HANOI – For several years, Truong My Lan held meetings on the 39th floor of the sleek Times Square tower in the heart of Vietnam’s commercial hub, Ho Chi Minh City. There, in a room that acted as her command centre, she allegedly wove a US$12 billion (S$16 billion) tapestry of fraud and corruption, according to the police reports that form the basis of a court case against her.

The authorities allege there were “ghost” companies, payoffs to government officials and a bank she illegally controlled that disbursed loans to herself and her allies worth about 11 per cent of the nation’s 2022 gross domestic product.

Her personal driver secretly shuttled millions of dollars in cash across the city’s chaotic streets, the police said.

A total of 24 government inspectors are alleged to have taken Lan’s money to cover up violations.

The woman behind Van Thinh Phat Group (VTP Group), one of Vietnam’s most moneyed real estate empires, now awaits a trial starting on March 5 – and a possible death sentence if found guilty.

More arrests are expected in a probe that has contributed to a virtual freeze in the nation’s bond and real estate markets, as bureaucrats fearful of being swept up in the police investigations slow-walk approving legal documents.

The country’s largest-ever fraud case is among a slew of high-profile proceedings following the Communist Party of Vietnam’s crackdown on corruption.

It highlights the developing economy’s challenges as it courts foreign investment to become a global electronics hub for companies like Apple and Samsung Electronics.

The scandal also raises questions on whether the government has the capacity to safeguard the banking system, bond market and overall economy amid an explosion of wealth.

“The government regulators are overwhelmed,” said Dr Zachary Abuza, an expert on South-east Asian politics at the National War College in Washington.

“They can’t keep up with the growth of the economy. Look at the volumes of money pouring into the country. They just don’t have the manpower. And they’re so poorly paid.”

Pace of change

In recent years, Vietnam has emerged as one of South-east Asia’s biggest economic success stories.

Disbursement of foreign direct investment rose to more than US$23 billion in 2023, up 3.5 per cent from the previous year.

In a country where the average annual worker’s salary is about US$4,000, the number of Vietnamese with a net worth of more than US$30 million soared 82 per cent in the five years to 2022 to 1,059, according to the Knight Frank Wealth Report.

But the country is struggling to keep up with the rapid pace of change.

Like the Chinese government, which has pursued a sweeping anti-corruption drive as the economy has grown, Vietnam’s leaders see graft as a risk to their hold on power.

Communist Party general secretary Nguyen Phu Trong’s crusade to root out avarice is now years old, with no obvious end in sight.

The anti-corruption campaign has touched the highest levels of government and virtually all sectors of society.

Former president Nguyen Xuan Phuc stepped down in January 2023, after taking “political responsibility” for corruption cases during the Covid-19 pandemic.

Two deputy prime ministers who respectively oversaw the health and foreign affairs ministries were dismissed that same month.

A total of 54 other individuals were convicted in 2023 in a case involving millions of dollars of bribes tied to government-directed “rescue” flights for Vietnamese trying to get home while Covid-19 raged.

Even in this landscape, Lan’s case stands out for its audacity and breadth.

The Supreme People’s Procuracy of Vietnam has prosecuted VTP Group’s chairwoman for allegedly embezzling more than US$12 billion from Saigon Commercial Bank, or SCB, between February 2018 and October 2022 – a sum that surpasses the market capitalisation of most Vietnamese banks.

A separate investigation is looking into alleged fraudulent appropriation of assets from bond issuance tied to the developer.

Another police probe is examining allegations of money laundering tied to Lan and her husband, Hong Kong businessman Eric Chu, according to the Ministry of Public Security’s Cong An Nhan Dan newspaper.

“This was a black eye for regulators,” said Mr Willie Tanoto, a director in Fitch Ratings’ Asia-Pacific financial institutions team.

“There are rules to prevent this from happening, and it is unnerving that she managed to get around them for so long,” he said of Lan’s alleged control of SCB.

“Disclosure and transparency requirements in Vietnam have some catching up to do.”

Taste for opulence

Like many of Vietnam’s newly minted rich, 67-year-old Lan rode the rising wave of post-war capitalism in the country.

She is no stranger to the local media, who covered her activities as a philanthropist and socialite, and has never hidden her taste for opulence.

She began selling cosmetics at the age of 16 and got into the restaurant and hotel sector after marrying Chu, according to the South China Morning Post.

In 1991, Lan founded VTP Group, which says on its website that it was Ho Chi Minh City’s first private company.

Its projects spanned residential properties, offices, hotels and shopping centres, among them a block-long marble mall complex that includes a yet-to-open Mandarin Oriental hotel, a Rolls-Royce showroom and a Tiffany & Co, incongruously located across a square from the People’s Committee of Ho Chi Minh City.

A VTP Group crown jewel was the Reverie Hotel Saigon Times Square, which features marble and gold-plated elevators, a lobby with 7m ceilings and a custom-made, emerald-green Baldi Monumental clock worth US$500,000, according to a hotel manager.

Guests of its two top-end suites – with prices starting at US$12,000 a night – are whisked from the airport in a Rolls-Royce Phantom Dragon or, for another US$10,000, delivered to the hotel by helicopter, the manager said.

On a night in October 2022, the police came for Lan as she prepared for bed in her penthouse not far from the Times Square tower, according to local media reports.

News of her arrest set off a panic among depositors of SCB, resulting in a bank run that led the State Bank of Vietnam to take control of the lender and assure its clients their savings were safe.

The police allege that Lan illegally controlled more than 90 per cent of SCB by paying 27 individuals and entities to acquire stakes in the institution.

SCB disbursed loans of more than US$43 billion to Lan and her allies between 2012 and October 2022, according to the police allegations reported by Tuoi Tre News.

Lan and other VTP Group officials were initially detained over the alleged embezzlement of tens of thousands of dollars in 2018 and 2019.

The probe took on a much wider scope after investigators discovered a notebook belonging to Lan’s personal driver, who meticulously recorded ferrying about 108 trillion dong (S$5.9 billion) and US$14.7 million in cash to VTP Group’s headquarters, Lan’s home and other locations between February 2019 and September 2022, according to Tuoi Tre News, citing a police report.

The money came from bank loans and bond issuances from VTP Group’s related companies, according to local media, which cited the police.

Now more than 700 VTP Group units have been frozen by the Vietnamese authorities, and its 156 developments are under government control.

The authorities have seized millions of dollars in cash, luxury cars, yachts and property from Lan and other defendants while freezing more than 1.8 trillion dong in bank accounts, according to a statement on the government’s website.

The Ministry of Public Security is also prosecuting 85 others they said are tied to the case, including Do Thi Nhan, a former State Bank official accused of accepting as much as US$5.2 million in bribes.

Lan’s husband Chu, who sold property at fire-sale prices in 2023 amid his wife’s legal woes, has since been detained in Vietnam, according to local media.

‘Investors have lost trust’

Lan’s arrest was part of a national anti-graft campaign that upended Vietnam’s property sector, which was already plagued by oversupply of high-end projects.

The crackdown led to a dramatic slowdown in corporate bond issuances, triggering a liquidity crunch and missed payments by borrowers.

Banks, leery of real estate projects, tightened loans to property developers, and newly cautious bureaucrats stalled approvals for new projects.

In Ho Chi Minh City, where unfinished construction sites dot the skyline, just a handful of projects cleared the myriad required government approvals in 2023, said Mr Troy Griffiths, a deputy manager of Savills based in the city.

The bottlenecks may ease in 2024 as Prime Minister Pham Minh Chinh pushes officials to accelerate procedures and banks to improve developers’ access to credit, he added.

The woes of the nation’s property market have also weighed on the economy, which missed growth targets in 2023.

More than 1,200 projects are frozen due to liquidity problems as developers struggle to access funding, according to BMI, a unit of Fitch Solutions.

“Policymakers may soon be compelled to prop up developers to ensure uncompleted projects are eventually delivered and thus avert social unrest,” it said in a Jan 15 research note. BLOOMBERG