a result of the contract may be considered proceeds of crime and confiscated by the competent authorities.(4)Loss of key personnelArticles 353.5 and 354.5 of the Criminal Code stipulate that an offender might also be prohibited from holding certain positions or doing specific jobs for one to five years. Normally, those who participate in a corrupt activity play a vital role in the business and may be deeply involved in the performance of the contract. Such people could face criminal prosecution under the Criminal Code and may be dismissed, which causes significant corporate instability.Prestige lossA company's reputation can be badly damaged if it is uncovered or if a person is convicted for corruption. If it is a publicly listed company, this might have a significant negative impact on its stock price.Economic damage and inefficiencyBribery is harmful to competition equality when it is freely given, received or brokered while entering into a transaction. As a result, legitimate businesses struggle to receive official clearance. The economy becomes less efficient as such activities become more popular. Corruption in particular can lead to underdevelopment in developing nations like Vietnam. According to research, when corruption rises or the corruption perception score falls by one point, direct investment inflows into Vietnam fall by 1.54%.(5)Sample anti-corruption clauseBusinesses should pay more attention to creating anti-corruption wording considering the implications outlined in this article. Below is a sample anti-corruption clause that corporations can include in their contracts, which based on Vietnam's Criminal Code 2015 and Anti-Corruption Law 2018.Article X: anti-corruptionDefinition:"Corruption" means an office holder's abuse of their official capacity for personal gain. "Corruption" as used in this anti-corruption clause, shall include bribery or embezzlement."Office holder" means a person designated, elected or employed under a contract or another form of employment, receiving or not receiving salaries, assigned certain duties and authority to perform such duties."Bribe" means money, property, other tangible benefits or intangible benefits. Bribery includes giving, taking, brokering, promising, accepting or seeking a bribe."Embezzlement" means a person or entity intentionally misappropriates its assets.None of the company, or any manager, member, director, officer, agent, consultant, employee, distributor or other person associated with or acting on behalf of the company (collectively, the Relevant Persons) shall not, by any means:directly or through an intermediary, give or promise to give any bribe to an officeholder or another person or organisation in order to influence them to perform or not to perform certain tasks in the interests of or at the request of the bribe giver;directly or through an intermediary receive or promise to receive any bribe for himself/herself or for another person or organisation as a condition to act or not to act in the interests of or at the request of the bribe giver;broker a bribery; orabuse their position or power to embezzle property under his or her management.Members of board of directors or the board of members, the presidents, general directors, deputy general directors, directors, deputy directors, chief accountants and holders of other managerial positions of state-owned enterprises must not sign contracts with enterprises owned by their spouses, parents, children or siblings; must not allow enterprises owned by their spouses, parents, children or siblings to bid for contracts of their enterprises; must not allow their spouses, parents, children or siblings to hold positions of personnel management, accounting, treasurer or warehouse-keeper in their enterprises or participate in transactions, trade of goods or services or conclusion of contracts with their enterprises.CommentEnterprises should be aware that such a clause should not be added solely to conceal or deal with target policy. It should be prepared in accordance with the parties' risk appetite and the goals that they are pursuing.For further information on this topic please contact Thi Diep Nguyen, Thi Mai Hoa Duong or Anh Thu Le at LNT & Partners by telephone (+84 28 3821 2357) or email ([email protected], [email protected] or [email protected]). The LNT & Partners website can be accessed at www.lntpartners.com.Endnotes(1) Article 4 of the Anti-Corruption Law 2018(2) Articles 353.6, 354.6, 364.6 and 364.7 of the Criminal Code 2015(3) ICC Commission on Corporate Responsibility and Anti-corruption, and the Commission on Commercial Law and Practice (2012), ICC Anti-Corruption clause, p 7.(4) Articles 353.5 and 354.5 of the Criminal Code 2015.(5) Le Thi Lanh, Huynh Thi Uyen Trang (2012), Đo lường mối quan hệ giữa tham nhũng và đầu tư trực tiếp nước ngoài tại Việt Nam, Science journal of HCMC Open University, No. 7.