The Current State of Compliance in Vietnam and Its Challenges: Why Compliance Problems (Particularly Scandals) Are So Common in Vietnam

NEXORA LAWFIRM provides broad-based support to foreign-invested and Japanese companies operating in Vietnam — building compliance frameworks, developing internal regulations, responding to violations, and conducting third-party investigations. On the ground, formalistic operations and reliance on individual staff members remain common, and risks relating to labor, tax, licensing, and bribery are particularly prone to surface. This article is written for readers interested in topics such as "building a compliance framework in Vietnam," "bribery risk for Vietnamese companies," "internal auditing and responding to violations," "the impact of compliance violations," and "risk management for Japanese companies in Vietnam," and explains commonly observed problems on the ground along with the practical measures companies should take.

According to Transparency International's (TI) 2022 Corruption Perceptions Index (CPI) survey — an index reflecting perceived levels of corruption — Vietnam ranked 77th out of 180 countries. This represents considerable improvement compared with results from around 2015. That said, I do not feel that the public's overall willingness to comply with the law, or its compliance awareness generally, has improved at the same pace.

There is also a well-known book titled "On the Character of the Vietnamese People," which touches on traits such as "petty theft," "corruption," "cunning," and "self-interest." Setting the legal discussion aside for a moment, this article explores how such cultural background may relate to compliance issues.

01 - The Main Causes of Compliance Violations and Scandals

There are three main causes of compliance violations and scandals:

①「Motivation (desire, greed, dissatisfaction with superiors or colleagues, dissatisfaction with treatment or work, pressure from interest groups)

② The existence of relative relationships

③ The existence of an environment that reinforces ① and ②

02 - Motivation

① Self-Interest

Have you heard the expression "Vietnamese people are self-interested"? The traits and customs originally associated with the Vietnamese people trace back to the feudal era, when Vietnam's traditional industry was agriculture and landlords treated farmers essentially as forced laborers, giving them only what had little value in return. Under the subsequent French colonial period, and later under the agricultural cooperatives of the revolutionary era, distribution was likewise never equitable. Naturally, farmers came to distrust those who employed them and developed a desire to keep as much shared property for themselves as possible.

Unfortunately, Vietnamese people grew up against this backdrop, and such attitudes persist today through the influence of family and schooling. In addition, because society, employers, and other public bodies and institutions generally do not protect individuals, people have had no choice but to protect themselves — fostering a tendency toward self-interest and indifference toward others.

② A Conflict-Oriented Mentality

Historically, Vietnam was formed by a weaker ethnic group south of China, fleeing the domination of northern powers within China and migrating south. During the feudal era, they were treated as virtual slaves under landlords; they were later placed under French and other foreign rule, and subsequently endured prolonged wars. In other words, Vietnam's very formation — and its continued existence — has been shaped by the presence of opposing states. The Vietnamese people tend to unite only in the face of a common enemy; outside of that, there is little tendency to come together to solve society's problems collectively.

These character-driven motivations often form the basic elements of the mindset and intent that give rise to scandals.

03 - The Existence of Relative Relationships

In many foreign-invested companies, relative relationships arise between foreign nationals and Vietnamese staff — driven by conflicting economic interests, asymmetric information, and relative management authority. Such dynamics can give rise to hidden management structures (tacit, unspoken arrangements). Where such an environment exists, it cannot be denied that it creates fertile ground for scandal. Concrete examples include:

① The relationship between investors (company owners) and employees (including managers)

② The relationship between company managers and operational staff

③ The relationship between Japanese managers and Vietnamese managers

Such issues cannot be ruled out as giving rise to a hidden management structure (unspoken, tacit dynamics) of the kind described above.

This kind of situation is a major underlying cause of production defects and inefficiency, deteriorating working conditions, and the occurrence of scandals.

04 - The Existence of an Environment Conducive to Scandal

Even where motivation and relative relationships exist, a strict environment may prevent a scandal from actually occurring. Conversely, where an environment conducive to scandal is abundant, a scandal is likely to occur. Four elements support such an environment.

① The Attitude of Management

Although the Vietnamese character leans toward self-interest, people often lack the courage to openly voice their own opinions or assertions — that is, they tend to be timid and to defer to those stronger than themselves. For this reason, if a company's leadership holds sufficient authority and exercises it firmly, employees develop a healthy sense of restraint, making it possible to keep employee misconduct in check. Where a manager wields strong influence (closer to an authoritarian leader), employees tend to fall in line. While excessive leadership can have a negative effect on internal creativity and delegation of responsibility, strong leadership from management is often necessary in manufacturing settings — if a superior is too lenient, subordinates often take advantage of that and engage in various concealed activities.
It is also common to see managers who communicate insufficiently with Vietnamese employees — some speak only with a small number of Vietnamese managers they trust while ignoring other employees. Such managers frequently make no effort to understand the Vietnamese language or culture. As a result, there are fewer opportunities to convey the company's philosophy, corporate culture, and the manager's own intentions to the workforce as a whole, including Vietnamese employees.

② Establishing and Operating Internal Controls

Commonly recurring problems include:

Inadequate internal rules and other decision-making frameworks
Leaving the design and operation of internal control mechanisms — which should reflect the company's overall circumstances — entirely to Vietnamese managers, who may then run the internal controls according to their own convenience and calculations
Authority being concentrated in a small number of managers
A lack of opportunity or means to understand how internal controls are actually being operated in practice

③ Responding to Fraud

Commonly recurring problems and situations include:

Disciplinary action against misconduct not being carried out lawfully or appropriately
Insufficient design of incentives and sanctions to ensure the proper performance of duties
The absence of a mechanism to check or audit the operation of compliance and anti-fraud measures

④ Compliance Training and Education

Commonly recurring problems and situations include:

Employees not sufficiently understanding the laws, internal rules, and the reasoning behind them
Insufficient process for confirming the effectiveness of training
Limited activity aimed at embedding a genuine corporate culture

Compliance problems in Vietnam are one of the major challenges in operating a business there, shaped by historical, cultural, and legal-system factors. Correctly understanding these root causes makes it possible to build effective compliance measures. Through proper internal controls, effective communication with employees, and the promotion of legal compliance education, companies can curb misconduct and strengthen their corporate culture. These efforts form the foundation for long-term success in the Vietnamese market. Companies are called upon to minimize risk while leveraging compliance as a source of competitive advantage.