Falling to earth
A police raid deprived Nguyen Gia Thieu of both his
business and his liberty. The state says he's a tax
cheat. But others fear he's just a victim of local
jealousies
HO CHI MINH CITY - Nguyen Gia Thieu had reason to step cautiously
into Vietnam. After all, two previous generations of his
family had lost fortunes there. In the 1940s, his wealthy
grandfather surrendered his vast land holdings as
communist-led guerrillas advanced into northern
Vietnam. Thieu's father was even more unlucky: In
1954, he had to abandon his business in Hanoi when
Ho Chi Minh assumed power. After partially rebuilding
the business, he lost it all again with the fall of South
Vietnam in 1975.
Still, until fairly recently, it looked like the 39-year-old
Thieu, who fled Vietnam in his teens, and his brother
and business partner, Nguyen Trong Thang, had beaten
the family curse. Their company, Dong Nam, held the
main Nokia, Samsung and Swatch franchises in
Vietnam. Using aggressive promotion and Western
advertising techniques, the brothers built a dominant
position for their brands in Vietnam's booming
mobile-phone market.
Then, in January, it all went wrong. In a scene that
could have come from a bad TV show, dozens of
rifle-wielding, camouflage-wearing police officers
raided Dong Nam's headquarters in Ho Chi Minh City.
Thieu and a number of other company officials were
later arrested. Police carted off boxes of phones, cash
and records. Other Dong Nam offices and outlets were
raided too.
The reason? Tax evasion, said the authorities. Dong
Nam, claimed officials, was smuggling cell phones into
Vietnam and declaring others at artificially low prices to
save more than $6 million in taxes. The company's
owners deny the accusations. But whether they're true
or not, critics point out there's hardly a grocery store in
Vietnam that gets by without fudging the numbers to get
round the country's onerous tax laws.
Instead, say critics, Dong Nam was targeted for
another reason: Local companies with powerful
connections to the communist party resented the
success of an overseas-Vietnamese concern and
wanted a slice of its fast-growing business.
Such suspicions have chilled the investment climate and
raised a raft of troubling issues about the rule of law and
the country's willingness to permit a level playing field
for business. Noting that foreign investment is falling
anyway, one Western professional who advises foreign
clients says, "These things don't help."
The impact has been particularly felt among overseas
Vietnamese who typically compete in the domestic
market, where they often encounter politically
connected, entrenched local interests. Summing up his
community's fears, one Vietnamese-American executive
says of Thieu, "They waited until he became rich and
took everything away."
Thieu and his brother Thang both escaped Vietnam by
boat as part of the great refugee exodus in the late
1970s. Thieu was just 16 at the time and Thang was
23. They both wound up in France, acquired
educations, and ran their own companies in Europe.
In 1991, the older brother formed Dong Nam
Associates in Hong Kong. Then, in 1997, Thieu, who
had returned to Vietnam four years earlier, bought a
company he was working for there and renamed it
Dong Nam Telecom Services. Thieu's company was
soon dazzling Vietnam with its modern showrooms,
distribution network and service centres, turning the
country into Dong Nam's second-biggest market. Thieu
was dazzling Vietnam in other ways, too. He was active
on the social scene and made a splash last year when
he married Ha Kieu Anh, a former Miss Vietnam.
Dong Nam Vietnam focused on Nokia and Samsung
mobile phones, for which it was the sole authorized
distributor, helping the two brands to grab a combined
80% share in a market estimated to be growing by
50%-60% annually. Company sources say that Dong
Nam' sales in Vietnam rose to $40 million last year
from about $25 million the previous year and that the
company employed 700.
And then, on January 2, came the raid. It was clear that
this was no ordinary police swoop: State-owned TV
crews were already in place well before the police
arrived, which journalists in Vietnam say usually only
happens if the authorities arrange it. Thieu, his deputy,
the company's chief accountant, a shipping clerk and a
warehouse employee were later accused of tax evasion
or smuggling--or both. Thieu, the clerk and the
warehouse staffer were arrested and remain in custody.
An independent Nokia dealer in Ho Chi Minh City,
who was also accused of tax evasion and smuggling,
allegedly told police that Thieu paid him to smuggle
phones into Vietnam for Dong Nam, according to local
press reports. Dong Nam's top dealer in the Hanoi area
was also implicated. A third dealer was to have been
formally accused, but police couldn't locate him. The
prosecutor's office hasn't announced yet if any of the
accused will stand trial.
The names of Thang and his 44-year-old wife, Bui
Thien Kim, both of whom are French nationals, along
with Thieu's 27-year-old wife, Anh, who is Vietnamese,
were circulated to border police to prevent them
leaving the country. Thang (who had retired back to
Vietnam but was still involved in Dong Nam) and Anh
remain in Vietnam. But when police tried in early April
to formally accuse Kim, a director of Dong Nam Hong
Kong, they found she was no longer in the country.
Few in the business community were shocked by the
claim that Dong Nam might be trying to minimize its tax
burden. After all, as one Western expert puts it,
Vietnam's tax laws are no more than "negotiating tools"
for underpaid tax officials, who actively connive with
companies to reduce their taxes in return for
under-the-table pay-offs. Further, most private
companies are evading taxes on 90%-95% of their
profit, according to another Western specialist who has
studied the accounts of many local companies.
What has shocked the Viet Kieu, or overseas
Vietnamese, is the realization that they are still easy
targets in a system that fails to guarantee due process.
Thieu has been denied access to a family-retained
lawyer, while officials apparently are invoking an old
policy to insist he isn't really French because he never
officially renounced his Vietnamese citizenship. (The
government didn't respond to written questions from the
REVIEW.) Capping it all, government-controlled
newspapers have published dozens of articles
presuming Dong Nam's guilt and have given sordid
details about his alleged philandering. His family's
persistent denials are ignored.
More than anything, the case is a reminder that not
much has changed since the early 1990s, when the
high-profile overseas-Vietnamese company Peregrine
Capital Vietnam, which distributed cars and had stakes
in banking and property, collapsed after it was accused,
like Dong Nam, of smuggling and under-invoicing. "The
more things change, the more they stay the same," says
a person with intimate knowledge of the Peregrine
episode. "It's the same media campaign, the same
accusations--all that."
Not that some Viet Kieu aren't guilty of cutting legal
corners and trying to take advantage of Vietnam's weak
administration. But overseas Vietnamese looking to the
Dong Nam case for reassurance that they and the
government are closer to genuine understanding and
reconciliation will be disappointed. Hanoi insists there's
no problem. It has wooed the Viet Kieu by gradually
giving them the same legal status as citizens. Indeed,
with Vietnam's trade deficit widening, Viet Kieu
remittances of about $3 billion a year are more critical
than ever.
Yet, despite official policies, the Dong Nam crackdown
seems to reinforce a key lesson learned by the Viet
Kieu a decade earlier: Their best approach to doing
business in Vietnam is to stay small, keep quiet and
avoid attracting the attention of well-connected locals.
Dong Nam is hoping it still has a future in Vietnam. In
the past, some multinationals accused of tax evasion
have negotiated fines with the authorities and continued
functioning. But Viet Kieu companies lack the muscle of
multinationals, and the word has gone out in the
business community that it's all over for Dong Nam, as
far as the authorities are concerned.
Dong Nam now is restricted to servicing a trickle of old
customers. Rival firms have poached some of the 200
engineers, 200 sales staff and 50 managers Dong Nam
trained and once deployed. That leaves Dong Nam
with little more than a few security guards to watch over
empty shops.
By Barry Wain - The Far Eastern Economic Review - May 8, 2003.
Winners and Loser
HO CHI MINH CITY - Why was Dong Nam targeted for a crackdown? The
official explanation--tax evasion--doesn't convince
everyone. Instead, say critics, it was picked on because
rivals resented its success and well-connected local
companies wanted a slice of its business. To bolster
that argument, sceptics point to the political credentials
of the companies that are taking over its business.
One is the Corporation for Promoting and Financing
Technology, or FPT, which has picked up the Samsung
phone business it lost to Dong Nam less than two years
ago. The company is headed by Truong Gia Binh, a
former son-in-law of the legendary Gen. Vo Nguyen
Giap, and is backed by the conservative Ministry of
Science and Technology. The ministry sold a 49%
holding in the then-state corporation last year, but
retains a controlling interest. Binh also has a small
personal stake in FPT.
Samsung confirms it has re-engaged FPT, despite
dropping it in August 2001 in favour of Dong Nam. In
their 18 months together, Dong Nam partnered
Samsung to a 28% market share in the hand-phone
business from about 7%.
Another beneficiary is Tran Thu Thao, who owns and
runs the obscure Lucky Producing Trading and Import
Export Company. It has won Nokia's lucrative phone
sales and distribution business, even though it has no
track record in the field. The choice of Lucky startled
many business people in Ho Chi Minh City. "This
company came out of the blue," says a foreign
businessman. "There are more-established industry
operators." Thao, who has a revolutionary family
background, has friends at the very top of the
communist party and is related to the Nokia dealer
apparently prepared to testify against Dong Nam and
its general director, Nguyen Gia Thieu. Thao declined
to comment.
Tai San Tao, general manager of Nokia in Vietnam,
defends the selection of a company formed only last
year. Experience in distributing hand-phones isn't
necessarily the most important criterion, Tao says. "The
Lucky team and distribution channel bring valuable
knowledge and experience gained through distribution
of high-value lifestyle branded products, such as
motorcycles and cosmetics," he says.
By Barry Wain - The Far Eastern Economic Review - May 8, 2003.
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