Anti corruption in construction industry in vietnam

The objectives of this research are to provide an overview on corruption and anti-corruption in construction industry, analyze and clarify the situation of corruption in the constructi

MAST L.R THESIS OF MPPM

Anti-Corruption in Construction Industry in Vietnam

Authors: HOANG MINH TOAN

PHAM TIEU LONG

Supervisor: Prof Dr LARS TORSTEN ERIKSSON

Dr NGUYEN CHl DZL NG

Class: MPPM INTAKE I - Group 7

l/f^ r'

UPPSALA UNIVERSITY (SWEDEN) &

UNIVERSITY OF ECONOMICS AND BUSINESS, VNUH MASTER PROGRAMME OF PUBLIC MANAGEMENT

Pham Tieu Long & Hoang Minh J o a n

*

t

ABSTRACT

Title of the thesis: Anti-corruption in the Construction Industry in Vietnam

Level: Master Thesis for Master Program in Public Management

Authors: Pham Tieu Long, Hoang Minh Toan

Supervisors:

Swedish Supervisor: Prof Lars-Torsten Eriksson, PhD

Local Supervisor: Dr Nguyen Chi Dung PhD 4

Time of thesis presentation: 18/5/2011

Objectives:

In recent years, investments in construction have given rise to socio - economic

development, helping in providing jobs for people, improving the material and

spiritual life of the people However, due to many reasons, corruption and

squandering are occurring in many construction projects The increasing cases on

corruption in this sector has led to socio-economic losses Therefore, prevention

and anti-corruption in construction industry are on the top priorities in Vietnam

The objectives of this research are to provide an overview on corruption and

anti-corruption in construction industry, analyze and clarify the situation of

corruption in the construction industry in recent years, analyze the detection and

handling of corruption cases in the construction sector Measures for corruption

prevention and anti-corruption are also included

By studying theoretical issues of corruption in the construction industr\' and

analyze real cases of prevention and anti-corruption in the construction industry

1

in Vietnam and other countries, this study proposes recommendations relevant o the current settings in Vietnam

Results and conclusions

Construction sector has its own characteristics and those make it more prone to coruption in many countries Conclusions of the thesis include:

- Coruption is high and difficult to prevent and combat in the construction industry and the reasons for this partly come from its own characteristics This study shows a number of potential opportunities for coruption in this sector

- Coruption is widespread in the construction industry in Vietnam Construction is among 10 most corrupted sectors in Vietnam

- Various measures for anti-coruption has been applied in the construction sector but still alot of shortcomings These include limited asset transparency, information transparency, poor project management, complicated procedures for monitoring, detection and acusing coruption

crimes; inffective measures for promoting whisle blower; few coruption cases are detected

- Prevention should be combined with combating coruption

Recommendations

This thesis proposes recommendations for improving anti-coruption efforts such

as (i) Impose declaring personal assets focussing on positions with high risks of corruption and randomly check as well as imposing disciplines against violations; (ii) improving the role of civil society in monitoring and supervising construction projects; (iii) simplifying the procedures for detecting coruption and providing clear definition of corupted acts in Anti-Corruption Law and relevant legal documents; (iv) improving the procedures for denouncing, with more support, encouraging and protection for whisle blowers; (v) providing more incentives to those who found coruption and; (vi) strictly dealing with coruption cases

Suggestions for further research:

Based on this research, the research team can study further about the mechanism for detection and dealing with coruption in specialised construction areas such as

in transport, electricity and telecommunication It may need to measure the impact of anti-coruption efforts by surveys

Key words: corruption, construction industry, corruption prevention,

anti-corruption, detection and dealing with anti-corruption, Vietnam

1.2.1 Characteristics of construction industry and risks of corruption 6

1.2.2 Types and mane rs of corruption in construction industry 9

CHAPTER 2: CURRENT SITUATION OF CORRUPTION AND

ANTI-CORRUPTION IN THE CONSTRUCTION INDUSTRY IN VIETNAM 13

2.1 An overview of corruption in Vietnam 13

2.2 The Construction Sector and Corruption 16

2.2.1 The Construction in Vietnam 16

2.3 Corruption prevention and combating in the Construction Sector in Vietnam 24

2.3.1 An Overview of the Legal System for Anti-Corruption 24

2.3.2 The reality of measures against corruption in Vietnam in the

construction industry 25

CHAPTER 3: EXPERIENCE OF OTHER COUNTRIES AND

RECOMMENDATION POLICY FOR VIET NAM 40

APPENDIX 50

REFERENCES Vietnamese documents (alphabe as in Vietnamese): 53

INTRODUCTION

Corruption has become a serious social evil in many countries in the world It appears and exists along with the establishment and development of a state as state is always associated with the use of public power The abuse of public power to serve personal interests or misuse of public power of civil servants or state employees are always serious risks to reduce the power and effectiveness of modem states Conoiption occurs

in various forms and in all different aspects of society That is why it requires comprehensive preventive strategies, measures with different objectives to combat against it (Klitgaard, et al 2000)

In Vietnam, the Communist Party and the State have identified as one of the foremost missions at the top concern of the whole political system The Anti-Corruption Law was passed by the National Assembly at the 8'^ Session on 29/11/2005 and has come into force since 01/6/2006 The Law was supplemented and amended on 04/8//2007 Vietnam has approved the 'National Strategy on Corruption Prevention and Anti-corruption upto 2020' as well as ratified the 'UN Convention against Corruption' on 30/06/2009 In the past few years, activities fighting against corruption-related crimes

in Vietnam have been carried out drastically The prolong stmggle requires the participation and effective cooperation of relevant government agencies Up-to-present, this struggle has gained certain achievements, which proves the proper viewpoint and clear-sighted outlook of the Party and State of Vietnam on the problem

In recent years, investments in construction in Vietnam have significantly contributed

to socio - economic development by providing jobs to a many people, reducing the unemployment in society and improving the material and spiritual life of the people In the whole country, there are more than 900 state-owned companies in construction and this figure in private sector is about 7000 Half of all construction companies have at least 50 regular workers and a huge number of seasonal workers (Kenny, 2007) However, many negative facts have arisen in management of construction investment, resulting in considerable losses and poor quality of the civil wwks The situation that corruption in the construction industry^ happened with larger and larger scale in many

big projects has damaged not only the economy itself but also spoiled the belief of people to the Government and State

It is no doubt that corruption in the construction industry is a national disaster which happens not only in Vietnam but in many other countries as well It is like a kind of

"ultra virus" gradually gnawing the "body" of a country Based on diagnostic data in an overall picture of corruption in Vietnam, it shows that the construction industry is one

of the areas most prone to corruption (Davidsen, et al 2009) Therefore, we have chosen the topic 'Anti-corruption in Construction Industry in Vietnam' for the research of our master thesis

The major objectives of the research are to provide an overview on corruption prevention and anti-cormption in construction industry, focusing on analyzing issues relating to detecting and dealing with corruption in construction industry and based on the analysis and assessment of some specific cases of corruption, some recommendations on anti-corruption will be introduced to managers in construction industry and policy makers

Besides the Introduction and Conclusion, our research including three main parts:

Chapter 1: Overview on anti-corruption in construction industry

Chapter 2: Current situation of corruption and anti-corruption in construction

industry in Vietnam

Chapter 3: Experiences of other countries in anti-corruption policy and

recommendations of policy for Vietnam

CHAPTER 1: OVERVIEW ON CORRUPTION AND ANTI-CORRUPTION

IN CONSTRUCTION INDUSTRY

1.1 Definition of corruption

Corruption is a social phenomenon associated with the foundation of social classes and the establishment and development of states Cormption happens in all countries in the world without any distinction of the political system that the country follows and it happens in all sectors relating to public management

In the guidelines on anti-corruption of the US, definition of corruption is 'Corruption is

the abuse of public power to serve personal interest' V This definition is similar with

the conception of Klitgaard et all (2000) about corruption The World Bank, in the 'Guidelines for Anti-corruption' (2006), has point out a series of actions which are considered as fraudulent and corruption such as: offer, propose, give, receive, directly

or indirectly ask for any valuable things which may cause improper actions of other

partner, actions of collussion and complicity with other In Vietnam 'Corruption is

abuse of public power to exert influence on people for undue benefits' and more

specific definition has been stipulated in the Law on Anti-Corruption passed by

National Assembly at the 8^ Session on 29/11/2005 'Corruption is actions of person

who have public position and power abuses their position and power when perform their duties for undue benefits' When carr>^ing out their tasks or duties, a person who

has public position and power can perform a lot of activities and actions with different behaviours and actions, but only actions done by abusing their position and power for personal benefits are considered corruption

Those actions are stipulated in details in the Article 3 of Anti-Corruption Law which defines corrupting acts (12 acts) as following: (1) properr>' misappropriation; (2) taking bribes; (3) abuse of positions and powers to misappropriate propert>-; (4) abuse of positions and powders while on duty and officials duties for interests; (5) misuse of

' See Handbook on fighting corruption'' - Center for Democracy and Go^emance USAID, 1999

^ Vietnamese Dictionar>' - Nguven Nhu Y - Culture and Information Publishing House, 1988

powers while on duty and performing official duties for interests; (6) abuse of positions and powers to exert influence over others to seek benefits; (7) fraud while on duty for interests; (8) giving bribes, bribe brokerage made by persons with positions and powers

to handle the work of agencies, organizations, units or localities for interests; (9) abuse

of positions and powers to illegally use state property for interests; (10) initiate harassment acts for interests; ( I I ) failure to perform tasks and duties for interests; (12) taking advantage of positions powers, for interests, to protect those who commit acts of violation of law; unlawful interference in the examination, inspection, audit, investigation, prosecution, trial and sentence execution for interests

Before the Anti-Corruption Law, Penal Code Law 1999 stipulates seven articles concerning corruption-related crimes: embezzlement of property (Article 278); taking bribe (Article 279); abuse of positions and powers to misappropriate property (Article 280); abuse of positions and powers while performing official duties (Article 281); misuse of powers while performing official duties (Article 282); abuse of positions and powers to exert influence over others for the sake of interests (Article 283); fraud while

on duty (Article 284) To be considered as corruption, these crimes have to satisfy three characteristics of the crimes of corruption, namely:

- Corruption must be the behaviors/actions conducted by people holding positions and powers

- When performing acts of corruption, the person wdth positions and powers take advantage of their positions and powders to commit crimes

- Criminal acts of corruption must be interest-motivated

In nature, corruption is a social phenomenon reflects such factors of a people, a country

as politics, economy, culture, tradition and life habits The consequences of corruption are not simply the economic damage with a huge amount of money but the more important is it degenerates a part of state employees or civil servants, reduce the efficiency of state management, spoil the belief of people, threaten the existence and prosperity of a country A clear and specific definition of corruption is very important

in issuing public policy, regulations on anti-corruption

1.2 Characteristics of construction industry and corruption in construction industry

L2.1 Characteristics of construction industry and risks of corruption

Many researches showed that corruption in construction industry is much higher than other sectors The scale and scope of corruption are different depending on the specific fields and scope of building projects Construction industry is the important sector in economy development of many countries It is estimated that market for construction industry in the world is account for $US 4700 billions (in 2007)\ Contribution of construction industry to GDP is about 10% in developed countries, 5-7 % in developing countries and about 3-5 % in underdeveloping countries^

Why construction industry is the branch with high risk of corruption?

To find out the answer to the question, we need to consider the characteristics of construction industry and point out the risks of corruption Analyze the characteristics

of construction industry can also help us to find out the resolutions for anti-corruption

+ Construction industry is the sector having many big projects with enormous capital

Even thought they have different sizes, but construction projects often have large-scale plan required big capital, especially the projects with great investment capital from government to develop infrastructure such as building high ways, harbours or sea-ports, airports, electricity plants etc The capital for such construction projects is often very large with the figures of from millions to billions US dollars It is clear that it is easier for the persons who are responsible for the construction of the civil works to hire illogical costs or to fabricate the costs when implementing big projects than in projects with small scale This characteristics leading to the high risk of corruption

+ The construction projects are often single and specific

^ See Transparency International (2003) "Global Corruption Report"

' Davis Langdon & Seah International (2008) **World construction 2007-2008"

'UNCTAD (2000) "Regulation and Liberalization in the Construction SerNices Sector and its Contnbution to the Development of Developing Countries", Note by the UNCTAD Secretariat, TD^BCOM 1/EM 12/2,

12 September 2000

In construction, each product has its own design with specific estimated costs for the product as each product requires specific technology, convenience, art, beauty and safety That is why we can not produce a series of products with the same appearance and features Products must be manufactured or designed based on specific technical specifications from the investors It is difficult to compare the construction work due to their single characteristics Therefore, it is also not difficult for the person responsible for carrying out the constructions to raising the costs for building or hiring under-table cost to server the personal benefits There are not so many big projects so the bidders are ready to give a bribe to receive the contract to reach their company's annually plan

of benefits or sale income

-+- The important roles of State and Government to the infrastructure projects

Most of projects to building or upgrading the public infrastructure are belong to the

State Even the projects implemented by private companies need the approval from

public agencies Construction industry is the sector has to follow quite a few legal regulations of the Construction Law applied at all levels from the central to the local ones with so many licenses This is also high risks of corruption

+ Construction activities relating to many bidders/suppliers:

A construction project can have hundreds of bidders/suppliers There are many such opportunities for corruption in a construction project as the way the investors/ project management unit (PMU) dividing the bidding packages, selecting bidders, recognizing the work that suppliers has been done and completed, speed up the liquidation Each activity can be exploited for corruption

+ Construction project often includes many phases requiring complex technology those

are difficult to effectively supervised

Normally, a construction project is divided into many phases with different requirement

of technology and the way to manage the activities in each phase is difi*erent Event thought the PMU signs a packaged-contract with a main bidder/suppliers for the whole construction work, they often sign sub-contract with sub-suppliers to provide serx^ices

and/or goods for small bidding package This also leading to difficulty in supervising both the construction activities and discovering the corruption

The technology applied in a construction project is often complex, including both underground and on the ground parts Insufficient information make the work of supervision to be more difficult and even the experts sometimes have different ideas about the cost or issues raising Bidders/suppliers can blame the fault on the third party

and still required payment on time even when they have not correctly followed the term and conditions in the contract This is the stage the corruption can happen when the two parties negotiate about the causes and effects of raising issues or about the work has been done and completed for payment or compensation

Most of parts of a construction work are covered by other part For example, steel structure of a pillar is covered by concrete or brick, metal frame is covered by tiles or roof etc Therefore, it is difficult to ensure that the construction is done exactly as it is designed and it is also very difficult to assess and evaluate the real quality of the parts hidden behind the covers despite of the fact that the supervision work is done by an independent supervisor

+ Secret culture and local characteristics in construction industry

To succeed in bidding, most of information relating to the real cost for the construction work is keep secret Construction is not the land where the information is public and clear Moreover, not all the construction work are comprehensively audited and inspected to find out the fault or corruption It is very difficult for external enterprises

to be successful in bidding of a local project or national project Foreign enterprises must often accept to give big commission if they want to be the suppliers of a local construction project

-I- Construction relating to many professional societies, therefore, lack of a unique

organization responsible for construction field

The complexity of construction work requires the participation of labour of many different fields such as civil engineers, architectures, accountants, laNNyers, electrical technicians, workers Each field often has specific regulations on conditions for

practicing the professionals etc That why it is difficult to fmd a unique organization responsible for construction field

1.2.2 Types and manners of corruption in construction industry

Corruption in construction industry can be seen at all phases of implementation of an investment project: From the phase of making master plan, preparation for investment, implementation of the project (e.g bidding, selecting the bidder, construction ); pilot running, hand over and bring into practice, warranty, maintaining and repair (if any)

Construction enterprises often try to find out the way to give bribes to responsible person of the project to be the supplier for the construction even when the project just starting with the phase of making plan for implementation or making an unnecessary project just to have opportunity to improve the turnover and/or benefits

The more complex the approval procedures is, the more opportunities for corruption occurs

Using bribes to have a contract of construction is a popular corruption form Bidders try

to give bribes via a neutral party, joining with local company which has relation with the stakeholder, or more sophisticatedly, via the sub-contractor (the main contractor sign the sub-contract to provide services or goods with the sub-contractor which is the local enterprise having relationship with the stakeholder In fact, the money has been paid but no services or goods have been provided or in other cases, goods or services have been provided but with much higher price in comparison with the price in the market and the balance is one of the corruption types)

Risks and types of corruption in construction industry- in Vietnam are listed in the Table

Risks and t)pes/forms of corruption

Select the project for purposes of personal interest instead of for public interest

- Limitation of stakeholders/relevant parties participating in the

procedures of making decision '

- The end-users or affected parties are not consulted or involving into the progress of project planning

- Approval process is not clear or erroneous because of comiption

- Design the project for personal interest instead of public interest

- Limitation of stakeholders/relevant parties participating in the procedures of making decision

- Project is impacted by the enterprise

- Improper unit-price stipulated by the state

- Inaccurate budget, unstable market price, improper consultation

- Designing consultant giving unnecessary consults for commission

- Collusion between the designer and appraisement officer

- Bias towards specific bidder

- Unindependent appraisement officers

- Overpower of authority, making improper decision

- Complicated procedures of approval and giving license create risks of unofficial costs

Occupy the state-owned land in local area Improper or unreasonable compensation price Make up affected list of compensation to get money

- Collusion between the investors and appraisement party

- Collusion among bidders to push up the price higher than market price

- The bid winner who receive the contract is not the good bidder

- Lack of competition because of limitation of suppliers

- Long bidding procedures causing the delay in implementation of important projects

persons who making

- Project Management Unit (PMU) abilit\' in managing project does not meet standard requirements

- Limited ability of bidders/suppliers PMU does not have proper methods or measures to deal with ineffective and inefficient operation of bidders

- Collusion between design consultant, implementation consultant and supervisors

- Intended violation the initial design, adjusting contract (e.g price, specifications)

The difference between completed products and design Financial cheating

Unclear in technical assessment and design before approval

the decision in the

investment

Liquidation and audit

- Lack of assessment and evaluation after the project/final product being brought into practice

- Collusion between auditors and contractors/suppliers in audit reports

- Liquidation for expenditures of nothing or expenditures with price exceeded the cost norm

- Complicated liquidation making opportunities for corruption

1.2.3 Influences of corruption in construction industry on the country economy

Construction industry play an important role in country economy, but it is also the sector/fields having high Ricks of corruption The impacts of corruption in construction industry including:

+ Corruption makes the investment capital increase and waste the state budget

It is difficult to compare investment budget among the projects; therefore, the cost for infrastructure can increase because of corruption

Due to the characteristics of construction work, it is difficult to compare investment capital among the projects and this may leading to the increase of capital because of corruption The increase investment capital for this project because of corruption resulting in reducing the investment for other projects For example, if the possibility of corruption in building new high way is higher than the maintenance of the old ones, there will be situation in which the investment capital for new high way will be given priority, leaving the old ones in the backward conditions This is popular situation in African countries (Collier and Hoeffler, 2005)^ The authors pointed out that, after the implementation of anti-corruption in construction campaign, the investment cost for projects of infrastructure construction reduced from 40-50 % compared with the cost before

Research of Henisz (2002) in investment on infrastructures of telecommunication and electricity in 100 countries in the world shows that corruption has sigmficant impact on investment cost The extra-cost because of corruption in construction of infrastructures

' Sec Transparency International (2005) " Global Corruption Report

in Afi-ican countries strongly reduces the ability to construct new telecommunication system in those countries^

+ Corruption increase the running cost of infrastructures system and reduce the quality

of infrastructure works

In many countries (including Vietnam), the operation of infrastructure systems such as electricity, water, harbour etc is belong to sole organizations/institutions Corruption make the quality of services become lower and lower and raising the running cost The exclusive agencies can exploit their advantages to pay higher salary or require extra-payment when providing the services Consequently, customers have to pay higher price for the services they receive

A research on infi-astructure services of the World Bank in 412 cities in 134 countries about the opportunity and quality of clean water, telephone and electricit>' shows that corruption has strong impacts on the opportunity to access and quality of those services The corruption also reduces the opportunity to access other public services of the people, especially The Poor

+ Corruption in construction industry also reduces the growth speed and makes the

budget deficit of the state become more serious Cost for construction of infrastructures

increases, but the quality is bad leading to, of course, the low economic growth

+ Corruption of construction industry threaten the environment

With the need of building more hydro plants in many countries to increase the electricity production and regulate the natural water, the existence of corruption will lead to many issues relating to envirormient In the Global Corruption Report of Transparency International Organization (2005), the authors pointed out that, because

of corruption, many projects for building hydro plants had not been considered and assessed comprehensively about the impacts of the plants on the surrounding environment as well as not satisfied the requirements of environment protection during

' See Henisz W.J (2002) '*The institutional environment for Infrastructure Investment" in Industrial and

Corporate Change , No 11

* Kaufmann D , Leautier F and Matruzzi M (2004) " Governance and the City : an empirical mvesugauon into the global determinant of urban performance" Mimeo ( World Bank)

the construction Some examples of those are hydroplane project in Bujagali (Uganda), Jatigede Dam (in Indonesia), Yacyreta Dam (in Paraguay).^ Those projects had also not brought in the economic benefits as expected because the corruption made the cost

for construction increased and, at the same time, causing a lot of environment

problems

+ Corruption causing the instability of the society

Governments in many countries collapsed because of people's strong reactions to

terrible situation of corruption of Government officers That is the case of Suharto in

Indonesia; Marcos in Philippines and recently, the government of Mubarak in Eg>*pt

It can be said that the long lasting of corruption in construction industry in particular and corruption in general causing the reduction of people's belief in the government, the authority and that is the root of social instability

In summary, corruption in construction industry is one of the challenges that many countries have to face with it Corruption in construction industry causes a lot of negative impacts on the fields of economy, society and environment of many countries The characteristics of construction industry make the prevention and anti-corruption dealing with a lot of difficulties even in developed countries As a developing country, Vietnam has been also facing with corruption in construction In the next chapter, we will analyze the situation of corruption in Construction industry in Vietnam

CHAPTER 2: CURRENT SITUATION OF CORRUPTION AND

ANTI-CORRUPTION IN THE CONSTRUCTION INDUSTRY IN VIETNAM

2.1 An overview of corruption in Vietnam

Corruption is undoubtedly one of the most serious challenges faced by Viemam The long-term pattern of development will very^ much depend on the government' s abilit>-

to tackle it, and to overcome it Vietnam is often portrayed as a widely corrupt countr\'

' See Bosshard P in Transparency International (2005) *' Global Corruption Report'

in cross-country surveys, e.g Transparency International' s (TI) Corruption Percepti Index ranks Vietnam 116 among 178 countries and territories

Table 2: Ranking of transparency and quality of governance 2010

6 5,6 3,9 3,1

3,5 3,5

2,3

2 3 2.3 3,1 1,8 2,3 1,5 1,8 0.9

8,9 6,8

5,1 5,1

6,8 3,3 3.3

3,3

1.9 3,3

172

1,9 3,3 1,9 1,9

9,5 7,7

6 5,8 2,3 4,4

9,2 8,2

6 4.6 3,7 3,3 4,1 2,4

3 3,3 2.6 2,7 1,8 2,4 2,6 2,3

(Source: Transparency International 2010)

ADB: Country Performance Assessment Ratings by the Asian Development Bank

AFDB: Country Policy and Institutional Assessment by the African Development Bank

BF: Bertelsmann Transformation Index by the Bertelsmann Foundation

EIU: CounU7 Risk Service and Countr> Forecast by the Economist Intelligence Unit

FH: Nations in Transit by Freedom House

GI: Global Risk Service by IHS Global Insight

IMD: World Competitiveness Report by the Institute for Management Development

PERC: Asian Intelligence by Political and Economic Risk Consultancy

NV'B: Country' Policy and Institutional Assessment by the World Bank

WEF: Global Competitiveness Report by the World Economic Forum

thi

r„ - t

goer fdi) *tn«m iH r>nt rtv

r«ici* issue

i cine such

' • i " ( <

portray Vietnam as iMMHiat in this respect because k has higher niridng than

lighor level of Atvelopmefit sncli as Russia Vietnam's indices on transpareacy and

cv inpetitiveness ase slightly highvlban that of South Asian countries SHkasn PMislBn aad Bangladesh But the reality on the ground is more complex The World Bank* s inrraalment Climate Assessments, on the other hand, put Vietnam on a par with Malaysia, one of the least corrupt coimtries in the region'' When taking into account GDP per capital as the comparing basis, the extent of corruption is actually comparable

to that of other countries at a similar development level (see Figure 2) The level of

corruption is closely linked to socio-economic development and most developing countries are facing this problem

Figure 1: Integrity and GDP per capita

Sources: World Governance Indicators 2007 and World Development Indicators 2008

index: therefore, the reference and paraphrase '^ There are difference ideas about administi^tive quality measure ii ^ - r n r r must be very carefully See Amdt C and Oman, C (2006): ^'Uses and abuses of governance md.cators Centre for Research and development, OECD Pans „, „ri.P ir%e%s

" See Survey on Investment Environment of the World Bank at b i m www entcrpnsesuQm al

i n p i k Re»Ui Cl^CXil

imbe^

#Opf) ml ^^^^10 26 ^'ou^2007,ah^^ :ie o r>e a-/«

c'f total revenue had tncreaacd fnm a modest 0.5 % to 0.67%, which is somewhat at

with the Piovtncial Competitiveness Index (PCI) by ViciBam CaiBaii af

( mmaieial and Industry (VCCI) diat identifies bribery as mm of die ke\ btndli^

constraints in doing business'^ A culture of sharing, whereby bounties an lo he equitably distributed, blurs the boundaries of corruption even further The World Bank's report on the investment environment in Vietnam (200S) also mentioned that although corruption was widespead in Vietnam, most cases involded small briberies 2.2 The Construction Sector and Corruption

2.2.1 The Construction in Vietnam

As a developing country, the construction industry in Vietnam has been growing fast for recent years

Figure 3 Growth in Sectors

- see data for small and medium Hrms m "Rand John at al '^Business Environment m Vietnam: Survey

Results for 2 0 0 r \ CIEM DERG, 2009

In 2008 it accounted for more than 7% of GDP as compared to 5.9% in 2002 Recorded growth in the construction sector has been well above average growth and only surpassed by growth in manufacturing as indicated in figure 3 below

While the construction sector has been undergoing a remarkable transition with non State Owned Enterprises (SOE) accounting for around 55% of total sector output in

2006 compared to 38% in 2002, the sector is still dominated by a few large SOEs These are financially and technically capable of delivery of large-scale infrastructure and construction projects Thus in 2006 total fixed assets of construction SOEs accounted for 53% of total sector assets while delivering 4 1 % of total business turnover*^

2.2,2 An analysis of corruption in the Construction Sector in Vietnam

In this context of rapid growth and at a time when the institutions of a modem market economy are still emerging in the construction sector, extensive opportunities of rent-seeking exist E.g when competition is limited to a relatively modest number of large SOEs in the construction sector the risks of collusion - often reflected in the similarity

of bids - are obvious.*'' The diagnostic survey on corruption, undertaken in 2005, identified agencies in the construction sector among the five most corruption prone sectors.*^ According to the Investment Climate Sur\'ey undertaken by the World Bank, around 20% thought that gifts were expected or required when dealing with the Department of Construction (see figure 4)

''Data of GSO 2010

* Vhe similarities of bidding documents are partly due to the fact that same cost norms are appl.ed n

state-•^.T.:t7Zn on h Baseline S u e , of C<,r™p,lo„ l» V i c „ » T.e C o l » f» l ^ ' AfT.^

Hanoi 2005, tr 39

Flguri- t imc pruponwa oj

tkences

CMmpames wk0 rrpottHI m/Hiy llp% im order 0 ggt

tand iite c«rt)ficali

•%YES.J

20 30 40 50

(Source: Investment Climate Sidrvey, World Bank ICA 2006)

This finding contrast with data from the Provincial Competitiveness Index showing that construction firms report more informal charges than firms in other sectors

As reported by the Supreme People's Procuracy (2009), the construction sector especially capital construction is the most prone to corruption-related crimes Violations occur in all stages, from project approval appraisal, design survey, estimation, consultation and supervision In bidding, there is collusion between the investors and contractors in which they divide the contract into smaller sub-contract packages for illegal bidding assignment, resulting in formalist bidding In construction, they work in contravention of the law, initiate fraud and false declaration to misappropriate money

Loss in the construction investment accounts for 10% to 20% of the total construction capital If calculated based on the comparison of the total state capital for construction capital in 2007 (97.280 billion VND) and in 2008 (110.050 billion VND), loss in the construction investment was about 20.000 billion VND "According to the report of the Monitoring Group of the National Assembly, among 1505 construction projects inspected, 176 projects violated regulations on project evaluation: 198 projects and construction works violated bidding regulations: 802 projects and construction works

**See httpi/Zwww.pcivietnam.org^'

were carried out with wrong designs, used wrong types of supplies and equipment, did not have extra construction workload approved, or committed regulations on procedures in construction management, quality management, work acceptance and payment; 415 projects and construction works did not follow the design and survey;

720 projects and construction works violated regulations in the stage of putting the project in use

Tricks of corruption in the construction industry demonstrated more sophisticated

manifestation, often by taking advantage of loopholes or inconsistency and incompleteness in mechanisms, policies and laws, bureaucracy, poor competency, loose management, lack of responsibility of management agencies in the inspection and control, in order to abuse positions and powers to misappropriate public property According to the report of the Supreme People's Procuracy (2009), corruption in construction sector is manifested in diverse and complicated fonns, hiding itself in a legal-looking disguise Violations occur as early as the stage of investment preparation

A common violation is intruding extra components of work (for example, when paving wall tile, extra materials are intruded such as mortar or in the installation of panels, additional sealant concrete is included ); intruding work components that are not allowed when calculating the value of construction (e.g backfill, watering, planting grass ); formulating construction pieces or norms that are ungrounded for calculation ; miscalculating the amount of work as compared to technical standards and norms There is a phenomenon that in estimation, the consultancy unit introduces special materials which are not included in the list, causing difficulties for evaluation agencies to decide on the legitimacy of such materials Some materials are declared at higher rates than actual prices Besides, bidding mechanism was not implemented properly In many cases, tender is just formalist Phenomena such as bidding collusion, bidding distribution, sub-contracting the package, false bidding are wide spread Losses also result from changes in construction methods: acUial construction methods differ from that in the estimate and settlement In construction, changes of construction methods as compared to the original design are quire common However, investors do not monitor it, or agree with contractors to arbitrarily change the construction methods

without approval of authorities; evaluation agencies, due to lack of information or failure to detect errors, approve the construction, causing losses

Increasing scale and popularity of this kind of crime is manifested fu-st by the size of cases, with bigger value of misappropriated property, increasing number of comiption criminals including officials holding key positions The popularity of the crime of corruption is manifested in that corruption occurs at all levels, in all construction works with different scope and scale

Corruption in construction sector takes place at all stages of a project The following example shows this clearly

Corruption in the preparation of investment

Corruption and waste by planning

Corruption at this stage may be due to the construction site is not suitable, making the construction project not consistent with the plan and the project has to modify and adjust during the implementation Projects such as building the drainage for Tan Ky -Tan Quy road, according to the conclusions of the State Inspectorate, due to the conflict with the transport system, 216 underground sewer manholes and 71 Im (j) 400 were dismantled, the amount of waste accounts for 3% of the total investment'^

Corruption in the investment phase

Corruption or loss during the period of investment mainly in the stages of sur\'eying, designing, management and allocation of fluid, in construction, site clearance compensation, contracts between the parties, extending the construction period, and payment

-^-Corruption in surveying and design

Corruption in the surveying is mostly in the poor quality of this process and noncompliant with industry standards.etc This leads to re-sun'ey, additional design or redesign which result in delays of the construction period, accruing wasted costs Some examples projects are the Project to restore and renovate the 1A Highway from Hanoi

'^ The Slate Inspectorate

to Lang Son (ADB2) in which poor survey consequently leading to be redesigned and cost increased of 1.033 billion VND (equal to O.O40/0 of total investment); Tam Diep Cement Plant project which has discovered the problems in the survey but did not solve the Caster problem that costed money In addition, increased costs of surveying due to the poor quality of this process and happened in some other projects such as: bridge construction project at Non Nuoc (Ninh Binh) and Tan De Bridge (Thai Binh)

+ Corruption in the stage of compensation, site clearance and construction schedule

Wrongdoing and corruption in this stage usually manifests in the forms of reduced, inadequate compensation, declaring the number of households receive compensation and expenses to increase the value of declaring the area of compensation, the amount needed clearance and corresponding payment Examples of this case include the project

to restore and renovate the Highway 1 Hanoi - Lang Son (ADB2) that loss nearly 3 billion (approximately 0.09% of total investment), and the project to upgrade Binh Trieu street that loss over 8 billion VND '^

Examples of seriously delayed projects include the project on pipeline storage and ports

of Thi Vai LPG Oil and Gas Corporation of Vietnam, due to prolonged by 24 months, has wasted several billion The Investment projects to upgrade and increase production capacity at the Bai Bang Paper Company delayed years Bazan super thin project under the Petroleum Corporation of Vietnam, due to prolonged, giving rise to increased costs

of more than 7 billion V N D "

+ Corruption in the allocation and use of capital

Irrelevant allocation of capital to provinces: Fund for construction projects are approved by the central level but irrelevant arrangement of this fund in many provinces lead to the unavailabilit>' of fiind to be advanced to existing projects and to pay for completed construction projects This has pushed many construction businesses into bankruptcy because they do not received payments for their competed works and have

to borrow with high interest rate from banks Statistics show that for 2001-2002, the unpaid owed by the Government to construction companies amounted to 11,000

" Government Inspectorate (2009)

" Government Inspectorate (2009)

billion, or 25% of the total capital investment from the state budget in 2003^*^ Delayed payments made contractors did not have operating fund and they were forced to give tips to officials for getting the payments

+ Corruption in selection of contractors

The Government Inspectorate for 2002 and 2003 have conducted inspection of 31 projects and found 40% of the projects has flaws in the implementation of procurement regulations The localities like Ho Chi Minh City, Dak Lak, Ha Noi, Dong Nai, Nghe

An, Vinh Long, and Yen Bai had hight rates of illegal bidding, especially in Quang Ninh province, 70% of projects inspected were found violations^* The biggest corruption case found in 2010, regarding the selection of contractors, is the East-West Highway project

Box 1: Bribery case of East-West Highway for Consultancy Contract

The East - West Avenue Construction Project of Ho Chi Minh was approved by the GoveiTiment under decision No 622/QD-TTg dated July 5th, 2000, invested by ODA of the Government of Japan and counterpart funds of Vietnam Along conspiracy of unfair competition,

to wjn^lhe bidding, for packagesof engineering consultancy and supervision consultancy of the

• project, and^also to win favorable conditions and enjoy favorable tenns when negotiating contracts,

i officiais of Pacific'Consultancy International (PCI) of Japan had discussed and agreed togive

•bribes to Huynh.Ngpc Si 10% of tlie value of engineering consultancy contract equivalent to 900,000 USP and M% of the value of supervision consultancy contract equivalent to 1,700,000 USD At noon of May 28th,.2003 atthe PMU office of Huynh Ngoc Si, Mr Tsuneo Sakano,

? JEhief Representative of PCI in Vietnam and Mr Kunio Takasu, former executive director of PCI, director of Business Information Consultancy firm (BIC) in Hong Kong gave a bribe of 262,000

, ' • • • » '

USD equivalent to 4,043,184,000 VND to Huynh Ngoc Si

; HynhNgoc Si had requested the bidding appointment of PCI to implementthe Supervision

-^ package; approved the advance payments for PCI even when PCI had not paid bank guarantees for

such-payments and when the PMU had not opened irrevocable letters of credit; approved the payment settlement for PCI while the settlement record still lacked documents of consultancy work acceptance, as contrary to the current financial regulations

20 Supervision Report of the National Assembly (2005)

^' Supervision Report of the National Assembly (2005)

+ Corruption in the construction, and payment for the completed volume

Implementation and supervision of work not as designed leading to waste and loss,

as some of the following cases:

+ loss due to construction is not as the volume of construction according to the

approved design Examples of this case include the Project of Saigon Port that lost

to the wrong payment amount to 2.349 billion VND (up 0.2% of the total

investment); Project of Building the Irrigation System Da - Hai Phong in which wrong payment amount is 02 billion VND (2.4% of total investment), the Project on slim Bazan of the Oil and Gas Corporation that paid a incorrect amount of 724

million VND (2% of total investment); ; The Construction Project of Nhieu Loc • Thi Nghe (the district 1), Project of Rural Road Construction Nam Thoi - Thoi Tu (Tam Village - Hoc Mon) when a number of insufficient volumes of construction compared to the approved design has been paid^^

Box 2: PMU 18 corruption case -fake payment

In June 2003, Bui Tien Dung, general director of PMU 18, directed Pham Tien Dung, head of P1D6 "Bai Chay bridge project requires a huge budget Many visitors will come and work here We need to find a revenue source to expend" Although this did not fall within his competence, Pham Tien Dung reported to Bui Tien Dung to forge a list of fake consultants to send to tlie contractor to withdraw money Pham Tien Dung discussed with Nguyen Vu Nam,

' Phu SonNghiem - deputy heads of the list P1D6 - to forge a list of additional consultant to send

to the contractor According to investigation findings, P1D6 received 3,250,664,500 VND from contractors BC1, BC2, and BC3, including 3,188,963,500 VND of wages paid to the consulting staff in the fake list.(Source: The Supreme of Procuracy)

+ Corruption in the handling-over phase

In fact, waste and loss can occur during the handling over of the project when construction works are completed but not yet handed over and accepted by investors Opportunities for corruption at this stage may appear from making false payment( e.g falsified claims of payment, claiming vsTong types of supplies and equipment), losses due to application of norms and unit price fixing and violations of financial invoices

" Government Inspectorate (2009)

Box 3: The Case of the Construction of Dien Bien Phu Monument

The project "Conservation, restoration and promotion of values of the historic relics of

Dien Bien Phu" was invested and constructed by the State on the occasion of 50th anniversary of

Dien Bien Phu victory Luong Phuong Cac - was appointed Director, Le-Van Vien as deputy

director

Luong Phuong Cac, Le Van Vien and those responsible failed to inspect the technical and

financial capacity of the implementing company - Central Fine Arts Company - when proposing

bidding appointment and signing contract More seriously, although Luong Phuong Cac was

informed that previously the Central Fine Arts Company had constmcted the Monument of Dien

Bien Phu victory without following the designed estimates, he failed to take preventive measures

to solve violations but went on to approve budget estimates and bidding appointment to legalize

the violatioris

In tiie course of construction, Luong Phuong Cac and Le Van Vien had intentionally violated State's regulations on construction quality management, failing to supervise the

construction and acceptance of work in accordance with the law, resulting in the work being

'siphoned off, causirig,poor quality When paying advance to the Central Fine Arts Company,

Luong Phuong Cac and some relevant people signed a fake supervision and consulting contract,

drew up false documents for work acceptance and settlement that did not reflect the real costs,

causing losses to the state budget! Material losses totaled 5,588,432,498 VND (Source: The

Suoreme Peoole's Procuracv) ^

The analysis of the situation of corruption in the construction sector presented above

shows that corruption in construction investment in Vietnam is relatively severe and

occurs at all stages of the process of implementing a project construction These

situations reduce the efficiency of investment, increasing the costs for construction and

reduce the quality of construction works

2.3 Corruption prevention and combating in the Construction Sector in

Vietnam

2.3.1 An Overview of the Legal System for Anti-Corruption

Facing the negative impacts caused by the corruption to the political systems and the

economy, Vietnam has built a comprehensive system of legal documents for

anti-corruption

The Anti-corruption law was promulgated law includes ambitious and all-embracing

provisions on corruption prevention, detection of cotruption, handling of corruption

organisation and mechanisms for mvestigation, prosecution and judicial agences n

anti-corruption, role of societ> and media in anti-corruption, international cooperat.on

in anti-cooperation, and implementation arrangements

Vietnam's Anti-Corruption Law No 55/2005/QHl 1 that went into effect from 6/1/2006 including issues on prevention, detection and handling of corruption Vietnam has promulgated many legal documents guiding the implementation of this Law (see the appendix)

Especially, at the international level, Vietnam signed the UN Convention Against Corruption in December 2003 and began to participate in anti-corruption initiative for Asia - Pacific region of the ADB / OECD since June 2004 Davidsen and others (2009), when describing the corruption situation in Vietnam commented that

Vietnam had built a very comprehensive Code emphasizes systematic approaches to reduce opportunities for corruption

In May 2009 the GoV promulgated the "Strategy for Preventing and Combating Corruption towards 2020" and the 2009-2011 Action Plan to support the first phase of the strategy - the two latter phases run from 2012-2016 and 2017-2020 The comprehensive Strategy and Action Plan applies a systemic approach to anti-corruption including preventive, demand-side and sector specific solutions and development of a framework for monitoring progress

One problem of Vietnam is that it has a large number of resolutions and decrees, decisions, circulars and directives, causing many difficulties in supervising and monitoring the implementation in practice (Davidsen et al, 2009)

2.3.2 The reality of measures against corruption in Vietnam in the construction industry

In the context of widespread corruption in the construction sector, Vietnam has implemented many measures to prevent and combat corruption in this sector In the framework of this study, we focused mainly on measures to detect and deal with corruption in the construction industry However, other measures that Vietnam has applied will also be introduced shortly to ensure the overall research issues

Propaganda and education method

To enhance people's knowledge and change people's awareness, Vietnam has also promoted the propaganda to prevent and combat corruption Typically, Vietnam has launched the movement "Learning and following Ho Chi Minh's moral example." President Ho Chi Minh has figured out measures to combat corruption and peculation such as: To fight against corruption, it is necessary to find against individualistic and must rely on people's assistance and support The Vietnamese government hopes the movement to learn and follow President Ho Chi Minh' moral example will steps by steps improve staffs moral and make it a basis for the fight against corruption However, it is very difficult to measure the impact of propaganda and education measures because it takes much time to prove its effectiveness

Official's Asset Declaration

According to the current laws, it is compulsory for the majority of officials and civil servants to declare their assets Report of the Government Inspector (2009) shows that

by December 12, 2008 there were 395,000 officers and civil servants to declare assets However, it is vital to ensure the honesty of those declarations because there are so many individuals need to declare According to international experience, the objects that have the responsibility to declare their incomes should be selected and focused on the branches or groups with the high risk of corruption ^^

Under the provisions of law, the verification will be performed by a complex process that includes five major steps with the participation of many agencies including government and party agencies and inspection This verification process does not provide an opportunity for regular supervision of the declaration, such as unexpected inspection The monitoring is carried out only when a decision not to conduct surveillance within the framework defined by law as an automatic process Property declaration does not specify the sanctions for failing to declare, or late or false declaration

It seems that the institutions duties and responsibilities of civil servants are not very clear in the handling of false declaration Besides, there are no specific rules regarding

^Mukherjee, Ranjana & Gokcekus Omer 2006, "Officials* Asset Declaration: Do they prevent corrupuon Global Corruption Report 2006 Berlin and London: Transparency International

the verification of results to decide whether it can be used to serve the process of

investigation and prosecution of corrupt acts or not The laws do not prescribe specifically the obligations of untruthftil declaration to prove the legality of the property boom Thus, the punishments for such cases of untruthful declaration prove to

be too mild or just be so formalistic (Davidsen et al, 2009)

The transparency measures in the contractor selection

Anti-corruption Law (2005), Bidding Law (2005), Law No 38/2009/QH12 are key legal documents that governs public procurement information Audit Law (2005) modifies the publication of audit findings, including information about procurement activities

There are 15 articles to be published and are classified according to the following groups: bidding regulations, bidding activities of the project, the violations of bidding regulations and reports with data on bidding situation^\

Bidding Law of Vietnam requires publishing bidding information in the Daily News Bidding, bidding websites and the mass media Law on State Audit require to post audited information on the Internet, the publications of the State Audit of Vietnam (SAV) and posting notices in newspapers and on mass media However, the right to request to provide procurement information from organizations and individuals stipulated in the Anti-Corruption Law, while the Procurement Law does not have this provision In 2006, Report of the Ministry of Planning and Investment considered the legal framework of Vietnam by referring to OECD-DAC criteria in terms of Government bidding system Indicators to rate bidding information should be public and other forms of information disclosure reach a ver\' high rate (90%)

Davidson et all (2009) showed that Vietnam law has given the responsibility to supervise the bidding process for many different institutions and the regulations of the various supervising mechanisms seem to be complete However, the effectiveness of this supervising mechanism and the efficiency of the entire spectrum of supervising the bidding process are still under questions The involvement of too many agencies and

^* See Davidsen et al (2009)

" Ministry of Planning and Investment (2006): Evaluation of regulations on national bidding

organizations in supervising can lead to the overlap in responsibilities and there should

be coordination between them

The fact has shown that, although some bidding information are fully published (such

as bidding invitations, legal documents), but there some bidding information provided insufficiently (for example, results of selected contractor, a list of individuals and organizations violating bidding laws) and some other information is rarely published (such as information about how these violations are treated) In general, the results of the process of bidding decision seem less transparent than the bidding invitation process (Davidsen et el, 2009)

The Bidding Management Department - Ministry of Planning and Investment has also achieved some progress in organizing the inspection / audit of bidding projects 9 projects have been audited in 2007 and 11 projects audited in 2008 (Ministry of Planning and Investment, 2009) Most of the projects audited are construction projects The selection of projects to audit is based on the government's annual report on bidding work and bidding proposals sent to the hot line

However, until now the audit results have not been published, therefore, it is very difficult to assess the quality of such audits According to the law, professional associations such as Vietnam Associations of Construction Contractors (VACC) may also participate in the process of supervising bidding activities However, the VACC has no direct role in monitoring the bidding process because contractors recognize more benefit from a direct relationship with state agencies and other organizations performing bidding In fact the role of this organization in supervision is very limited

Regulations on transparency in construction projects

Due to the fact that there is a high risk of corruption in all phases of a construction

project, it is required by the Anti-Corruption Law was make public and transparent many information about the project Including:

Article 12 The public methods: These methods includes reporting in units, listed at the

unit office, a written notice sending to parties concerned, to distribute available pnnted materials, information reported through the mass media and through websites

Article 14 The plamiing of construction investment should convey people's opinions;

the project using local budgets should be considered by the People's Council and it is necessary to make public post- approval projects so that people can involve in the supervision of the projects

Article 15 Transparency and the public of finance and state budget

For construction projects, the content should include the allocation of public funds for the project, budget and budget estimates and allocation, the annual report on financial plan of the projects, and reports on the settlement after the project ends

Article 16 Transparency and publicity in mobilizing and using capital contributed by

the people

Article 31 and 32 The right to request information of organizations and individuals

In fact, the consultation with the public is still limited, mostly involves with the field which may affect many people such as land The overall plan was only made after approval.^^

According to the experience of transparency in the management of construction projects in Da Nang and Bac Ninh, Davidsen et al (2009) showed that the transparency

of information (planning, construction budget, land compensation, architectural planning, construction, waste ), will help reduce corruption opportunities

Transparency of information also enables the community to monitor the implementation of construction projects in Da Nang in a more effective way National Front and the People's inspection unit play an important role in supervising the implementation

The local monitoring units have identified several ways in which construction companies and material suppliers often collude in the construction process The record shows that the commune has saved between 3 to 57.7% of the budget comparing to the

^"Detailed comments on the %va> to approach people's participation in X'ictnam quoted from Nguyen Ngoc Hien, ''Procedures of urban planning and the process to decide development control, a look from the

•ation project of Thong Nhat park," Construction Magazine, Sep 2007

reno\'

estimated plans However, the supervismg works only occurs at small local projects rather than large projects using state capital

The role of media in anti-corruption

In the past 5-10 years, the government has encouraged the press agencies to be more active in reporting on corruption and making public information of corruption cases provided by police department, procurators and other government agencies In this process, the press agency has gradually strengthened their supervising role for government agencies Journalists are encouraged to proactively detect corruption, and they have found and reported a lot of big cases

Legal Framework of Vietnam has both created opportunity but also causes limitations for reporting corruption in the construction industry For example Article 86, Clause 3

of Anti-Corruption Law states that "Journalism and journalists may request competent agencies, organizations or individuals to provide information and / or documents relating to corruption", however, as stated in Article 9 about press's liabilities

"responsible for the content of published information Decree 47/2007/ND-CP has set tighter regulations on the information about the "state secrets" but the definition of

"state secrets" is not clear So those who provide information requested press and journalists to get approval of their leaders if they wish to pursue the news reporting of a big corruption case Therefore, the press has almost no chance to uncover big corruption cases without permission of competent leadership According to the author's analysis, McKinley (2009)^\ the panorama shows "the construction and infrastructure" takes second place with 7% of news and articles, followed by "land" issues regarding corruption in the mass media

In this context, the plan to amend Press Law which is being reviewed may create opportunities to protect the press better in the coverage of corruption, and at the same time limit the libel and slander In terms of Idealit>', the handling of error reporting should rely on civil remedies rather than criminal prosecution

Measures to detect and handle corruption

:^ ^.The Press and Anti-Corrupt.on" Catherine McKinley & UNDP Vietnam Jan, 2009, tr 20

According to regulations, the discovery of corruption mentioned in Chapter m of Corruption Law is by: (i) internal inspection^^ (ii) audit, inspection, investigation, supervising and adjudication xu^^ and (iii) complaints and denunciations ^^

Anti-The specific provisions of detection of corruption are set by different laws and legal documents Such as the inspection is stipulated in the Law on Inspection (LOI), the audit is stipulated in the Law on State Audit, investigation and trial are governed by Criminal Procedure Law and the provisions of complaints and denunciations in the Law

on Complaints and Denunciation (LOCD) In addition, the detection and inspection of corruption in the construction industry is also governed by Law of Construction (LOC) and other related documents

In summary, the discovery and inspection of corruption is stipulated in various legal documents Also there are many agencies in many different sectors involved in the discovery and inspection of corruption Despite the abundant legal framework and human resources, the number of corruption cases discovered and investigated in the construction industry is still very small compared to the number of violations

The following sections of the research will discuss and analyze the Anti-Corruption Law and the actual situation in the performance of some contents and explanation for the situation

Detect corruption through internal inspection

Internal Inspection has succeeded in the discovery of financial loss and waste, especially in the construction projects According to the Ministry of Construction inspectors, they saved around 25 billion and take back about 10 billion from construction projects in the past tx^'O years.'^ Internal inspections of construction projects of the Ministry of Public Security in 2006 and 2007 helped save 2,009 billion dong.^^ However, the effectiveness of internal inspection in detecting corruption is still limited Number of corruption cases discovered through internal inspection is still very

-» Chapter III, Point 1, Article 59-61 Anti-Corruption Law

2' Chapter III Point 2, Article 62 & 63 Anti-Corruption Law

^^ Chapter III, Point 3, Article 64 - 67 Anti-Corruption Law

'• lnter^'iew inspectors of Ministr> of Construction on 12/05/2009

- Based on Exchange Rate of the State Bank on 14/05/2009: lUSD = 17,650 V^ND

low For example, the Ministry of Construction does not detect corruption through internal inspections within two years (2007-2008).^^ Ministry of Transport has reported only 10 cases of corruption out of 91 internal inspections in the past two years.''^

Reasons for the limited corruption detection through the detection of the Ministry inspectors are:

Their competence is to inspect the compliance with regulations and internal regulations

in the industry (such as construction and transportation) In inspection process, they cein detect violations of regulations, internal regulations and detect losses and waste, but in most cases it is not enough to constitute crimes of corruption Since most corruption cases are related to individuals who often seek cover or concealment of information, the searching of evidence of corruption requires the authorit>' to investigate beyond the competence of the inspectors

According Anti-Corruption Law, when discovering signs of corruption in an organization, only the head of the organization being inspected by competent authorities has the authority to transfer the case to the authorities conducting the investigation or carry out next legal procedures This policy creates a clear conflict of interest, because according to Decree 107, heads of the organization will be held responsible if corruption is found in their agencies Meanwhile, there is no mechanism

to encourage or any significant reward for them in when reporting or transfer corruption cases to the investigating agencies

There is no specific guidance or support from the investigating authorities in collecting evidence of corruption so it is very difficult for inspectors of Ministries to collect the evidence During 2007-2008, the Ministry of Construction could not pass any corruption files to investigation bodies

Detect corruption through inspection, investigation, audit, and prosecute

It is stipulated in Article 62 and 63 of Anti-Corruption that inspection agencies such as inspection and administrative investigation at all levels State Auditor's Procures and

Anti-Corruption Law in 2 years ( from June/:006 to Junr2008)

the courts must detect corruption through inspection, investigation, audit, prosecution and trial Besides, the National Assembly and People's Councils at all levels have the responsibility to detect corruption through supervising works

In fact, these activities seem to be most effective in detecting corruption Number of corruption cases discovered through these activities is much higher than the internal inspection The following table summarizes corruption cases detected by Government inspectors, auditors, the investigating agencies and the courts in 2007-2008

Table 3: Corruptions detected by Government Inspectorate, State Audit Agency^ investigation agencies and Courts in two years (2007 - 2008f^

Corruption cases having been

detected and dealed with

Total of detected and dealed

corruption cases

Total of detected and dealed

corruption cases in construction

industry

Number of involved individuals

Government Inspectorate

07

02

No data

State Audit Agency

No data

16

No data

Investigation agencies

Investigation is the most effective method to detect corruption However, investigators

have to face with many challenges making the effectiveness of their work is limited One of the biggest challenges is to prove the committed corruption of the criminals to propose the resolutions In most of the cases, it is hardly to give clear evidences of corruption activities, e.g receive bribes or commit embezzlement of state property

Jnspectation and audit activities, like the internal inspectation, have little effectiveness in detecting the corruption despite of the fact that, those activities are

very effective in detecting the faults in management, accounting and implementation of legal and relevant regulations In the two years of 2007-2008, State Audit Agency was successftil in revoking 6.766 billions VND and save about 3,715 billions VND for the

» Omce Correspondence No TOS-BC-TTCP Government inspector)' dated 9 4,7009 report.ng the result of implementation of Anti-Corruption for two years

State Budget; State Inspectory revoked 3,347 billions VND and 786,000 USD for the

36

State In comparison with the capital from state budget for the construction works in the two years (97,280 billions VND in 2007 and this figure in 2008 was 101,050 billions VND), the numbers are significant and remarkable However, the corruption cases detected through those activities is very few According to the research of Davidsen et al (2009), the detection of corruption via Inspectory and Audit is quite modest because of following reasons:

Inspectors and Auditors do not have authority to investigate or commence criminal proceedings to criminal cases They have only the authority to detect the cases with

signs of corruption and propose to leaders or investigation agencies to conduct further investigation However, not all the proposal cases are handled by the investigation agencies For instance, only one amongst 7 cases that Government Inspectory handing over the investigation agencies is being further investigated and procedure

Lack of consistency between Anti-corruption Law and Criminal Law in the definition

of corruption Anti-corruption Law stipulates 12 actions of corruption^' while the

Criminal Law stipulates only 7 actions to be considered as corruption If the inspectors detect any actions among the five ones not belong to the Criminal Law, the case is still not considered as corruption and it will not be handled by the investigation agency as a corruption case It maybe considered as other kind of criminal

Lack of encouraging mechanism According to the Circular No 04/2008/TT_BTC of

the Ministry of Finance, inspectory agencies which detected and revoked money or property for state budget can get a commission of 30% total value of the property However, there is certain limit for the bonus; e.g State Inspectory cannot receive over

10 billions VND per year, and provincial inspector)' cannot receive over 1 billion VND/year State Audit can receive 2% of the total money revoked Mechanism to encourage individuals is very low For example, material bonus for an inspector is not exceeded their monthly salary for a case Average salary of an inspector is about 4 - 6

'' Office Correspondence No 706/BC-TTCP Government Inspector)' dated 9/4/2009 reporting the result of

implementation of Anti-Corruption for two years

"Article 3 Anti-Corruption Law

"Article 271 - 277 Criminal Law

millions VND/month - The number is too small to compare with the money they revoked for the State budget (e.g State Inspectory revoked 3,347 billions VND and 786,000 USD for the State in 2007 - 2008)

Detecting corruption via denounce of the people petition

The people's denouncing form and complain are not often handled separately as the

denouncing form often have content of complaining on administrative decision or

actions of civil servants Therefore, there is not data on denouncing in comparison with complaining application The statistics in 2007-2008 shows that government agencies had received 402,074 applications or letters of denouncing or complain relating to 163,496 cases 140,604 cases had been resolved According to the authority agencies, only 19,178 cases were reported and amongst which, 16,238 cases had been resolved.^^

The stipulated authority and jurisdiction of relevant Ministry in dealing with the denouncement and complain of the people have limited the detection of corruption form the denouncement For instance According to the Construction Law, inspectors of Ministry of Construction (MOC) or construction inspectors of provinces are authorized

to handle the complain and denouncement on the commit of Construction Law If the Complain or denouncement not relating to construction field, the MOC have to transfer the denouncement to other ftinctional agencies In fact, MOC and Department of Construction in provinces had hand over a lot of denouncement forms to other agencies For instance, among 549 complain and denouncement form received by MOC, only 141 cases (-25%) were belong to MOC's authority According to MOC's inspectors, many complain and denouncement forms on land clearance, compensation and resettlement were not review^ed and resolved by MOC's authority, they are often given to local authorities such as People's Committee, the organ who often have conflict of interests with the denunciators

Dealing with corruption in construction industry via t> pical cases

When corruption is detected, strictly treatment will have deterrent impact on others

^"^ Office Correspondence No 706/BC-TTCP dated 9/4/2009 relating to result of implementing U w on

AnU-Corruption