Building a Successful Compliance Strategy in Vietnam: Bridging the Japan-Vietnam Gap to Become a True Global Enterprise

Operating stably in Vietnam requires companies to comply with a wide range of laws covering tax, labor, foreign investment regulation, contract management, and more. This article, written from a practical perspective by a local attorney, explains in detail how Japanese companies can build a compliance strategy that bridges the "gap" and grows into a true global enterprise in Vietnam. NEXORA LAWFIRM supports the Vietnamese subsidiaries of Japanese companies in establishing an ongoing framework for legal compliance — through risk assessments, building internal systems, preparing manuals, and conducting training. Drawing on our extensive track record, we provide strong legal support for your company's business expansion.

Compliance issues are an unavoidable challenge in every country. They are especially significant at the overseas subsidiaries of global companies, because many such subsidiaries lack the fully developed functions of an independent legal entity, making them prone to serious compliance failures. This often stems from a shortage of personnel and from the fact that the subsidiary's purpose — serving as the parent company's production plant or sales base — has not been matched by an organizational structure adequate to handle compliance.

At the same time, as part of the group, an overseas subsidiary must strictly comply with the policies and internal rules set by its parent company. This creates a gap with local laws, business customs, and employees' values, leading to operational challenges. Moreover, even though the subsidiary must adapt to these local circumstances, the Japanese head office's uniform application of group policy and management methods often complicates local governance, making it difficult to respond quickly and appropriately when problems arise.

With this background in mind, this article analyzes the compliance challenges faced by overseas subsidiaries and proposes concrete approaches to addressing them.

01 - Examples of Compliance Violations at Vietnamese Subsidiaries

Compliance-related issues are commonly seen among Japanese and other foreign-invested companies operating in Vietnam. Bribery of government officials and kickbacks between private parties are particularly frequent forms of misconduct. While these issues tend to be smaller in scale at newly established companies or SMEs, the risk of them developing into organization-wide scandals increases for companies that have been operating for five years or more, or for larger companies.

Other typical examples of legal violations include governance deficiencies (violations of the company charter, harassment, etc.), embezzlement of company assets, procurement fraud (including improper vendor selection and rigged quotations), and employment-related misconduct (breach of confidentiality obligations, moonlighting during working hours). Regarding internal controls, it is not uncommon for an "interest group" led by Vietnamese managers or employees to form, with problems occurring in areas that are difficult for Japanese managers to oversee.

On the company's side, compliance violations also include breaches of industry-specific regulations, failure to fulfill reporting obligations, and labor-related issues such as illegal hiring practices and violations of internal work rules.

02 - The Adverse Effects of Compliance Violations on Employees and the Company

We take as an example a corruption criminal case involving Samsung Electronics (a South Korean company) in Vietnam. In this case, Samsung Electronics Vietnam Thai Nguyen and Samsung Electronics Vietnam Bac Ninh had contracted with a caterer to provide food services, under which ingredients were inspected against strict standards before being brought into the factory canteens. However, between January 2018 and February 2020, a particular employee used their position overseeing food inspection and auditing to accept bribes totaling VND 800 million (approximately JPY 4.7 million) from 28 suppliers. As a result, the individuals involved were found to have violated Article 354 (Receiving Bribes) and Article 364 (Giving Bribes) of the Vietnamese Penal Code and were sentenced to prison terms.

Turning to the impact on the company itself — the author was once involved in an internal fraud investigation at a Japanese company's factory in Vietnam. During that investigation, we came across a group chat among workers expressing dissatisfaction with the food provided in the canteen, which was clearly undermining morale. Complaints included being served "milk with only one or two days left before its expiry date" and "cold meals for the night shift," and being served different dishes from the approved menu. There is a Vietnamese saying that roughly translates as skimping on food while trying to entertain guests being a false economy — hospitality shown through food, given with genuine appreciation, builds mutual trust. Even a seemingly trivial complaint about food can become a motive that drives employees toward unlawful conduct, erode their sense of commitment to the company, and ultimately reduce operational efficiency.

03 - Causes of Compliance Problems

Three closely related factors underlie the scandals that occur at Japanese companies in Vietnam.

■ Opportunity

A shortage of personnel and unclear division of duties create fertile ground for misconduct to occur. This is a particular concern where a company has not appointed a dedicated compliance officer, or where Japanese managers, focused on production, are unable to devote sufficient attention to internal controls — the attitude of leadership and gaps in internal control both contribute to the problem.

■ Motivation

Employees are motivated to commit fraud for financial gain. Common triggers include pressure to improve performance tied to bonuses or commissions, dissatisfaction with treatment or work assignments, and grievances toward superiors or colleagues. The Vietnamese labor mindset, in which lifetime employment is not the norm, is also a contributing factor.

■ Rationalization

Common justifications for misconduct include "there is precedent for this," "insufficient training was provided," and "differences in legal or ethical norms." Cultural and language barriers, as well as the absence of an appropriate channel for raising concerns, also make misconduct easier to tolerate.

04 - Countermeasures for Compliance Problems

■ Correctly Understanding the Situation

Company Y applied for a license in Vietnam to operate a regulated business, but its application stalled for more than three months at the level of an official (Officer C) in the competent department. Despite repeated follow-ups, the response was always the same — "gathering opinions from related departments" or "awaiting the department head's confirmation" — and a bribe was also solicited. In line with its compliance policy, Company Y refused to pay.

After consulting a lawyer to resolve the issue, it was confirmed that "the person with actual authority over this matter is not Officer C or the head of Department C, but the head of the higher authority — Agency XXX — to which Department C belongs." Through the lawyer, a direct appointment was arranged with the head of Agency XXX, and the situation was explained. On the head's instruction, the head of Department C followed up on the file, and processing of the submitted documents finally progressed. Ultimately, pressure from the higher authority resulted in the necessary procedures being completed within a month, and the license was issued.

It is not uncommon to encounter obstruction or bribe solicitation from officials during administrative procedures or license applications in Vietnam. However, understanding the organizational structure of the competent authority, the division of responsibilities, the procedural process, and who ultimately holds decision-making authority can help avoid being derailed by such tactics. In general, it is those without real authority who solicit bribes in administrative matters; it is rare for the ultimate decision-maker to request one, because a person with genuine authority generally avoids conduct that would jeopardize their own position.

For this reason, understanding the structure and locus of authority within the competent agency, and knowing how to tactfully refuse a bribe while still resolving the matter appropriately, is essential. Many compliance problems, in fact, arise from a lack of knowledge or understanding of the system. Building this knowledge and understanding is key to overcoming compliance challenges and running a sound operation.

■ Appointing a Statutory Auditor

At Vietnamese subsidiaries, a lack of clear understanding of the distinction between compliance (legal adherence) and governance (corporate oversight) has a significant impact on local operations. In principle, if the president or a Japanese manager oversees operations within a governance framework, that should also be sufficient from a compliance standpoint. In practice, however, the parent company often also demands detailed compliance responses and audit work. In particular, when a problem arises, the president or local manager tends to be held responsible, concentrating the burden on them. A shortage of personnel and prioritization of cost reduction are the underlying reasons the subsidiary fails to function fully as an independent legal entity, placing a heavy burden on the manager in overall charge.

In such a situation, the manager becomes preoccupied with handling the details of compliance, which not only blurs the proper role of governance but also risks creating unnecessary tension between the parent company and the local subsidiary. As a result, the company's leadership may be unable to focus on production and business growth, and may in some cases be unable to make bold decisions.

Appointing a Statutory Auditor to Resolve Compliance and Governance Issues

To effectively resolve this problem and enable the local subsidiary to establish an independent operational foundation, we recommend appointing a statutory auditor (Kiểm soát viên). Appointing a statutory auditor not only reduces the burden on management (particularly the president) but also plays an important role in improving the company's overall compliance environment. Outsourcing this function to an external specialist can also be an effective solution.

Authority and Duties of a Statutory Auditor Under the Vietnamese Enterprise Law

A statutory auditor has the following authority and duties:

Authority:
The authority to audit (observe and investigate) the performance of managers' duties
The right to request reports on business activities and financial condition from managers, and to attend management meetings
The right to seek an injunction against unlawful conduct and to represent the company in litigation
Duties:
To perform their duties faithfully and prudently in order to protect the interests of the company and its owner (the parent company)
Not to abuse their position or duties for personal gain or the benefit of a third party
To properly disclose any shares held and any conflicts of interest with related parties

Benefits of Appointing a Statutory Auditor

Appointing a statutory auditor offers the following benefits.

Reduced burden on management: By having the statutory auditor handle routine compliance auditing, management can focus on important business decisions.
Greater objectivity in compliance audits: Because the statutory auditor operates from a neutral standpoint, audits can be conducted more fairly and effectively.
Specialist guidance and an improved environment: The statutory auditor can provide concrete measures and guidance on compliance issues, improving the company's overall compliance environment.

■ Compliance as a Bridge Between the Local Subsidiary and the Parent Company　（１）

Balancing Group-Wide Compliance Policy with Locally Tailored Rules

At Japanese companies operating in Vietnam, applying the parent company's internal rules to the local subsidiary without modification often causes employee dissatisfaction and inefficiency. Addressing this issue requires considering the following two points:

Establishing locally tailored rules: Drafting rules in the local language that reflect Vietnamese law and business customs, while remaining grounded in the group's overall compliance policy.
Flexibility suited to local circumstances: Setting out rules that reflect the practical realities of operating in Vietnam, with reference to the parent company's standards, in order to reduce the practical burden on employees and increase acceptance of the rules.

■ Compliance as a Bridge Between the Local Subsidiary and the Parent Company　（２）

Balancing Vietnam-Specific Business Customs

Accommodating business customs while avoiding illegality: Establishing rules that permit conduct consistent with local business customs, within the limits of Vietnamese law — for example, setting clear allowable standards (amount and purpose) for entertainment and gifts to government officials or business partners.
Simplifying the approval process: Streamlining complex Japan-standard pre-approval procedures into a faster approval process that can realistically be operated locally.

■ Compliance as a Bridge Between the Local Subsidiary and the Parent Company　（３）

Promoting Understanding and Strengthening Education Among Vietnamese Employees

Preparing clear documentation in the local language: Avoiding legal jargon and using concrete examples and case studies to create materials accessible to the intended audience.
A practical approach from the perspective of Vietnamese employees: Focusing on the legal and ethical risks employees may actually face, to encourage individual awareness. Designing training programs using real-world examples so employees can concretely picture each risk.
Ongoing monitoring and feedback: Regularly reviewing how rules and systems are being operated, and incorporating feedback from local employees to flexibly improve the rules.

Building a compliance framework at a Vietnamese subsidiary requires more than simply applying Japan's rules as-is — it requires flexibly adapting to local legal systems, business customs, and employee characteristics. By combining the development of locally tailored rules, management decisions attuned to business customs, and efforts to promote employee understanding, a company can evolve from a merely formal framework into one with real, substantive compliance effect.

【Summary】

In Vietnam, attitudes toward compliance bear some resemblance to attitudes that once existed toward wearing motorcycle helmets. In the past, Vietnamese riders understood the downsides of not wearing a helmet — fines from traffic police, or risk in the event of an accident — yet tended to dismiss helmets as a "nuisance." As a result, some riders would choose routes without police, or take pride in their own riding skill, as reasons not to wear one. It would not be an exaggeration to say that, a decade ago, more than half of riders behaved this way. However, with the development of enforcement systems and the Vietnamese government's stronger public-awareness campaigns, the number of people not wearing helmets has dropped significantly. This kind of shift has parallels with compliance issues. By adopting appropriate measures and a firm response policy, a company can be expected to improve Vietnamese employees' awareness of legal compliance and strengthen their compliance mindset.

Vietnam is also, without question, a highly attractive investment destination — its appeal has been thoroughly conveyed in past issues of Invest Asia. As a Vietnamese national myself, I take pride in my country, and I sincerely hope that many investors will come to appreciate its strengths and, through their investment and contribution, help drive its continued development.

Within an "unfinished" system and culture lie opportunities for companies to take an active role and create new value. Approaching Vietnam with this perspective can further energize its investment environment and open the way toward sustainable growth.