Vietnam issues charges in colossal real estate embezzlement case

Scandal is merely a symptom of extensive mismanagement of Hanoi’s banking sector

Vietnam’s Police Investigation Agency last month accused business mogul Truong My Lan of embezzling 304 trillion dong (US$13 billion) from one of the country’s largest banks. Lan, who allegedly controlled 91 percent of Saigon Commercial Bank (SCB) through nominees, directed the company to hand out loans to her property development firm Van Thin Phat (VTP) Group. This was done without proper due diligence, repayment schedules or collateral, thereby placing SCB’s customers at extreme risk. Lan set up over 1,000 shell companies to hide the bad debts and bribed 24 state regulator officials tasked with investigating her case with US$5.2 million. The corruption case, one of the largest in Vietnam’s - and the region’s - history, has been ongoing since 2022. The embezzled funds are equivalent to around 4 percent of the country’s GDP.

The case is indicative of broader structural issues in Vietnam’s banking sector. The property sector accounts for approximately 25 percent of loans in the country. However, employees of Vietnam’s banks are often improperly trained and frequently fail to adequately consider the feasibility of projects when handing out loans. This leads large real estate companies to regularly secure loans up to eight times the value of their assets. In Q3 this year, the number of bad debts in Vietnamese banks increased by 52 percent. Poor management of Vietnam’s banking sector endangers its ability to attract investment and ultimately its ability to grow its economy.

Concerns arise regarding Ukraine’s anti-oligarch crackdown

Reforms have clear positives whilst leaving considerable scope for political manipulation

Ukraine has initiated sweeping anti-oligarch reforms amid its war with Russia, attacking the country’s entrenched oligarchic power structures. In late 2021, shortly before the beginning of the war, the government implemented an anti-oligarch law which banned people with significant influence in both the economy and politics from donating to political parties, partaking in the privatisation of state companies, and required them to submit a special income declaration. While the law initially had limited effect, the state of emergency following Russia’s invasion and President Zelenskyy’s immense popularity empowered him to make greater use of the law. Zelenskyy soon ordered Ukraine’s top intelligence agency, the SBU, to arrest and seize the assets of several oligarchs such as Igor Kolomoisky, who owned major TV network 1+1. Oligarchs have had an enormous presence in Ukraine’s post-soviet society controlling large parts of the media, politics, private sector, law enforcement and judiciary. Zelenskyy himself had previously leveraged his symbiotic relationship with Kolomoisky to secure favourable publicity on 1+1 during his successful 2019 presidential campaign.

However, there are concerns regarding the potential for the laws to be abused. They provide the executive, rather than judiciary, with the power to designate oligarchs, causing concerns that it may allow incumbent presidents to target political opponents. Last week, for instance, Zelenskyy used the law to bar oligarch Petro Poroshenko from leaving the country after discovering his plans to meet with Hungarian Prime Minister Orbán – an associate of Russian President Putin. The laws also provide the SBU leadership with significant discretion in determining targets. As Ukraine seeks EU membership, Brussels – whilst in favour of laws targeting oligarchs – will be careful to ensure that Ukraine’s laws do not encourage abuse of power.

Washington publishes long-awaited guidance on IRA tax credits

Rules likely to set bar too high for many projects with tax credits in their sights

The US Department of Energy last week released its draft guidance on its definition of ‘foreign entity of concern’ (FEOC), as part of efforts to clamp down on China’s involvement in EV supply chains. The guidance ruled that FEOCs include companies with more than 25 percent ownership from Chinese, Russian, Iranian or North Korea entities or companies that are based in these countries. EVs with any component sourced from an FEOC or made in direct partnership with any such entity will be ineligible for the Inflation Reduction Act’s (IRA’s) US$7,500 tax credit from next month, while EVs containing any critical minerals from an FEOC will be ineligible from 2025. The guidance also provides a two-year reprieve for certain small battery parts which are yet to have adequate tracing standards. The FEOC rule is squarely aimed at China which processes over half of the world’s supply of several critical minerals including lithium, cobalt and graphite.

Washington’s ruling has cast doubt over the future of some major EV and battery projects. In September, Ford suspended construction of a US$3.5 billion battery plant in Michigan that will license technology from China’s CATL. It claimed that it will scale down the scope of the project if it does not qualify for the IRA’s tax credits. Also at risk are South Korean projects with heavy Chinese involvement. To strike a balance between their reliance on Chinese EV supply chains and compliance with IRA rules, South Korean companies such as Posco, SKO and LG Chem have begun asking their Chinese partners to reduce their ownership of joint ventures. SK On and EcoPro, for example, are attempting to negotiate down Chinese battery material company GEM’s 49 percent stake in their joint venture. Currently, only around 20 percent of EVs on the US market are eligible for the full IRA tax credits – a figure which is likely to shrink from the latest ruling. The US’ decision seemingly prioritises supply chain security over energy transition priorities.

German Federal Court nullifies €60 billion in funding for energy transition

Lack of funding for renewable projects risks pushing energy-intense industries offshore

Germany’s top court has deemed the allocation of €60 billion (US$65 billion) to green initiatives unconstitutional, throwing the country’s energy transition strategy into disarray. In February last year, the government transferred €60 billion of loans that were left over from COVID-19 relief initiatives to the Climate and Transformation Fund. However, the court found that this violated laws that limit the government’s annual borrowing outside of emergencies to 0.35 percent of GDP, currently equating to around €12 billion (US$13 billion). The Climate and Transformation fund aims to spearhead efforts towards Germany’s net zero 2045 target.

The decision has placed a large number of energy transition and other major economic projects in doubt. The Climate and Transformation Fund has key initiatives for building out German’s hydrogen market including the hydrogen coordination office and the H2 Global initiative – a mechanism aimed at driving down hydrogen prices. The fund has allocated €18.6 billion (US$20.1 billion) in total to hydrogen initiatives. The court’s decision has also put into question whether Germany can deliver on the €15 billion (US$16 billion) in subsidies the fund has allocated to TSMC and Intel’s planned semiconductor plants.

Absent any type of resolution, the lack of funding could further catalyse the offshoring of German industry. The country’s large energy intensive industries such as steel and chemicals are increasingly looking to take advantage of cheaper energy abroad amid rising domestic energy prices. A survey by German industrial group DIHK in August found that around 32 percent of industrial companies prefer expanding overseas, double the figure recorded last year.