VZCZCXRO9749
RR RUEHHM
DE RUEHHI #1016/01 1501028
ZNR UUUUU ZZH
R 301028Z MAY 07
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 5510
INFO RUEHBK/AMEMBASSY BANGKOK 5753
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHHM/AMCONSUL HO CHI MINH 3140
RUEHGP/AMEMBASSY SINGAPORE 2385

UNCLAS SECTION 01 OF 02 HANOI 001016 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS AND EB 
STATE PASS USTR DAVID BISBEE 
STATE PASS USAID FOR ANE/AA KUNDER/KENNEDY/WARD 
AMEMBASSY BANGKOK FOR RDM/A 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
TREASURY FOR OASIA 
SINGAPORE FOR SUSAN BAKER 
DEPT PASS FEDERAL RESERVE SAN FRANCISCO FOR DAN FINEMAN 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN EAID ETRD ECPS PREL VM
SUBJECT: LIMP ENDING FOR WORLD BANK REVIEW OF VIETNAM'S PMU-18 
 
Ref: A) 06 Hanoi 771; B) 06 Hanoi 1090 
 
¶1. (SBU) Summary: The World Bank's review of corruption allegations 
and the Ministry of Transport's management of two Bank-funded 
projects is complete:  the infamous Project Management Unit (PMU) 18 
escaped any serious findings of corruption, but the Bank concluded 
that pervasive mismanagement abounds at the provincial level.  The 
Bank plans no further action with respect to the two projects, but 
it has a substantial agenda ahead for upgrading procurement, 
contracting, and financial management systems in the Ministry of 
Transport.  End Summary. 
 
¶2. (SBU) The PMU-18 scandal, which broke in January 2006 in the 
lead-up to the Communist Party's National Congress, is a 
multi-million dollar corruption affair that involved accusations of 
embezzlement, bribery, nepotism and gambling at the GVN Ministry of 
Transport (reftels).  The scandal has received extensive press 
coverage in Vietnam and has become synonymous with public 
corruption.  Due to the scandal, Transport Minister Dao Dinh Binh 
was forced to resign and Vice Minister Nguyen Viet Tien was 
arrested.  PMU-18 Executive Director Bui Tien Dzung was also 
detained, as press coverage revealed widespread corruption at the 
PMU 18-headquarters in Hanoi. 
 
¶3. (SBU) On May 28, the World Bank office in Hanoi and the Ministry 
of Transport released the summary results of the Bank's Detailed 
Implementation Review (DIR) of two Bank-funded projects implemented 
through PMU-18.  A joint MOT-Bank press conference in the morning 
attracted over 80 journalists and later that day, the Bank (but not 
the MOT) briefed donors on the findings of the DIR. 
 
¶4. (SBU) Acting World Bank Country Director Rama explained in 
considerable detail the DIR process.  Notably, the Vietnam DIR was 
only the fifth in the Bank's history.  Explaining that a DIR is a 
process to determine a project's susceptibility and possible 
exposure to corruption or waste, he added that it is not an 
investigation to assign responsibility, nor is it used as a basis 
for initiating administrative, civil or criminal proceedings.  The 
Vietnam DIR was conducted from May-September 2006 on two Bank-funded 
transport sector projects:  Rural Transport Project 2 (RTP2) and 
Road Network Improvement Project (RNIP).  Rama's office received the 
report two weeks ago.  According to Rama, distribution of the actual 
report is limited to the GVN, Japan and the UK, which co-financed 
one or both projects.  Any further distribution must be approved by 
the Bank's board. 
 
¶5. (SBU) Regarding PMU-18, while the DIR found no evidence 
supporting allegations of fraud and corruption against PMU-18 
officials, it identified areas where fiduciary controls in PMU-18 
should be strengthened.  Acknowledging that the findings were "less 
spectacular" than press reporting, Rama emphasized that the DIR 
looked only at Bank-funded projects at PMU-18, which was responsible 
for many transport sector projects, both donor-funded and 
GVN-financed.  He refused to speculate on what specific activities 
had led to the arrests of PMU officials last year.  Rama further 
said that of three separate GVN investigations of the PMU, only one 
is completed.  Turning to provincial-level PMUs, the DIR found 
"pervasive" indicators of irregularities.  (Note:  As defined by the 
Bank, an irregularity is a misuse of Bank funds or diversion from 
intended purposes or improper or unsatisfactory implementation.  End 
Note.)   The DIR found the following irregularities at the 
provincial level: 
 
--Procurement:  fraud and misrepresentation, collusion, deviation 
from Bank procedures and influencing of contract awards; 
--Financial Management:  weak financial management capabilities; 
and 
--Implementation:  questionable workmanship. 
 
In monetary terms, the DIR found the following confirmed indicators 
of irregularities for RTP2 and RNIP: 
 
--Procurement:  $15.5 million 
--Financial Management:  $4.0 million 
--Implementation:  $7.7 million 
 
¶6. (SBU) According to Rama, the Bank will work with the GVN to 
develop an action plan to combat corruption and waste in 
donor-funded transport sector projects and to strengthen financial 
 
HANOI 00001016  002 OF 002 
 
 
management systems with the PMUs.  In the medium-term, the DIR 
recommends strengthening mechanisms for handling complaints and 
expanding disclosure of project information to improve public 
surveillance.  The Bank has no plans to impose monetary penalties. 
Rama said that the Bank would not declare "misprocurement and will 
not request further investigation."  Responding to a question from 
the donors, Rama said this decision was the product of considerable 
internal discussion within the Bank.  He did not elaborate. 
 
¶7. (SBU) The discussion among the donors essentially turned on how 
the DIR's results would be absorbed by the GVN, the press and the 
public.  Donors also wondered how and if this somewhat surprisingly 
clean bill of health for PMU-18 would affect the GVN's 
anti-corruption campaign.  For his part, Rama said the Bank is not 
in a position to take the moral high ground, but nevertheless 
expects the GVN to proceed apace with its anti-corruption efforts. 
Based on his many consultations with the Ministry of Transport on 
the DIR, he expected a robust response to the DIR's many 
recommendations. 
 
¶8. (SBU) According to a Japanese Embassy contact, donors asked many 
questions about the PMU-18 scandal.  She said the GOJ's 
investigation had not produced any evidence that Japanese ODA was 
stolen or misused in that scandal.  While donors welcomed the 
dialogue and the various GVN initiatives to fight corruption, they 
expressed concerns about duplication and lack of clarity on the 
roles and responsibilities of the GVN entities charged with carrying 
out anti-corruption work. 
 
¶9. (SBU) Comment:  So closes the World Bank's look into PMU-18. 
Mission Vietnam now looks to the mid-term Consultative Group meeting 
on June 1 for an update on the GVN's anti-corruption drive.  Donors 
will certainly urge the GVN to stay the course and not be 
complacent.  Time will tell if they forge ahead or adopt an attitude 
implicit in the headline of a morning daily:  "Detailed review finds 
no evidence of corruption at PMU-18, World Bank continues aid."  End 
Comment. 
 
MARINE