Should contracts contain anti-corruption clauses? – Comment

Introduction
Do Vietnamese companies pay attention to the fight against corruption when drafting contracts?
Why include an anti-corruption clause?
What are the consequences of a lack of attention to the fight against corruption when drafting contracts?
Example of an anti-corruption clause​

Comment

Introduction

Corruption can occur in various contractual areas, ranging from employment contracts to business cooperation agreements, and can have a negative influence on the entire implementation of the contract. In recognition of this, companies in countries with a long legal history are more frequently inserting anti-corruption clauses into their contracts. Integrity and transparency between the parties and in the business environment in general are ensured by addressing anti-corruption issues right from the drafting of the contract. Therefore, contracting parties in Vietnam should give this clause the attention it deserves.

Do Vietnamese companies pay attention to the fight against corruption when drafting contracts?

Anti-corruption was not a major concern in drafting contracts in Vietnam until recently, when the country experienced significant integration and international investors expressed interest in expanding their business in the country.

Unlike some developed countries, where companies that commit acts of corruption, bribery or other similar violations are almost certain to be boycotted and even go bankrupt or lose their reputation, in Vietnam almost no company has been inspected or found guilty of corruption. As a result, Vietnamese companies rarely consider or recommend including an anti-corruption clause in their contracts. The old penal code and anti-corruption law in Vietnam had no clear restrictions on the roles and duties of companies in the fight against corruption or the consequences for companies that allow corruption to occur. In other words, in Vietnam, an anti-corruption clause was not a “must-have” when drafting contracts.

However, the Penal Code of 2015 and the Anti-Corruption Law of 2018 have since made significant improvements. Businesses now have responsibilities such as monitoring, detecting and denouncing acts of corruption in a timely manner.(1) In addition, those in positions of power and authority in businesses who engage in corrupt activities listed in the Criminal Code will face the same penalties as government agencies.(2) These stricter legislative guidelines are helping Vietnamese companies change their minds about the need to insert anti-corruption clauses in their contracts.

Why include an anti-corruption clause?

First, integrity and trust are inextricably linked. By stipulating an anti-bribery provision, the parties can ensure that during the process of negotiating, drafting, signing and performing the contract, no bribes, gifts or other improper advantages been given or promised in relation to the contract by a party to relevant parties for gaining influence over the operation of the business or organization, or for personal gain.(3) Thus, the reliability and feasibility of the contract will be strengthened and become more durable.

Second, the anti-bribery provision helps to ensure competitive equality in the marketplace. Parties that follow the law and compete on their own merits will contribute to the growth of the overall market. Instead of being influenced illegally, winning a bid or successfully signing a contract should be based entirely on the actual capabilities of the company and the free will agreement between the parties. Accordingly, contracting parties will intentionally strive to improve their own capacity and quality rather than seek illegal means of reaping instant gains. This is a long-term benefit that will improve both the economy and people’s quality of life.

Finally, it helps organizations avoid major risks. As stated earlier, bribery is regulated under the Penal Code 2015 with the maximum penalty of life imprisonment or death. Although legal persons are exempt from Penal Code sanctions, the Anti-Corruption Act 2018 imposes specific responsibilities on companies to prevent corruption. Therefore, complying with the law by inserting an appropriate clause in the contract would help the company reduce the risk of liability and avoid getting bogged down in complicated legal proceedings.

What are the consequences of a lack of attention to the fight against corruption when drafting contracts?

Termination or unwillingness to enter into a contract is a possibility
Before signing the contract, the company may have to go through a capacity assessment and anti-corruption policy as part of the transaction process. If it is not possible to meet the prerequisites for defining anti-corruption terms or programs, the transaction will be difficult to complete, especially if the company wishes to work with companies and organizations from countries that are signatories to the Convention of Corruption. the Organization for Economic Co-operation and Development (OECD). Against bribery of foreign public officials in international business transactions. Corruption is an obstacle to global collaboration and causes enormous damage to companies that want to integrate.

In case of corruption in the cooperation process, the parties will face serious consequences
Even if the deal is done, the absence of an anti-corruption clause that binds and reminds the parties of their responsibilities and limits will increase the likelihood of a breach.. Corrupt activity can result in criminal convictions, as noted above. Besides the cost of a monetary penalty that may be imposed as a result of a prosecuted case, there will inevitably be a significant diversion of time in settling the proceedings. Additionally, if a contract is obtained through corrupt means, all payments made under the contract may be considered proceeds of crime and confiscated by the appropriate authorities.(4)

Loss of key personnel
Sections 353.5 and 354.5 of the Penal Code state that an offender may also be prohibited from holding certain positions or performing specific jobs for one to five years. Normally, those who participate in corrupt activity play a vital role in the business and may be deeply involved in the performance of the contract. These individuals could be subject to criminal prosecution under the Criminal Code and could be fired, causing significant instability for businesses.

Prestige loss
A company’s reputation can be seriously damaged if it is discovered or someone is convicted of bribery. If it is a publicly traded company, this could have a significant negative impact on its share price.

Economic damage and inefficiency
Bribery is detrimental to equal competition when it is freely given, received or bargained for in entering into a transaction. As a result, legitimate companies find it difficult to obtain official authorization. The economy becomes less efficient as these activities become more popular. Corruption in particular can lead to underdevelopment in developing countries like Vietnam. According to research, when corruption increases or the corruption perception score decreases by one point, direct investment inflows to Vietnam drop by 1.54%.(5)

Sample Anti-Corruption Clause

Companies should pay more attention to creating anti-bribery language given the implications outlined in this article. Below is an example of an anti-corruption clause that companies can include in their contracts, based on the Vietnamese Penal Code of 2015 and the Anti-Corruption Law of 2018.

Article X: fight against corruption

  1. Definition:

“Corruption” means the misuse by an office holder of his official capacity for personal gain. “Corruption”, as used in this anti-corruption clause, includes bribery or embezzlement.

“Officer” means a person appointed, elected or employed under a contract or other form of employment, whether or not receiving a salary, to whom are assigned certain functions and the power to exercise these functions. functions.

“Bribe” means money, property, other tangible or intangible benefits. Corruption includes giving, accepting, negotiating, promising, accepting or asking for a bribe.

“Embezzlement” means that a person or entity intentionally misappropriates its assets.

  1. No member of the company, nor any officer, member, director, officer, agent, consultant, employee, distributor or other person associated with or acting on behalf of the company (collectively, Covered Persons) shall by any means :
  • directly or through an intermediary, give or promise to give a bribe to a government official or other person or organization in order to influence them to perform or not perform certain tasks in the interest of or at the request of the bribe giver;
  • receive or promise to receive, directly or through an intermediary, a bribe for himself or for another person or organization as a condition of acting or not acting in the interest of or at the request of the bribe giver;
  • broker a bribe; Where
  • abuse his position or power to misappropriate property under his direction.
  1. Members of the board of directors or the council of shareholders, presidents, managing directors, deputy managing directors, directors, assistant directors, chief accountants and holders of other managerial positions of public companies must not sign contracts with businesses owned by their spouses, parents, children or siblings; must not allow companies owned by their spouses, parents, children or siblings to bid for contracts of their companies; must not allow their spouses, parents, children or siblings to hold positions of personnel management, accounting, treasurer or warehouseman in their businesses or to participate in transactions, exchanges of goods or of services or the conclusion of contracts with their companies.

Comment

Businesses should be aware that such a clause should not be added solely to conceal or address a target policy. It must be prepared according to the risk appetite of the parties and the objectives they are pursuing.

For more information on this subject, please contact Thi Diep Nguyen, Thi Mai Hoa Duong Where Anh Thu Le to LNT & Partners by phone (+84 28 3821 2357) or email ([email protected], [email protected] Where [email protected]). The LNT & Partners website can be accessed at the address www.lntpartners.com.

Endnotes

(1) Article 4 of the 2018 anti-corruption law

(2) Articles 353.6, 354.6, 364.6 and 364.7 of the Penal Code 2015

(3) ICC Commission on Corporate Responsibility and Anti-Corruption, and Commission on Business Law and Practice (2012), ICC Anti-Corruption Clause, p 7.

(4) Articles 353.5 and 354.5 of the Penal Code 2015.

(5) Le Thi Lanh, Huynh Thi Uyen Trang (2012)Đo lường mối quan hệ giữa tham nhũng và đầu tư trực tiếp nước ngoài tại Việt Nam, Scientific Journal of the Open University of HCMC, No. 7.

Comments are closed.