Vietnam’s Upcoming FATF Mutual Evaluation Report

After China, Vietnam has enjoyed the world’s second fastest growing economy for the past 25 years1. Adopting the formula established by Japan, Korea, and China, Vietnam’s success is export driven. The country’s strength is its young, educated and productive workforce1)Vietnam’s success merits a closer look.20160806 FNC215

In 2012, Vietnam’s economy suffered a setback to both exports and economic growth as China’s economy slowed, and the FATF downgraded Vietnam’s status to that of a jurisdiction not making sufficient progress2)Improving Global AML/CFT Compliance: on-going process – 16 February 2012.

At least two international Banks, HSBC and Wells Fargo terminated their corresponding banking relationships with domestic Vietnamese banks making it extremely difficult for the Vietnamese banks to conduct business on the world stage.
Vietnam GDP growth

By February 2014, Vietnam’s status with the FATF had been restored to that of a jurisdiction no longer subject to the FATF’s on-going global AML/CFT compliance process3)High-risk and non-cooperative jurisdictions and the country’s economic progress was restored4)Vietnam.

The first FATF AML/CTF Mutual Evaluation Report (MER) for Vietnam occurred in 2009. It was that evaluation that led to the 2012 downgrading. Vietnam’s next evaluation is scheduled 2019, and will be based on criteria set out in the 2012 FATF recommendations5)Methodology for Assessing Technical Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems which place increased emphasis on effectiveness, rather than just compliance.

Vietnam is a known trade route into China for illicit Ivory and rhino horn. Increasingly it is also believed that the illegal wildlife traders worldwide are linked to drug smuggling6)Do dope-smugglers also peddle ivory?. Vietnam has a reputation as one of the worst wildlife trafficking hubs7)Vietnam’s crackdown on traffickers of endangered species is only superficial, which makes it surprising that it has such a poor track record for the AML/CFT prosecutions.

It appears that vested interests are a serious factor undermining the willingness of authorities to introduce the necessary legislation, and then investigate and prosecute the crimes8)Graft-busting in Vietnam.

According to Transparency International, Vietnam has the second highest level of corruption in the Asia Pacific region9)People and Corruption: Asia Pacific. The banks, which are key to the effectiveness of AML/CFT, are also riddled with corruption10)What a spate of arrests says about Vietnam’s banking sector.

Direction from senior party leadership is required to give the relevant authorities the motivation to save Vietnam from a relapse in its FATF status.

If Vietnam’s economic growth is to stay on course, it’s leaders will need to recognize the threat that the country faces from failure to prove the effectiveness of its commitment to AML/CFT, at the next MER.

As Asian countries compete with each other, the importance of GDP figures for political leaders cannot be overstated. As evidence, Vietnam has the reputation of publishing GDP statistics impossibly early, before the end of the year11)Is India Lying About Its World Beating Economy?.

Sustained commitment to meeting the FATF recommendations at the highest level of government is the only way for Vietnam to ensure that it obtains a positive evaluation in 2019.

Footnotes

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Tourism in India


Taj Mahal
The Taj Mahal is India’s premiere tourist destination. As one would hope, there are rigorous security checks at the entrances. But, if the officials responsible for the security don’t understand that they are manhandling one of India’s most vital assets, they are doing their country a disservice.

It was disconcerting to watch their handling of an American teacher. The teacher was carrying a paper cut-out doll, a well known children’s character, often photographed with the world’s leading landmarks, and shown to young students in foreign countries, who are then tasked with identifying the landmark, and writing about it.

OLYMPUS DIGITAL CAMERA

This cut-out, according to the over-zealous official, was disallowed according to statute determined by the national assembly. The teacher’s efforts to appeal to logic were in met with disdain. So, she gave up on diplomacy, and explained to the senior officer that the official list of disallowed items at the gate did not include anything that could, even in the broadest terms, include the paper doll. The doll got in, but no-one won.

That experience was not unique among the tourists.

In contrast, a local youth carrying a hockey stick, apparently the weapon of choice among the young men in Agra, was allowed in without question.

India really needs its tourists.

Looking at the national statistics makes that clear. The country has a population of 1.22 billion people. More than 150 times as many as tiny Switzerland. Both countries earn the same amount from tourism – $16.6 billion. But India needs its tourist a lot more. Switzerland is running an international trade surplus of $66.5 billion, while fighting against an appreciating Swiss Franc. India runs a deficit of $80.15 billion and the Rupee is in decline.

The tourist in India soon realizes that the government is heavily reliant on visitors for its revenue. Every bill at hotels and restaurants contains a plethora of taxes, usually adding more than a third to the cost of the meal.

Government expenditures at 14.4% of GDP vastly overshadow the revenue (8.8%). It desperately needs the money because its not anywhere close to balancing the books.

Taxing tourists also acts as a disincentive, but with so few alternatives, one would expect an effort to treat guests well. Apparently not.

More at:
India tourism statistics at a glance
India tourism statistics
CIA World Factbook – Switzerland
CIA World Factbook – India

Employment will decide the election. Really?

Apparently American voters won’t re-elect a President when unemployment is above 8%. At least the debate is about a substantive issue.

The impact of the jobs figures on the stock markets is an indication of how much relevance employment has. But it needs to be put into perspective.

The shock that hit the world economy in 2008 was on a par with that which launched the Depression. In the 12 months following the economic peak in 2008, industrial production fell by as much as it did in the first year of the Depression. Equity prices and global trade fell more. Yet this time no depression followed. (The Economist Dec 10, 2011)

Unemployment rates in 1933, four years after the 1929 crash and before the economy started to recover, topped 25% . Presently, unemployment in the U.S. is at 8.3%, down from the peak of 10%.

Monetary policy, which failed in 1929, provided most of the relief needed after 2008. The Federal Reserve, which is beyond political control, has the responsibility for monetary policy.

Deciding who should be President, based on something that’s not part of the President’s mandate is crazy. Not only that, the 2008 crash is not over. What happens in the next few weeks in Europe will have a big impact on the world economy, and that’s also out of the President’s hands.

Europe’s problem is much bigger. The European Central Bank, the body that should have control of monetary policy in Europe, doesn’t have the same level of mandate that the Fed has. The politicians from the 17 countries that make up the Eurozone, led by Angela Merkel, need to provide that mandate. They are not even talking about trying, let alone working out how it should be done.

This will be a big decision, and would require relinquishing autonomy that many of the members indicate they have no desire to give up. Voters in the union are increasingly feeling that membership is not beneficial. The chances of getting consensus are low.

What follows next is looking bad.

And in the U.S., the debate is about whether unemployment figures will be above or below 8%.

Nero fiddled while Rome burned. What else could he do?

More at:
Lessons of the 1930s There could be trouble ahead
Business cycles Lessons of the 1930s
Lost economic time The Proust index
The euro crisis The growth problem