VZCZCXRO2981
RR RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHPB
DE RUEHHI #0261/01 0401111
ZNR UUUUU ZZH
R 091111Z FEB 07
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 4576
INFO RUEHHM/AMCONSUL HO CHI MINH 2504
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEHNSC/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEHTC/AMEMBASSY THE HAGUE 0109
RUEHGP/AMEMBASSY SINGAPORE 2271

UNCLAS SECTION 01 OF 04 HANOI 000261 
 
SIPDIS 
 
STATE FOR EB/OMA, EAP/MLS AND EAP/EP 
TREASURY FOR CAROL CARNES AND SUSAN CHUN 
STATE PASS USTR DAVID BISBEE 
TREASURY PASS FRB SAN FRANCISCO/TERESA CURRAN 
SINGAPORE FOR SUSAN BAKER 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ETRD EINV VM
SUBJECT: ABN-AMRO TRIES TO SETTLE CASE, CITIBANK COULD BE NEXT 
 
REF: A) 06 HANOI 2314 B) 06 HANOI 2995 
 
HANOI 00000261  001.2 OF 004 
 
 
(U) This cable contains sensitive information and should not be 
placed on the internet. 
 
¶1. (SBU) Summary: Officials of the Dutch Bank ABN-AMR provided an 
update on the bank's ordeal in trying to settle criminal and civil 
charges regarding allegedly unauthorized foreign exchange deals with 
the state-owned Industrial and Commercial Bank (Incombank) of 
Vietnam (Ref B). The ABN-AMRO representatives stressed that even 
though the bank did pay USD 4.5 million in order to settle the 
dispute, the bank in no way admits any criminal behavior or 
wrongdoing.  They maintain that pressure from the Vietnamese 
government and police, the detentions of ABN-AMRO employees in jail 
and the prospect of additional jailings forced the company into a 
position where it felt it had no option but to pay.  The bank 
continues to engage with the authorities in order to close the 
criminal case, drop the civil case against ABN-AMRO and release the 
four employees who remain under house arrest.  ABN-AMRO intends to 
continue operations in Vietnam, but notes the experience as a 
cautionary tale of doing business in this emerging market.  In the 
meantime, Citigroup is trying to resist increasing pressure also to 
pay to settle. End Summary. 
 
Case Update 
----------- 
 
¶2. (SBU)  ABN-AMRO Corporate Executive Vice President Robert Davis, 
Country Representative Lindsey Michael Haman and Senior Vice 
President of the ABN-AMRO Regional Security Office for Asia Hans 
Melchior met with EconCouns and Econoff on February 6 to discuss the 
bank's ordeal in dealing with Vietnamese authorities over the case 
of the allegedly unauthorized foreign exchange deals with Incombank 
that went bad (reftels).  They confirmed the press reports that the 
bank paid USD 4.5 million to Government of Vietnam accounts in 
November 2006 in order to settle the criminal and civil charges 
filed against them earlier last year.  While the two ABN-AMRO 
employees in jail were transferred to house arrest in December 2006, 
the criminal charges, and the civil suit by Incombank that has been 
suspended until the criminal charges are resolved, have not been 
dropped.  Davis made clear that ABN-AMRO concedes no criminal 
behavior and will continue to work with the GVN to resolve the case. 
 ABN-AMRO does admit that the foreign exchange transactions in 
dispute (Ref A) could be considered technical violations under the 
unclear and previously unenforced regulations (namely, regulation 
101) issued by the SBV.  He asserted, however, that lax procedures 
do not constitute criminal behavior, and ABN-AMRO will continue to 
fight those charges. 
 
Risks of doing business in Vietnam 
---------------------------------- 
 
¶3. (SBU) Davis noted that "this kind of risk is endemic in emerging 
markets" and said that ABN-AMRO remains committed to operating in 
Vietnam, if they are able to do so, because there are still 
significant opportunities for the bank here.  Nevertheless, he 
cautioned that two aspects of the investigation will have serious 
implications for other banks and investors as a whole.  First, the 
fact that a "loss of state funds" is considered a crime (and in 
ABN-AMRO's case, the main crime with which the bank is charged) is a 
problem for any company dealing with a state-owned enterprise, he 
stated.  If regular business transactions which result in a loss for 
a state-owned company can be considered criminal acts -- entangling 
both the state-owned company that "loses" the money and the private 
company that "takes" it -- then private sector companies have no 
incentive to do any business with state-owned firms.  (Note: Davis 
added as an aside that for this reason and others he did not expect 
any international bank to have the slightest interest in buying a 
share of the state-owned commercial banks scheduled to equitize, a 
Vietnamese version of partial privatization, later this year.  End 
note.) 
 
¶4. (SBU) Second, the Ministry of Public Security (MPS) and State 
Bank of Vietnam (SBV) interpretation of what constitutes a foreign 
exchange contract is extremely problematic for future foreign 
exchange transactions, Davis continued.  MPS, in order to 
demonstrate a "crime" occurred, declared that oral contracts between 
traders over the phone are not valid, and that only after the 
traders write up a paper contract and sign it is the transaction 
 
HANOI 00000261  002.2 OF 004 
 
 
legal.  This interpretation means that a trader in Vietnam need only 
wait a few hours to see if they profited from the oral agreement and 
sign (or refuse to sign) the written contract depending on the 
outcome.  Thus, given the pace of the foreign exchange market and 
its transaction speed, and given that oral contracts are standard 
practice in foreign exchange markets the world over, the declaration 
of oral contracts as non-binding in foreign exchange transactions 
essentially prevents those transactions from taking place in 
Vietnam, Davis explained. 
 
¶5. (SBU) As a result, ABN-AMRO no longer conducts these trades with 
Vietnamese institutions.  According to Davis, the SBV is preparing 
to clarify this issue with new decrees that will also demystify the 
conflicting guidance on how to register foreign exchange traders 
(Ref A).  Additionally, the Bank Working Group of the Vietnam 
Business Forum, a group of private sector companies that holds a 
regular dialogue with the GVN on issues of concern, has already 
taken up the problem of foreign exchange contracts and the need for 
greater regulatory clarification through their channels of 
communication with the GVN. 
 
¶6. (SBU) Finally, Davis noted that the overall politicization of the 
case and the lack of rule of law (violation of arrested citizens' 
rights, interference in the SBV investigation, improper involvement 
of the state-owned company in the investigation, etc.) has reduced 
confidence in Vietnam's investment climate.  While companies can 
expect some difficulties in these types of emerging markets, the 
lack of rule of law in this case was extreme, said Davis.  The two 
Vietnamese-national ABN-AMRO employees jailed for nine months as 
part of the investigation were denied constitutionally-guaranteed 
family visitation rights and were repeatedly interrogated without 
their lawyers present.  In his view, the SBV investigation was 
clearly hampered by the police (Ref B), and the investigation itself 
was conducted in a way that it could only have one outcome: 
ABN-AMRO paid. 
 
No help from the PM 
------------------- 
 
¶7. (SBU) Davis commented that though ABN-AMRO does not know what 
details the Prime Minister knew about the case, it does know that 
both the Dutch Government and the Ministry of Public Security 
briefed his office separately on the case and the conduct of the 
investigation.  He thought that the international media attention 
(notably editorials in the Wall Street Journal), pressure from the 
Dutch Government, the looming vote in the United States on Permanent 
Normalized Trade Relations, an unresolved WTO accession and the 
prospect of 20 heads of state attending the November 2006 Asia 
Pacific Economic Cooperation (APEC) Summit in Hanoi might have 
worked in ABN-AMRO's favor.  This did not happen. The Prime 
Minister's office did not intervene in the case to restrain the 
behavior of the Ministry of Public Security (MPS) and its 
investigative unit or in any way assist ABN-AMRO or its employees, 
Vietnamese or foreign.  Country Director Haman added that at several 
stages in the investigation, there were "face-saving opportunities" 
where intervention would not have been a total loss to the GVN: 
e.g., ABN-AMRO offered to give Incombank the approximately USD 1 
million they made as a profit from their transactions, the SBV 
originally drafted a report that found regulatory violations but no 
criminal activity, etc.  Neither these "outs" nor the collective 
international pressure and scrutiny changed the behavior of the MPS 
or the direction from the Prime Minister. 
 
Police relationship with Incombank 
---------------------------------- 
 
¶8. (SBU) A second complication in the investigation, Davis 
indicated, was the peculiar relationship between Incombank and the 
C15 unit of the MPS.  During official investigative meetings between 
ABN-AMRO staff and C15 police, an Incombank representative sat in on 
the discussions and question and answer sessions.  This privilege 
was not reciprocated to ABN-AMRO during talks between the C15 unit 
and Incombank.  Furthermore, added Haman, a large part of the 
Incombank legal department consists of former C15 unit police 
officers recently transferred to Incombank to learn more about 
market practices and economic policy. 
 
Motivation for case not clear 
----------------------------- 
 
HANOI 00000261  003.2 OF 004 
 
 
 
¶9. (SBU) The ABN-AMRO representatives characterized MPS and GVN 
motivations and decision-making as completely obscure throughout the 
investigation.  Haman said it was like looking into a "black box." 
The company still does not understand what motivated the direction 
of the case.  ABN-AMRO would not speculate on whether MPS was acting 
out of obligation to relationships with people at Incombank (Ref A) 
(which reportedly pressured MPS at senior levels for a favorable 
outcome), at the direction of the Party or for their own financial 
gain.  ABN-AMRO representatives said they had no idea if the police 
received a portion of the USD 4.5 million, but they did confirm the 
bank transferred funds to MPS-controlled accounts. 
 
¶10. (SBU) ABN-AMRO representatives noted that they repeatedly had to 
explain the nature of the foreign exchange market, the ways in which 
transactions balance out and the means by which profit is made. 
They even created a "dummy guide," said Melchior, to try to 
demonstrate to the Vietnamese police how these money flows operated. 
 
 
Not Guilty 
---------- 
 
¶11. (SBU) Above all, Davis stressed that ABN-AMRO's main message is 
that that the USD 4.5 million payment is in no way an admission of 
guilt or criminal wrongdoing.  He said that in ABN-AMRO's view, it 
is a victim.  It concluded the only way to resolve the case was to 
pay.  It wanted to avoid the prospect of three more employee 
arrests, in addition to the two in jail and the two under house 
arrest.  These threats, coupled with directives from MPS that 
payment from ABN-AMRO would eliminate the "criminality" of the case, 
prompted ABN-AMRO to finally agree to transfer USD 4.5 million to 
two separate MPS-controlled accounts, one at the State Treasury and 
one at Vietcombank.  ABN-AMRO will continue to fight to have the 
criminal and civil charges dismissed and the four employees still 
under house arrest released.  Davis, Haman, and Melchior all 
emphasized this "intimidation and the pressure" was the only reason 
ABN-AMRO agreed to pay, and that the company absolutely denies any 
criminal wrongdoing. 
 
Is Citibank next? 
---------------- 
 
¶12. (SBU) On February 9, Citigroup Country Officer Charly Madan met 
with the Ambassador to inform him of increasing pressure for it to 
pay GVN coffers as well in order to settle claims against his bank's 
involvement in also processing some alleged unauthorized foreign 
exchange trades with Incombank.  Like ABN-AMRO's Davis, Madan too 
criticized the government's use of regulation 101 as the grounds for 
the case, noting that none of the banks--foreign, domestic or 
state-owned--had adhered to that rule, which in any case was 
designed to deal with the aftermath of the Asian financial crisis, 
not these trades. 
 
¶13.  (SBU) Madan said the government was looking for Citibank to pay 
USD 131,000, a figure reached by "unwinding the transactions."  He 
said if the government were to be consistent and unwind all of the 
deals from the period of 1997 to August 2006, there should be a net 
payment to Citibank of USD one-half million.  He also distinguished 
Citigroup's relatively smaller role in the Incombank case, noting it 
had only processed 17 trades which were valued at less than USD 20 
million. Separately, Madan noted how Citibank has been a virtual 
training college for the SBV.  It had just provided a 30-person team 
to train SBV employees in such matters as due diligence and on 
technical matters on trading issues.  Citibank wanted to maintain 
this positive relationship with Vietnam and continue to expand its 
business. 
 
 
 
¶14.  (SBU) Given ABN-AMRO's experience, Madan is concerned that if 
Citigroup does not pay the amount requested, the police will start 
harassing its employees.  He was also concerned that the idea of 
unwinding transactions as a solution was opening a Pandora's box. 
Madan hoped that Citigroup would be able to reach some face-saving 
arrangement with the authorities that would not require the payment 
of any funds.  Madan agreed to stay in touch on progress with this 
case and would inform us if there was any harassment. 
 
 
HANOI 00000261  004.2 OF 004 
 
 
MARINE 
 
 
 
 
 
2