Is Vietnam's legal system cracking under the pressure of its mind-boggling growth rate? Four bankers being held hostage in Hanoi certainly think so. Should the Western world agree?

The Wall Street Journal, the Sunday Times, Time Magazine and other Western media are buzzing about Vietnam's handling of a recent investigation into foreign exchange trading practices of mega-bank ABN-Amro. The resounding claim by all is that the case has cast a doubt over the country's ability to maintain investment-friendly infrastructure.

Vietnamese police are accusing employees in ABN-Amro's Hanoi branch of trading illegally with the country's state-owned Incombank. According to the police, the trader on the Incombank side, Nguyen Thi Quynh Van, was unauthorized to trade foreign currencies, and the 500 foreign exchange trades that ABN-Amro made with this woman over the past three years resulted in undue losses for Incombank.

Repercussions for Van are serious. According to the Vietnamese police, she stole passwords to complete the trades. If found guilty she could could face death by firing squad. Four others, from both ABN-Amro and Incombank, are also being detained.

The Western media is proclaiming this an outrage, and they are sending a message to investors that the Vietnamese government is interfering in a backwards manner.

Yes, ABN-Amro has denied the claim. And Van’s punishment seems severe to most Western cultures. But has anyone considered the fact that the Vietnamese police might be in the right?

For instance, the Western media doesn't seem to be acknowledging money transfer documents provided by ABN-Amro that show that in 2005 and 2006, Incombank Hai Phong and ABN-Amro transferred only “netoff” over 30 times. This indicates that the banks were transferring only the net amounts of canceling contracts instead of transferring the full amounts each time as required by banking rules. In addition, on many spot delivery contracts the two sides did not pay within the required two-day timeframe. Equally suspicious is that the exchange rates applied on certain contracts exceeded the State Bank of Vietnam's allowed levels over 20 times. Finally, no one has yet denied that Van was not authorized to perform the trades.

If the legislation and punishments were clear before these transactions were completed (note that there has been some dispute regarding which authoritative body should handle the case from Vietnam's side), and if the conclusions from these documents are correct, it may just turn out that ABN-Amro is in the wrong. If this is the case, the Vietnamese police should be congratulated for catching the error and punishing the entity that committed the crime. It is exactly this type of law and enforcement that is lacking in so many underdeveloped nations and keeps them from developing strong economies.

And even if ABN-Amro was in the right, there is still something to be said to the Western media about addressing all relevant facts. Too often we are anxious to slam emerging economies for their weaknesses. It would benefit many to learn when to wake up to their strengths.

Posted by Michelle Smith on November 25, 2006 12:39 PM