Corporate Liability in Vietnam

By Frederick Burke (Baker McKenzie Vietnam)

A. Corporate administrative liability

Under the Law on Handling Administrative Violations,[1] any individuals or organizations at fault for committing acts in violation of regulations on state management, particularly on tax, competition, environment, employment and business and trading, which do not constitute a crime as defined by law, will be liable for administrative sanctions.[2]

The principal administrative sanctions applicable to corporate entities include warnings and monetary fines. In addition to the main sanctions, corporate entities may also be imposed the supplemental sanctions, such as revocation of licenses, suspension of operation and confiscation of evidence and means used in the violations.

Apart from the above administrative sanctions, organizations may also be required to implement one or more measures to remedy the harm caused by their violation, such as: (i) the dismantling of construction works constructed without permits or not in compliance with permits; (ii) forcible correction of false or misleading information; and (iii) removal of infringing elements on the goods or packaging of goods, means of trading and articles (eg, for IP infringements).

 

B. Corporate criminal liability

I.              Overview

1.             Conditions for application of corporate criminal liability

Under the current Vietnamese Penal Code,[3] criminal liability is only provided for individuals. Corporate entities are so far not subject to criminal liability in Vietnam. However, the New Penal Code,[4] which was passed on 27 November 2015, introduced the concept of corporate criminal liability. Nonetheless, the New Penal Code has not yet come into effect and is under amendment.[5] As such, criminal liability for corporate entities is still not implemented in Vietnam until the New Penal Code is amended and comes into effect.[6]

Although the Current Penal Code is under amendment, it is unlikely that the current section on corporate liability will be revised. We, therefore, discuss below the provisions of the New Penal Code with a caveat that these provisions have not yet taken effect.

The New Penal Code states that any Vietnamese citizen or Vietnamese commercial legal entity may be held liable for crimes defined under the code and committed either inside or outside of Vietnam.[7] Not all legal entities, but only commercial legal entities that have the primary goal of seeking profits may be examined for criminal liability. These are referred to as corporate entity or commercial legal entities below. On the other hand, noncommercial legal entities, including, without limitation, state agencies, political organizations or social organizations, that do not have the primary goal of pursuing profits are excluded from criminal liability. Furthermore, the New Penal Code also provides that a foreign corporate entity shall be subject to criminal liability for offenses committed abroad if such offenses: (i) infringe upon the legitimate rights and interests of Vietnamese citizens and of Vietnam in general; or (ii) violate the provisions under applicable international agreements to which Vietnam is a signatory.[8]

The basis for attaching criminal liability to a corporate entity usually arises from the actions committed by the entity’s directors or representatives, who have been authorized or are designated as the legal or authorized representatives of the corporate entity. However, not all noncompliant conducts of the directors or representatives would result in criminal liability for the corporate entity.

Under the New Penal Code, a corporate entity may be held criminally liable for an offense when all of the following conditions are met:[9]

  1. The offense is conducted in the name of the corporate entity.
  2. The offense is conducted for the benefit of the corporate entity.
  3. The offense is conducted under the instruction, management or approval of the corporate entity.
  4. The statute of limitation for criminal liability has not yet expired.

The fact that a corporate entity is subject to criminal liability does not exclude relevant individuals from criminal liability.[10]

2.             Type of offenses leading to corporate liability

The New Penal Code provides for the following crimes for which a commercial legal entity may be criminally liable:[11]

  • Counterfeiting and related crimes: (i) smuggling (Article 188); (ii) illegal trafficking of goods or money across the border (Article 189); (iii) manufacture or trading of banned commodities (Article 190); (iv) storage or transport of banned commodities (Article 191); (v) manufacture or trading of counterfeit foods, foodstuff or food additives (Article 192); (vi) manufacture or trading of counterfeit medicines for treatment or prevention of diseases (Article 194); (vii) manufacture or trading of counterfeit animal feeds, fertilizers, veterinary medicine, pesticides, plant varieties, animal breeds (Article 195); (viii) hoarding (Article 196); (ix) tax evasion (Article 200); and (x) illegal printing, distribution and trading of invoices and receipts (Article 203)
  • Intellectual Properties crimes: (i) infringement of copyrights and relevant rights (Article 225); and (ii) infringement of industrial property rights (Article 226)
  • Competition crimes: violations against regulations on competition (Article 217)
  • Insurance crimes: (i) fraudulence in insurance business (Article 213); and (ii) evasion of social insurance, health insurance, unemployed insurance payment for employees (Article 216)
  • Securities crimes: (i) deliberate publishing of false information or concealment of information in securities activities (Article 209); (ii) use of internal information to deal in securities (Article 210); and (iii) crimes cornering the stock market (Article 211)
  • Environmental crimes: (i) violations against regulations on survey, exploration and extraction of natural resources (Article 227); (ii) violations against regulations on forest extraction and protection (Article 232); (iii) violations against regulations on management and protection of wild animals (Article 234); (iv) causing environmental pollution (Article 235); (v) violations against regulations on environmental emergency prevention, response and relief (Article 237); (vi) violations against regulations on protection of irrigation works, embankments and works for protection against natural disasters; (vii) violations against regulations on the protection of river banks (Article 238); (viii) importation of wastes into Vietnam’s territory (Article 239); (ix) destruction of aquatic resources (Article 242); (x) forest destruction (Article 243); (xi) violations against regulations on management and protection of endangered, rare animals (Article 244); (xii) violations against regulations on management of wildlife sanctuaries (Article 245); and (xiii) importation and spread of invasive alien species (Article 246)

3.             Identification of companies and entities to which liability may apply

As mentioned, the New Penal Code does not extend criminal liability to all legal entities, but only to commercial legal entities.[12] Article 75 of the New Civil Code defines commercial legal entity as follows:[13]

  • Commercial legal entities are legal entities whose main purpose is to seek profits that shall be distributed to its members.
  • Commercial legal entities include enterprises and other business entities.
  • The establishment, operation and termination of commercial legal entities shall comply with the regulations of the Civil Code, Enterprises Law and other relevant laws.

As such, noncommercial legal entities, such as state agencies, army units, political organizations, socio-political organizations, political-socio-professional organizations, social organizations, socio-professional organizations, social funds and other non-commercial organizations, are excluded from criminal liability.

4.             Corporate liability for crimes committed abroad by its representatives or subsidiaries

A Vietnamese commercial legal entity may be held liable for crimes defined under the New Penal Code whether it is committed inside or outside of Vietnam.[14]

Under Vietnamese laws, representatives, particularly representative offices or branches, are considered dependent units of the commercial legal entity. It follows that if a representative office or branch commits a crime abroad, then the corporate legal entity shall be held criminally liable for the representative’s acts abroad.

The opposite is true for crimes committed by a commercial legal entity’s subsidiary. Under Vietnamese laws, a subsidiary is deemed an independent legal entity that is separate from its parent company. It follows that only the subsidiary shall be liable for any crimes it commits abroad, and not its parent company.

5.             Successor liability

According to the 2015 New Criminal Procedure Code,[15] if a convicted legal entity is divided, separated, consolidated or merged, the successive entity inheriting rights and duties from the convicted legal entity shall be held liable for any pecuniary penalties or damages.[16]

II.            Applicable sanctions and other remedies

1.             Applicable sanctions

If a commercial legal entity is found liable for any of the abovementioned crimes, the courts may apply the following penalties to the commercial legal entity:

  • Restraining measures
  • If the damage is reparable,[17] suspension of operation for a period ranging from six months to three years of the corporate legal entity’s activities in one or some fields in which the corporate legal entity harms human life, health, the environment, social security or order
  • If the damage cannot be repaired,[18] permanent shutdown or termination of the corporate legal entity’s activities in one or some fields in which the corporate legal entity harms human life, health, the environment, social security or order
  • Prohibition of operation in certain fields for a period ranging from one to three years from the effective date of the judgment if it is considered that the convicted corporate legal entity might harm human life, health or society if it keeps operating in such fields[19]
  • Prohibition on capital raising in certain fields for a period ranging from one to three years from the effective date of the judgment if it is considered that the convicted corporate legal entity might harm human life, health or society if it keeps operating in such fields[20]
  • Pecuniary fines

A fine is imposed as a primary punishment or additional punishment against corporate legal entities committing criminal offenses. The amount of fine depends on the nature and level of danger of the criminal offense, taking into account the offender’s financial capacity and the fluctuation of prices. Nevertheless, the fine must not fall under VND 50 million. [21]

  • Judicial measures

The courts may decide to take judicial measures against a corporate legal entity committing criminal offenses in order to remedy damages or to increase the punishment imposed against the offenders.[22] These judicial measures can come in any of the following:

  • Confiscation of property and money directly related to the crime committed
  • Return of property, repair or compensation for damages, or compensation in the form of public apology
  • Compulsory dismantlement of works or parts of works constructed without a permit or at variance with the permit
  • Compulsory relief of environmental pollution or spread of diseases
  • Compulsory removal from the Vietnamese territory or re-export of: (i) goods, articles or vehicles brought into Vietnam in contravention of law; (ii) goods, articles or vehicles temporarily imported for re-export but not yet re-exported in accordance with the law; (iii) imported or transited goods infringing upon intellectual property rights; (iv) goods bearing counterfeit intellectual property subject matters; (v) vehicles and materials imported to be used mainly for manufacturing or trading in goods bearing counterfeit intellectual property subject matter after the infringing elements are removed
  • Destruction of: (i) goods and articles harmful to the health of humans, domestic animals and plants and the environment; (ii) cultural products with harmful contents; or (iii) other material evidence subject to destruction in accordance with law
  • Removal of infringing elements from goods, goods packages, instrumentalities of business and articles
  • Removal of infringing products and goods being circulated on the market

2.             Interim measures, cease and desist orders, bans and confiscatory measures

If the company is found liable for any of the abovementioned crimes, cease-and-desist orders, bans and confiscatory measures indicated in paragraph 2.6(a) and (c) would apply.

Furthermore, interim measures under the New Criminal Procedure Code, referred to as preventive and coercive measures, allow investigation authorities, procuracies and courts to implement the following coercive measures:[23]

  • Distrainment of assets related to the legal entities’ criminal acts
  • Freezing of the legal entities’ accounts in connection with its criminal acts
  • Suspension in a limited time of the legal entities’ operations associated with its criminal acts
  • Imposition of pecuniary guarantee of the enforcement of sentences

Note, however, that the length of time for the implementation of the coercive measures above shall not exceed the time limit for investigation, prosecution and adjudication. Furthermore, these measures not only serve as interim measures but may also apply as final sanctions by the courts.

3.             Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime

No specific provision in Vietnamese law addresses the liability of directors and managers for intentionally or negligently failing to adopt measures for the prevention of crimes.

Generally, however, Vietnamese law does hold that all individuals, agencies and organizations are responsible for the prevention and fight against crimes.[24] Furthermore, if any person knows about the preparation for or commission of certain crimes but fails to report it to the competent authorities, they may commit a crime of misprision and face a penalty of up to three years of community sentence or six to 36 months in prison.[25] Criminal liability or punishment may be exempted for those who fail to report the crime but tried to stop the criminal or reduce the consequences of the crime.

As such, if directors or managers, in their scope of work, intentionally or negligently fail to adopt measures to prevent a crime that they know is being or has been committed, they may be held criminally liable for misprision as mentioned above.

III.           Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions

1.             Compliance and effects on corporate liability

The adoption of a compliance model is typically not a defense for criminal misconducts by a commercial legal entity for a crime committed on its behalf, for its benefit and under its authorization or approval. Furthermore, the adoption of a compliance model by a commercial legal entity is generally not regarded as a mitigating factor that would reduce the criminal liabilities of that entity or the punishment during the sentencing stage of a criminal proceeding.

2.             Modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.)

As mentioned in Section III(1) above, the adoption of a compliance model would neither exempt a commercial legal entity from criminal liability nor mitigate its punishment. Furthermore, the law does not provide for guidance as to which compliance “model” must be adopted by the corporate legal entity. It is up to the discretion of the legal entity to decide which compliance model to adopt.

3.             Monitoring: independent person or body to control/supervise, with the purpose of verifying the correct application of the “model”; mode of operation of such person or body

Further to the preceding section, there is also no guidance yet as to which mode of operation for monitoring a compliance model must be adopted by the corporate legal entity.

IV.          Judicial proceedings to determine corporate liability

1.             Court competent to decide the liability of and penalties applicable to the company

The New Criminal Procedure Code[26] specifies that the district-level court in the district where the alleged crime occurred shall generally have jurisdiction to hear the criminal cases related to commercial legal entities and determine liability and applicable penalty for the company, with a few exceptions designated under Article 268(1) of the New Criminal Procedure Code.

The Provincial People’s Court will have jurisdiction to hear criminal cases and determine the liability of and applicable penalty for a company in cases related to the following:

  • Criminal cases outside the jurisdiction of a district-level court or local military court
  • Criminal cases related to defendants, victims or litigants who live abroad or are in connection with property involved in other lawsuits occurring in foreign territories
  • Criminal cases involving complex facts, which make it hard to assess or reach unanimity on the properties related to the case, or cases involved in various sectors and levels of authority, or those brought against a defendant who is a judge, procurator, investigator, primary governmental district leaders, township, provincial city or city of a centrally-affiliated city, religious dignitary or individual having high prestige in a community of minority[27]

2.             Possibility of the application of interim measures

During preliminary investigations, the investigating authorities may implement the interim measures mentioned in Section II(2) above to the company being investigated. The procuracies and courts may also implement such measures to the company being charged throughout the trial. Note, however, that the length of time for such coercive measures shall: (i) not exceed the time limit for investigation if implemented by the investigative authorities; and (ii) not exceed the time limit for prosecution and adjudication if implemented by the procuracies or courts.[28]

3.             Plea bargains and related effects on the corporate liability

Plea bargains are not recognized under Vietnamese law.

4.             Imposition of sanctions against the company

As mentioned in Section II, applicable sanctions for commercial legal entities mainly include fines, temporary suspension of operations and termination of operations. Generally, the order and procedures for the enforcement of pecuniary penalties shall abide by the Law on Civil Sentence Enforcement. Particularly, the heads of civil sentence enforcement shall be authorized to make decisions on the enforcement of pecuniary penalties against a legal entity.[29]

As for the other penalties and judicial remedies, other competent governmental authorities are charged with the duty to impose such sanctions.

5.             Permanence of corporate liability if the crime is extinguished

Generally, a crime may be extinguished by operation of law. When a provision of law removes a crime, a sentence or an aggravating factor, or provides for a less severe sentence, the later provisions that are more favorable may be applied to criminal offenses committed before such provisions of law had come into force.[30] As such, if a company is liable for a crime committed under a former penal code, but such crime is not provided for under a newly effective penal code, then that crime is extinguished by the operation of law. In such a scenario, the company will no longer bear liability for that crime.

V.           Corporate liability in multinational groups

1.             Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company

In setting out the requirements on which corporate liability is based, the New Penal Code focuses its attention on single entities, without providing any specific regulation or guidance for when the criminal offenses included therein are committed in the context of a corporate group (ie, parent and subsidiary companies). As such, no provision of the law clarifies as to what conditions are required in order to hold a foreign company criminally liable for the offenses committed by the directors, managers or representatives of its local Vietnamese entity.

2.             Basis of liability and applicable sanctions

N/A

VI.          Significant case law concerning corporate liability arising from crimes and draft laws under discussion

Currently, there has not been a case published by the People’s Supreme Court that addresses the issue of corporate liability arising from criminal conduct.

As mentioned, the New Penal Code has not come into effect yet as it is still pending for amendment by the National Assembly of Vietnam. Once the New Penal Code comes into effect, commercial legal entities will be subject to criminal liability for committing certain crimes as listed in Section I(2) above.

[1] Law on Handling Administrative Violations No. 15/2012/QH13 dated 20 June 2012, effective on 1 July 2013 (“Law on Handling Administrative Violations”).

[2] Law on Handling Administrative Violations, Article 2.1.

[3] Penal Code No. 15/1999/QH10 dated 21 December 1999, amended and supplemented in 2009 (“Current Penal Code”).

[4] Penal Code No. 100/2015/QH13 dated 27 November 2015 (“New Penal Code”).

[5] Although the New Penal Code has not yet come into effect, some of its provisions favorable to offenders as specified in the Supreme People’s Court Guidance No. 276/TANDTC-PC dated 13 September 2016 have been implemented as of 1 July 2016.

[6] The New Penal Code is expected to be amended and come into effect late 2017.

[7] New Penal Code, Articles 5 and 6

[8] New Penal Code, Article 6(2).

[9] New Penal Code, Article 75.

[10] New Penal Code, Article 75.2.

[11] New Penal Code, Article 76.

[12] New Penal Code, Articles 74-89.

[13] New Civil Code No. 91/2015/QH13 dated 24 November 2015, which replaced the 2005 Civil Code, came into effect on 1 January 2017 (“New Civil Code”).

[14] Article 5 and 6 of the New Penal Code.

[15] New Criminal Procedure Code No. 101/2015 dated 27 November 2015, which will replace the current Criminal Procedure Code No. 19/2003/QH11 dated 26 November 2003, has not been effective due to the postponement of the implementation of the New Penal Code (“New Criminal Procedure Code”).

[16] New Criminal Procedure Code, Article 445.3.

[17] New Penal Code, Article 78.

[18] New Penal Code, Article 79.

[19] New Penal Code, Article 80.

[20] New Penal Code, Article 81.

[21] New Penal Code, Article 77.

[22] New Penal Code, Article 82.

[23] New Criminal Procedure Code, Article 436.

[24] Current Penal Code and New Penal Code, Article 4.

[25] New Penal Code, Article 390.

[26] New Criminal Procedure Code, Articles 268 and 444

[27] New Criminal Procedure Code, Article 268(2).

[28] New Criminal Procedure Code, Article 436.

[29] New Criminal Procedure Code, Article 445.

[30] New Criminal Procedure Code, Article 7.