(YKVN’s Healthcare Practice Group Newsletter by Eli Mazur, Partner and Nguyen Hong Ha, Counsel )
1. Dawn Raids in Vietnam
A Dawn Raid is a surprise audit (“kiểm tra” in Vietnamese), inspection (“thanh tra” in Vietnamese), or investigation (“điều tra” in Vietnamese) carried out by the officials of a regulatory body, at the business premises under suspicion/investigation, in order to obtain incriminating evidence as a precursor to regulatory proceedings. Examples of the types of crimes, which could be subject to dawn raid investigations, include allegations of abusing a dominant market position and other anti-competitive practices (i.e., price-fixing, cartels, etc.), or allegations of fraud, market abuse, insider dealing, bribery or corruption.
In Vietnam, dawn raids are rarely used by the regulatory authorities. However, when they do occur, dawn raids usually signify that the regulatory body has a specific (retaliatory) purpose. For instance, in the past, one of our banking clients was subject to a dawn raid after a major currency loss by government currency traders. In addition to this unique feature, notably, dawn raids in Vietnam are also characterized by broad and unchecked regulatory discretion.
Indeed, dawn raids in Vietnam can be unpredictable, explosive, and retaliatory (e.g., for losing money in a bad currency trade). However, dawn raids can be managed, particularly for pharmaceutical companies and in the area of competition law. For instance, certain rules should be followed: (a) call external counsel immediately; (b) know your rights and obligations, such as the absence of privilege in Vietnam and requirements for regulators to obtain a search warrant for personal property such as cars and houses; and (c) the company should have certain policies in place, such as appointing one senior staff member to deal with the regulator/raid until external lawyers arrive or throughout the entire raid.
Below, we provide a broad outline of how audits, inspections, or investigations are carried out in Vietnam. Although dawn raids have been the exception in the past—largely because the regulator has not been staffed to undertake investigations—we anticipate that in the future dawn raids will become a major source of Governmental control of, and consternation in, the MNC pharmaceutical sector.
2. What can the regulator do during a Dawn Raid?
Since Vietnamese law is silent on circumstances and specific procedures for conducting an unannounced audit of a company, it is subject to the sole discretion of the competent authorities, on a case-by-case basis, to determine whether an audit is required.
For example, in our experience, the Drug Administration of Vietnam (“DAV”) could unexpectedly audit warehouses of pharmacy business establishments to appraise maintenance of good storage practice requirements by such establishments. In addition, the provincial People’s Committee could instruct the Department of Industry and Trade to audit representative offices or branches of foreign traders if needed or upon request of upper-level agencies.
As a result, some companies have undergone multiple unannounced audits and inspections in a single year, especially companies under the regulatory purview of various ministries, such as by the DAV for companies in the pharmaceutical industry. This creates a real challenge for Vietnamese businesses for several reasons, including: the lack of a governing law; competent authorities have wide and unchecked discretion to conduct their unannounced audits and inspections; and, most notably, companies have no legal recourse after a dawn raid in conducted by their regulator.
In Vietnam, governmental inspections are governed by the Law on Inspections of 2010. By law, an unexpected inspection may be conducted:
– upon detecting signs of violations of laws;
– to resolve complaints or denunciations;
– for prevention of corruption; or
– as instructed by the relevant competent authority.
In the case of complex matters related to matrix management of multiple agencies, levels or industries, the heads of relevant state management authorities will issue internal decisions on unexpected inspections and the establishment of the inspection teams.
b) Right to Access to the Premises of the Company or Staff’s Private Home for the Inspection
Legally speaking, the inspection team is entitled to enter into the premises of a target company to conduct the inspection and request access to the company’s records, which are stored at such business premises. On the other hand, unless obtaining a properly issued search warrant, the inspection team does not have the right of access to a third party’s premise that stores the target company’s business documents and files. However, the inspection team may request the third party to provide the relevant documents as provided by law.
Prior to conducting the inspection, official(s) may visit the company to collect relevant information and documents by showing credentials as prescribed by law. Subject to different inspection levels, the official inspection could last from 30 to 45 days subject to possible extensions of up to 60 days. Inspections, on the other hand, are traditionally conducted on a single day and, potentially, followed-up by additional investigations.
c) Obligations of the company and its staff
Within the scope of the inspection, as requested by the inspection team, the company and its staff have the obligations to cooperate with the inspectors, particularly:
– To timely provide and be responsible for the accuracy of the information, documents and reports.
– To answer any questions from the inspection team for the purpose of the inspection.
– To appear at the inspection team’s office for questioning if requested.
The law is silent on the administrative sanction for failure to cooperate with the inspection (except in competition inspections; where failure to cooperate with a competition inspection may result in an administrative fine up to VND10 million). However, any refusal to disclose any information or document during the inspection may be considered as a criminal offense punishable by imprisonment and/or fine.
In Vietnam, the investigation is governed by criminal regulations. The investigating body may investigate any criminal offense (e.g., tax evasion, bribes, bid-rigging, anti-competitive behavior, anti-trust violations). For this purpose, the investigating body may visit the company in the context of an investigation into the business of the company—but the body may also do so in connection with an investigation into another party (e.g., an employee, a supplier or a customer that is under investigation).
b) Investigation body’s authorities and rights over the company and its staff during an investigation
Under the Criminal Proceedings Code, during a corporate investigation, the investigating body will have the following rights:
– To request evidence, documents, objects, electronic data or present details related to the case from the corporation and its staff.
– To request the corporate staff to attend an interview (the requested staff has the right to refuse such a request; however, that could be seen as obstruction of the investigation).
– To administer all investigation measures (e.g., arrest, taking into custody, detention, search of person and property, and seizure of objects/documents).
– To temporarily attach objects and documents, which may become exhibits in relation to a future criminal case (If the objects are banned from storage or circulation by law, they must be seized and immediately and delivered to competent management bodies).
– To search files, including computer files, which the investigating body may consider are related to the investigation.
c) Privilege in Vietnam
Please note that the concept of privilege does not exist in Vietnam, so the investigating body could temporarily attach or seize any documents, including those which may be considered to be privileged in another jurisdiction.
That being said, in theory, there are some limitations on the investigating body under Vietnamese law. For instance, the investigating body must obtain a proper warrant before conducting a search of the relevant company’s premises or private homes of the company’s staff (except for emergency cases), or for arresting the company’s staff members as suspects (unless they are caught in the act). Also, in theory, when an arrest / a search is carried out at the workplace, the legal representative of the company must be present as a witness. The law is unclear about the procedures and processes in the absence of the company’s legal representative.
Notably, while there are regulations governing the power of the investigating body, a large number of those regulations are not in the public domain. Therefore, the extent of police powers is not fully known, and, consequently, it is prudent to assume that their powers are broad, extensive, and, likely, unchecked.
3. How can your company prepare for a Dawn Raid?
Below are some recommendations to companies that could be subject to unexpected audits, inspections or investigations by the public authorities.
(2) Designate an authorized representative to speak to the authorities (e.g., inspection team, investigating body, etc.) in order to ensure the consistency of the contents presented to the authorities.
In case an internal team (rather than an individual) is appointed, such team/committee must authorize a sole representative to work with the authorities.
(3) Ask the authorities: (i) to present their professional cards (e.g., the inspector card or official card); and (ii) to announce the audit/ inspection/ investigation decision.
If possible, make a copy of the decision, as well as the inspector/official cards, or at least note down their names and the decision number, date, issuing authority and other relevant information.
(4) If possible, comply with the rights and obligations of the company and its staff during the audit/ inspection/ investigation as discussed in Section 2.
Subject to the conditions of the audit/ inspection/ investigation, the legal representative or the authorized representative may request the relevant staff to report certain issues for the purpose of the audit/ inspection/ investigation.
(5) You have a duty to co-operate with the officials and are required to provide information and documents at the officials’ request. Officials may ask questions and record all answers. For this reason, the authorized person should keep his/her answers short, to the point and not answer any questions about which such person is uncertain. If necessary, request permission to answer in writing at a later stage.
(6) Make copies of the documents that the officials request and take with them. Remember to make a “Delivery Note” for all documents delivered to the officials/ regulator.
(7) After a visit, meeting minutes must be produced. If the authorized representative is asked to sign the minutes, he/she must double-check the minutes before signing for any factual errors. Please ensure the investigatory body also signs the minutes.