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1 October 2013 edition contents New guidance on 2 government guaranteed loans and bonds What's new in the Draft 4 Land Law? Administrative 8 sanctions introduced for breaches of securities regulations New detailed guidance 10 on anti-money laundering New legal instruments 13 The material contained in Vietnam Legal Update is intended to inform readers of recent legal developments in Vietnam. It is not intended, and should not be relied upon, as legal advice. Should readers wish further information in relation to any legal instrument or matter mentioned in this issue, they are encouraged to contact one of our Vietnam offices (details at the end of this issue). In brief: In this edition we cover new regulations on registration of government guaranteed foreign loans and international bonds, as well as the draft Law on Land scheduled to be passed shortly. We also discuss recently introduced administrative sanctions for breaches of securities laws and new implementing regulations on anti-money laundering. Visit Allens is a leading international law firm in South East Asia, China and Australia. subscribe to (or take a free tour of) Vietnam Laws online Allens offers one of the most comprehensive database a searchable legal networks in Asia and Australia with offices database of over 3,900 of our in Beijing, Brisbane, Hanoi, Ho Chi Minh City, English translations of Hong Kong, Jakarta, Melbourne, Perth, Port Vietnamese laws regulating Moresby, Singapore, Sydney and Ulaanbaatar investment and business and, via our integrated global alliance with Linklaters, we have access to lawyers in 27 access free translations of a offices across 19 countries. selection of Vietnamese laws Allens' Vietnam practice is led by resident read the Vietnam Legal Update partners Bill Magennis, Hop Dang and Robert back to 1997 complete with Fish. Our in-country team consists of index of contents and search international and local lawyers and legal function translators. find out more about our practice We encourage feedback from our readers in Vietnam regarding the Vietnam Legal Update. Please Visit direct all enquiries, comments and suggestions find out more about the Allens to us via at VLU@allens.com.au. network and our international practice Allens Pte Ltd is incorporated in Singapore with limited liability, company reg no H. Our associated firm Allens is an independent partnership operating in alliance with Linklaters LLP Allens Vietnam Laws October2013 1

2 New guidance on registration of government guaranteed loans and bonds Circular TT-NHNN providing guidelines on procedures for registration of foreign loans and international bond issues guaranteed by the Government and registration of changes thereof (Circular 22) On 24 September 2013 the State Bank of Vietnam (SBV) issued Circular TT- NHNN providing guidelines on procedures for registration of foreign loans and international bond issues guaranteed by the Government and registration of changes thereof (Circular 22). Circular 22 repeals Sections I to IV of Chapter III of Circular TT-NHNN dated 21 December 2004 on borrowing and repayment of foreign loans by enterprises (Circular 09), which, although issued pursuant to an older Decree, had previously been applied in practice to such registrations of foreign loans and international bonds issues in the absence of any more specific regulations. Fortunately, most of the requirements for registration of non-government guaranteed loans have now been dealt with in Circular 25 dated 31 August 2011 on simplification of Administrative Procedures of the SBV (Circular 25). Generally speaking, Circular 22 contains similar registration requirements to those that had applied under Circular 09, and those that apply under Circular 25. Registration In order to register a foreign loan or an international bond issue guaranteed by the Government, Circular 22 provides that an application file which consists of the following documents must be submitted to the SBV: Request for registration of the foreign loan or international bonds issue (in standard form); Legal file of the borrower containing certified copies of the licence or establishment decision of the borrower, or certificate of registration or investment certificate (as prescribed by law), and any amendments thereto; Copy of the letter of guarantee from the Ministry of Finance (MOF) certified by the authorised representative of the borrower; Copy of a letter of approval from the authorised level in the case of an investment project or business and production plan using the capital raised from such foreign loan or international bond issue; and Copies in the foreign language and Vietnamese translations (certified by the authorised representative of the borrower that such copies and translations are accurate) of the signed foreign loan agreement, or signed contracts relating to the international bond issue (depending on the structure of the issuing tranche). The application file must be submitted to the SBV within 30 days from the date on which the letter of guarantee is signed and before the first drawdown of the foreign loan or issue of international bonds Allens Vietnam Laws October

3 Within 15 days from the date on which the SBV receives a full and proper application file, Circular 22 provides that the SBV will issue confirmation of registration of the foreign loan or international bond issue. Confirmation of Registration The confirmation shall comprise the following main items: the borrower and lender (in the case of a bilateral foreign loan or a syndicated foreign loan not using the lender's representative) or the lender's representative (in the case of a syndicated foreign loan or international bonds issue using the lender's representative or owners' representative); any agents relevant to the foreign loan or international bond issue; fundamental conditions of the foreign loan or international bond issue (including loan quota, and overall value of the international bond issue; purpose of use of capital raised from the foreign loan or international bond issue; interest rate; penalty rates; fees; forms of security; loan term; drawdown plan, and loan principal and interest repayment plan); and the authorised credit institution or foreign bank branch where the borrower has opened its account for capital drawdowns and repayment of the foreign loan or international bonds; and any other matters relevant to the foreign loan or international bonds issue. If the SBV refuses to certify registration, the SBV shall provide a response explaining its reasons. Registration of changes Where there are any changes to the items included in the confirmation of registration, the borrower must register the changes with the SBV. The application file for registration of the changes consists of: Request for registration of change in the foreign loan (standard form); or request for registration of change in the international bond issue (standard form); Copy in the foreign language and Vietnamese translation of the signed agreement on the change (certified by the authorised representative of the borrower as to the accuracy of such copy and translation), if the changes required agreement between the parties; Copy of the letter of guarantee from the MOF or of the Addendum amending the original letter of guarantee; and Letter from the borrower clearly explaining the changed items (applicable only where there are no such documents as specified in the two preceding bullet points). The above requirements differ slightly from those that applied under Circular 09. Whereas previously, 'consent from the Guarantor' was required to be submitted as part of the registration application, this requirement has changed to a 'copy of the letter of 2013 Allens Vietnam Laws October

4 guarantee' or an 'Addendum amending the original letter of guarantee'. The effect of this change seems to be that, unless the change to the foreign loan also requires a change to the letter of guarantee, explicit Guarantor consent is not required as part of the application file (however, parties are nevertheless obliged to notify the MOF of any amendments under the law on Government guarantees). The application file must be submitted to the SBV within 30 days from the date on which the amended agreement is entered into or the amended letter of guarantee is issued by the MOF. Within 15 days from the date on which the SBV receives a complete application file, Circular 22 provides that the SBV will issue confirmation of registration of the changes, or, if the SBV refuses to certify the registration of the changes, provide a response explaining the reasons for such refusal. Circular 22 came into effect on 1 October What's new in the Draft Land Law? Vietnam is scheduled to pass a new Law on Land this month which will be effective from 1 July 2014 (the Draft Land Law) in replacement of the current Law on Land which was issued in 2003 (Current Land Law). Overall, the Draft Land Law proposes clearer terminology and concepts that will hopefully make the application of the Land Law less confusing than that of the Current Land Law. The basic principle of land ownership and land use rights (LUR) remains unchanged: land in Vietnam will remain owned by the people of Vietnam as a whole and the State will continue to act as their representative by way of granting LUR to land users and managing the land use. The Draft Land Law also includes detailed regulations on land compensation and clearance as well as the procedures for issuance of certificates of land use rights and building ownership (LURC). Clearer terminology The term 'foreign organisations and individuals', which has never been defined under the Current Land Law, will no longer be used under the Draft Land Law unless the land user is a diplomatic organisation or a diplomat. In its place, the term 'foreign invested enterprise' (FIE) will be introduced, which is defined to mean a 100% foreign owned enterprise, joint venture enterprise and domestic enterprise to which the foreign investor has invested in via share purchase, merger or acquisition. The Draft Land Law qualifies that with respect to domestic enterprises, they will only be treated as an FIE if the foreign investor(s) hold 100% or a controlling interest in the domestic enterprise (based on the Law on Enterprises). However, there is no such qualification in respect of joint venture enterprises, suggesting that a joint venture enterprise will be treated as an FIE regardless of the ratio of the foreign investor's interest in that joint venture. The Draft Land Law also proposes to use the term 'allocation of LUR' to mean 'allocation of land' and 'lease of LUR' to mean 'lease of land' Allens Vietnam Laws October

5 Major rearrangement of forms of LUR but meanings retained In an effort to eliminate confusion, the Draft Land Law proposes to allow FIEs and domestic enterprises to be treated equally, ie. allow FIEs to obtain the same forms of LUR as those to which the domestic enterprises are entitled. If passed in the current draft form the Draft Land Law will allow, for the first time, FIEs to obtain allocation of LUR for the purpose of development of housing for sale and lease. This will put an end to the confusion created by the Current Land Law which, on the one hand, requires FIEs to hold leases of LUR for 70 years (with the right of extension) but on the other hand allows buyers who purchase property from an FIE to be allocated LUR in perpetuity. Under the Current Land Law the only circumstance in which an FIE is permitted to hold LURs in the form of allocation is if such allocation of LUR was contributed by a domestic enterprise and the FIE is still operated in the form of a joint venture enterprise. Unlike the Current Land Law, domestic enterprises and Vietnamese individuals will be able to lease land from the State with a selection of either once-off payment or annual payment of land rent. Currently, only FIEs are entitled to make this selection; domestic enterprises and Vietnamese individuals may obtain LUR by way of allocation or lease through making annual payments only. Acquisition of LUR Like the Current Land Law, the Draft Land Law is silent on the right of FIEs to receive an assignment of LUR from other land users (other than by way of capital contribution from a domestic enterprise), while domestic enterprises and Vietnamese individuals are expressed to have this right. The fact that this scenario is not addressed will likely limit foreign investors and FIEs from acquiring land directly from existing land users. FIEs will also continue to be restricted from receiving capital contributions by way of LUR from Vietnamese individuals and households (but not from domestic enterprises). However, there may be a more transparent process by which FIEs could obtain LUR through auction. The Draft Land Law requires most allocations and leases of LUR by the State to be conducted through an auction and allows both FIEs and domestic enterprises to participate in this process. Land must be cleared before being put to the public for auction. If this provision appears in the final version of the new Law on Land, it will be interesting to see how this is implemented in practice as, in the past, it has been difficult for FIEs to acquire LUR through this process. The Draft Land Law also contemplates that FIEs may sublet land from domestic enterprises and overseas Vietnamese (in addition to industrial zone developers). Under the Draft Land Law, FIEs may also receive assignment of LUR as a result of realisation of a mortgage and assignment of 'investment capital being the value of LUR'. The meaning of this phrase is unclear at this stage, however the Draft Land Law authorises the Government to provide further regulations on this issue. In respect of uncleared land (with existing land users), the Draft Land Law proposes to 2013 Allens Vietnam Laws October

6 reduce the number of circumstances in which the State is entitled to conduct a land clearance scheme for socio-economic development. These circumstances will be limited to projects that are either the subject of an investment decision of the National Assembly or which have in-principal approval of the Prime Minister, new urban zones and industrial complexes approved by the relevant provincial People's Council. Notably, 100% FIEs will no longer be in the list of entities that can benefit from land clearance conducted by the State. Duration The permitted duration of LUR for agricultural land allocated to Vietnamese individuals and households is proposed to be increased to up to 50 year LUR (rather than the currently applicable 20 years). The current duration of LUR granted for investment projects will remain unchanged, ie. up to 50 years for normal cases and 70 years for large projects with long pay-back period or located in hardship areas, applicable to FIEs and domestic enterprises alike. The Draft Land Law also specifies that the duration of LUR in respect of land used for development of housing for sale and lease will be equal to the duration of the project of the developer (and this appears to apply to both FIEs and domestic enterprise). However, buyers will be entitled to stable and long term use. Unlike the Current Land Law, only Vietnamese individuals and household families may be allocated residential LUR on a stable and long term basis. Under the Draft Land Law, it seems that domestic enterprises may no longer be able to enjoy this 'stable and long term' duration. Upon expiry of any LUR, the State will 'consider' granting an extension if the land user still has a demand for use of the land, and such use is consistent with the zoning. Delay of project implementation Currently, land which is intended to be used for the purpose of implementing a project may be resumed by the State if the commencement of the project is delayed for 12 months or if, following commencement, the operation of the project falls more than 24 months behind the approved schedules. However, the Draft Land Law proposes to allow the land user to apply for an extension to the project commencement or completion date of up to 24 months provided that payment of an amount to the State equivalent to the land rent/land use fee for such delayed period. After this extended period, the State will resume the land if the land user has not brought the land into use. Mortgage of LUR Unlike the earlier draft, the latest Draft Land Law retains the existing provisions on mortgage of LUR and assets on land. Under these provisions, LUR may be mortgaged only to credit institutions permitted to operate in Vietnam. The possibility to mortgage LUR to foreign lenders with Prime Minister approval is not contemplated. The Draft Land Law also contemplates that the State will issue an LURC to the beneficiary of the transfer of LURs upon realisation of a mortgage of LUR. It is hoped 2013 Allens Vietnam Laws October

7 that this will result in a smoother process for realisation of mortgages of real estate in Vietnam. Land price The Draft Land Law contemplates that the official land price will be published by the provincial people's committee every 5 years (instead of annually as the Current Land Law provides). This official land price will be used for the calculation of taxes, fees and charges (other than land use fees), administrative penalties and compensation payable to the State. Despite this official land price, provincial people's committees will continue to determine specific land prices for each specific site, based on the location, infrastructure and intended use of the land. These specific land prices will be used for the purpose of calculating land use fees and rent payable to the State, and compensation to land users. Subdivided land for sale The Draft Land Law seems to leave the provincial people's committees to decide whether a housing developer is permitted to subdivide land and sell it to buyers. The current restrictions for subdivision in urban areas are no longer included. This may be an attempt to improve market conditions given that many developers and buyers are short of cash in current market conditions. Land in industrial zones Under the Draft Land Law developers will now have to lease land for development of an industrial zone (rather than having a choice of leasing or being allocated LURs as is currently the case). However, developers will now be free to select either annual payments or a once-off payment of land rent. If a once-off payment is made, the developer may sublet the land and collect rent either annually or in one lump sum. However, if an annual payment is made, the developer must only collect rent annually from a subtenant. This proposed change in the law should stop situations in which developers lease land from the State making annual rent payments, but collect lump sum payments from subtenants with respect to that same land. A subtenant will have the same rights as the tenant leasing the land directly from the State on the same rent payment terms, whether they be annual or lump-sum payments. In both circumstances, the subtenant will be issued with an LURC. New levies Land users who are allocated, or who lease, land from the State which has formerly been used for rice cultivation will be obliged, under the Draft Land Law, to pay an additional amount to the State in order for the State to arrange for a replacement land area for rice cultivation. It appears that this amount will be additional to the land use fee or rent charged by the State upon granting the allocation or lease, or permitting the conversion of land use purposes Allens Vietnam Laws October

8 Administrative sanctions introduced for breaches of securities regulations Decree 108 on administrative sanctions applicable to breaches of regulations in respect of securities and securities market (Decree 108) On 23 September 2013, the Government issued Decree 108 on administrative sanctions applicable to breaches of regulations in respect of securities and securities market (Decree 108). Decree 108 replaces Decree 85/2010/ND-CP dated 2 August 2010 (Decree 85) and comes into effect on 15 November Decree 108 will apply to all foreign and domestic organizations and individuals in breach of the regulations in respect of securities and the securities market. Decree 108 sets out specific administrative penalties applicable to each breach of regulations on, among other things, private offers, public offers, securities issuance, obligations of public companies, purchase and sale of treasury shares, tender offers and the listing and trading of securities. Sanctions Sanctions under Decree 108 are as follows: 1. Warning 2. Fines A warning shall apply to a minor administrative offence committed for the first time and with mitigating circumstances. There are three forms of fines under Decree 108, namely, (i) fixed fines, (ii) fine equal to 1%-5% of the unlawfully raised amount and (iii) 1-5 times of the unlawfully raised amount. (a) Fixed fines The maximum fixed fine under Decree 108 is VND2 billion (approx USD100,000) for organizations and VND1 billion (approx USD50,000) for individual who commits a breach set out in Decree 108. The fixed fine is dramatically increased in comparison with the fines under Decree 85 which set out the maximum files of VND500 million only. The fine of VND 2 billion will apply to the activity of forging documents for listing or registration of securities or organizing an illegal securities trading market where there is no unlawful income derived. (b) Fine equal to 1%-5% of the unlawfully raised amount The activity of an issuing organization forging documents in the process of preparation or certification of an application documents for registration of a public offer is subject to a fine of from 1% to 5% of the total amount of money unlawfully raised Allens Vietnam Laws October

9 (c) Fine equal to 1-5 times of the unlawfully raised amount A fine of from 1-5 times the amount of money unlawfully raised shall apply to an entity (i) illegally organizing a securities trading market resulting in unlawful income or (ii) carrying out a public offer of securities without necessary approval. The fines specified in the Decree 108 apply for organizations only. Individuals committing similar breaches will be subject to the fines which are half of the fines applicable to organizations. 3. Forfeiture of business licence/certificate or suspension of business activities within a period of time Depending on the breach, the authorities may forfeit the business licence/certificate or suspend the business activities of the entity/individual breaching the regulations on securities and securities market. In addition, this sanction may be solely applied or as an additional penalty to the fine. For example, a securities practicing certificate will be forfeited for a period of between 6 and 12 month if the bearer is concurrently working for 2 securities firms. Meanwhile if the bearer mortgages the customer's securities, he/she will be subject to a fine of max VND300 million and his/her practicing certificate will be forfeited for a period between 1-3 months. Measures for remedying consequences Under Decree 108, other than being subject to the above sanctions, entities breaching regulations on securities and securities market may be forced to carry out any of the following measures: withdrawal of offered/issued securities and refund of money or issuance of additional shares to investors; return of securities and money to the investors; cancellation or correction of information; refund of all illegal income earned from the violations; carrying out the tender offer in compliance with the registered plan; continue to purchase the stocks or fund certificates remaining after conducting the tender offer; not having the voting rights attached to the shares owned from the violation; selling shares to decrease the ownership to the permitted percentage; obtaining the approval of the general meeting of shareholders on the change of the purpose and the use capital raised from the offering; carrying out the depository and management of the asset, capital and stock separately; and 2013 Allens Vietnam Laws October

10 providing explanation and notification of the information relevant to the auditing business. Possible effects Unlike in other jurisdictions, the level of resources and priority given to verifying the accuracy of information provided to investors about securities is extremely low in Vietnam. For example, for a new listing in Vietnam, the process is seen as largely mechanical and it would not be unusual for it to be conducted solely by the security company with minimal involvement from legal advisors. This can largely be attributed to the relatively light level of sanctions previously applicable. With Decree 108 introducing more serious sanctions, we may see the disclosure standards in relation to securities and the securities market improved as a result. New detailed guidance on anti-money laundering Decree 116/2013/ND-CP of the Government dated 4 October 2013 detailing a number of articles of Law No. 07/2012/QH13 dated 18 June 2012 on Anti-money Laundering (Decree 116) The Government has recently issued Decree 116 detailing a number of articles of Law No. 07/2012/QH13 dated 18 June 2012 on Anti-money Laundering (Law on Antimoney Laundering). Decree 116 took effect from 10 October 2013, replacing Decree 74/2005/ND-CP. Generally, Decree 116 does not provide new requirements in relation to anti-money laundering compliance but rather further details on the current regulations contained in the Law on Anti-money Laundering. This article will highlight some major provisions introduced under this Decree. Customer identification 1. Circumstances requiring customer identification Customer identification is a main cornerstone for anti-money laundering compliance. The Law on Anti-money Laundering regulates circumstances where customer identification measures must be applied. Besides those described under the Law on Anti-money Laundering, Decree 116 further details the following cases upon which relevant individuals and entities must carry out customer identification: a financial organization must indentify a customer conducting an irregular high value transaction which is defined as a transaction or transactions of the customer having no account or having account but not conducting any transactions within 6 months or more with the total value of VND 300,000,000 within a day; organizations or individuals conducting business involving prize-winning games and/or casinos must identify customers who conducted transactions with the aggregate value of VND 60,000,000 or more within 2013 Allens Vietnam Laws October

11 a day; and organizations or individuals conducting business involving precious metals and/or gems must identify customers who conduct transactions in cash with the value of VND 300,000,000 or more within a day. 2. Customer identification information Decree 116 regulates the customer identification process and the required customer identification information for two types of customers that have not been covered under the Law on Anti-money Laundering. In particular: For customers being stateless individuals, identification information must contain: full name, date of birth, occupation, position; passport number, place of issue; address of residence abroad and address of residence in Vietnam; For customers having dual nationality or multiple nationality, in addition to the information required above for a single nationality person, information on other nationalities and address of residence in each other country of nationality are also required. 3. Beneficial owner In the anti-money laundering compliance process, information must be identified of direct customers and also of beneficial owners. Under the Law on Antimoney Laundering, the beneficial owner is defined as "an individual with actual ownership of an account or with controlling right when a customer conducts a transaction for such individual, or an individual with the right to control a legal entity or an investment entrustment agreement" Decree 116 provides that reporting entity must verify who is the beneficial owner on the following criteria: The individual actually owning any one account or transaction: the accountholder or joint accountholders or any person controlling the activities of such account or transaction or controlling the beneficiary of such account or transaction; The individual with the controlling right over the legal entity: an individual holding 10% or more of the charter capital of such legal entity; an individual holding 20% or more of the charter capital of an organization contributing more than 10% of the capital to such legal entity; the owner of a private enterprise; or any other individual actually controlling the legal entity; The individual with the controlling right over the investment entrustment or authorization agreement: the entrustor or person delegating authority; or the person with the right to control the individual, legal entity or entrustor organization or organization delegating authority Allens Vietnam Laws October

12 Special supervision of transactions Decree 116 provides guidelines on how to determine (i) unusually high value transactions or (ii) complicated transactions of a customer which are subject to special supervision. Unusually high value transactions are transactions that are obviously not proportional to the income of the customer or not appropriate to the value of the transactions that the customer frequently conducts. Complicated transactions are transactions being conducted by methods that are not suitable with the nature of the transactions. They could include transactions that are conducted by many intermediaries and unnecessary multiple accounts, transactions that are conducted among many different accounts of one account holder at different geographical areas and any other transactions deemed to be unusual requiring the supervision of the relevant organization or individual. Report on money laundering for terrorism financing Under Decree 116, grounds to determine whether an organization or individual has committed acts related to the crime of money laundering for terrorism financing include: conducting or having intention to conduct any transaction related to an organization or individual included in the relevant Resolutions of the United Nations Security Council; conducting or having intention to conduct any transaction related to an organization or individual under the list of terrorism organizations, individuals and finance terrorism established by other international organizations or other nations and under warning of the Vietnam State Bank; conducting or having intention to conduct any transaction related to an organization or individual convicted of terrorism acts or terrorism financing in Vietnam; and conducting or having intention to conduct any transaction related to a terrorist organization or individual or funding terrorism of which the reporting entity is aware from other information sources Allens Vietnam Laws October

13 Legal instruments recently uploaded on to the Vietnam Laws online database Vietnam Laws online database (available at is an online searchable database containing English translations of more than 3,500 Vietnamese laws. Legislation recently uploaded includes: Law 78 on Tax Management dated 29 November 2006 as amended by Law 21 dated 20 November 2012 Circular 210 guiding establishment of securities companies, 30 November 2012 Law 28 on Counter-Terrorism, 12 June 2013 Decree 72 on Management, Provision and Use of Internet Services and Online Information, 15 July 2013 Decree 116 implementing Law 07 on Anti-Money Laundering, 4 October 2013 Decree 137 implementing the Law on Electricity, 21 October 2013 Hanoi Suite 401, Hanoi Towers 49 Hai Ba Trung Street, Hoan Kiem District Hanoi, Vietnam T F Bill.Magennis@allens.com.au Hop.Dang@allens.com.au Ho Chi Minh City Suite 605, Saigon Tower 29 Le Duan Boulevard, District 1 Ho Chi Minh City, Vietnam T F Robert.Fish@allens.com.au 2013 Allens Vietnam Laws October