CASE STUDY No. 10: Breaking Down the Internal "Information Wall" to Uncover Fraud

How should internal fraud and blocked information flows at an FDI company in Vietnam be resolved? Through a kickback scandal uncovered at a factory employing around 500 workers, this article introduces in detail the operational restructuring and legal resolution scheme implemented by NEXORA Law Firm. It is essential reading for strengthening governance during a management transition.

【Rebuilding Internal Controls and Ensuring Compliance at an FDI Company】

In providing legal support to Japanese-affiliated companies operating in Vietnam, NEXORA LAW FIRM has repeatedly encountered trouble arising from an "opaque wall" between management and the front line. This time, we introduce a representative case involving "internal control and governance," which we successfully resolved at a factory with around 500 employees.

01 - Background: A Japanese General Director "Isolated" Within the Local Entity

The matter began when a new Japanese president took up his post at the Vietnamese local subsidiary of a Japanese manufacturing company. Even six months after his arrival, the new president found himself facing serious "information blockage."

Reports from the field and instructions from the president were all being filtered through the General Affairs and HR Manager, and there were suspicions that accurate information was not being conveyed. This opaque situation was causing the organization to stagnate, and the company faced a situation in which operating costs kept rising even as revenue remained flat.

Subsequently, when the president attempted to push through cost-cutting measures (reviewing suppliers, scrutinizing expenditure on consumables and uniforms, etc.), the General Affairs/HR department reacted with fierce resistance. Faced with this unnatural pushback, the general director became convinced that "collusion among interested parties" was at play, and commissioned NEXORA to conduct a full investigation to uncover the truth.

02 - NEXORA's Solution: Fact-Finding Investigation and Swift Confrontation

Immediately after we began the operational audit, the General Affairs/HR manager and deputy manager submitted their resignations abruptly, without handing over their duties. This "flight response" served as decisive confirmation of their wrongdoing.

At the client's request, NEXORA immediately implemented the following two-pronged response.

Restoring operations: To prevent the factory from grinding to a halt as a result of key personnel leaving, we swiftly restored the General Affairs/HR department's workflows and secured a normally functioning operating structure.
A thorough investigation of the misconduct: We worked closely with "trusted internal staff" who had previously had no direct line of communication with management. By combining their cooperation with our legal expertise, we uncovered evidence that the group in question had, over many years, received substantial kickbacks from suppliers, causing significant damage to the company.

03 - Outcome: Restoring Order Through Strict Discipline, and a Humane Resolution

Backed by the president's firm resolve to "pursue accountability to the end, whatever the effort required," NEXORA, acting as the company's representative, engaged in persistent negotiations with the other side.

Having been confronted with irrefutable evidence, the parties ultimately reached the following agreement.

Repayment to the company of a portion of the wrongfully received funds.
Acknowledgment of their own wrongdoing.
In exchange, the company would forgo any further criminal complaint and bring the matter to a close (a resolution reflecting leniency).

This outcome sent a powerful message throughout the company that "wrongdoing will never be tolerated," and enabled the company to restore a healthy organizational culture.

Cases of this kind are by no means rare at companies where authority is concentrated in specific individuals and checks and balances have become merely nominal.

A message to investors and business owners:

A change in management is a golden opportunity for a "health check": It is an ideal moment to clear out any rot within the organization and restore it to health.
Transparency translates directly into profit: Detailed scrutiny of matters such as consumables and supplier management is not mere frugality — it serves as an important bulwark that nips the seeds of fraud in the bud.
Everything hinges on leadership's resolve: When management demonstrates a commitment to integrity, we as legal professionals are able to provide the fullest possible legal defense.

NEXORA LAW FIRM aims not merely to provide legal advice, but to work alongside client companies to build a clean and sustainable management foundation in Vietnam.