In 2022, Vietnamese authorities brought charges against two principal shareholders of Tan Hoang Minh and Van Thinh Phat for the crime of fraud (Tội lừa đảo) under Article 174 of the Penal Code 2015. Newspaper reports suggest that the relevant individuals have undertaken fraudulent activities in issuing corporate bonds and appropriate the bond issuance proceeds from bondholders. However, to prove that an individual commits a crime of fraud, the authorities would need to produce more evidence to support their cases.

Article 174 of the Penal Code 2015 imposes criminal liability to an individual who appropriates others’ properties by fraudulent means. Based on comments from reputable scholars (link 1, and link 2), the crime of fraud has the following characteristics:

• Only individuals could be convicted of the crime of fraud. Companies cannot be convicted of this crime. Accordingly, the entities issuing corporate bonds in the above cases cannot be convicted of the crime of fraud;

• The criminal must have the intention to appropriate properties of other persons. To appropriate a property, the criminal must obtain all three elements of ownership right including right of possession, right to use and right to dispose the property. If the criminal only obtains one or two elements of ownership right then it is not a crime of fraud. In a similar provision, the Penal Code 2015 applies criminal liabilities to a person who borrows monies from other but, among other things, does not repay when the loan is due even though such person has the capacity to repay the loan. This provision suggests that if the loan is not due yet then the act of appropriation might not have occurred. Accordingly, if the bond issued by the relevant issuing entities are not due yet then it is not clear if the bond proceeds can be treated as being appropriated by the relevant individuals;

• If the criminal undertakes fraudulent acts but does not have intention to appropriate properties of other persons, then it is not the crime of fraud. Instead, it could be a crime of misuse of properties or a simple breach of contract. In the above cases, the bond proceeds are supposedly held by the relevant issuing entities not their shareholders. Accordingly, it is not clear if the authorities have the evidence that the relevant individuals intend to appropriate the bond proceeds.

• The criminal must have the intention to appropriate properties of other person before using fraudulent means to appropriate properties. If the intention to appropriate properties arises after the criminal already the properties then the crime is not the crime of fraud but could be a different crime;

• The criminal must commit the fraudulent act before the owner of the properties deliver the properties to the criminal. If the criminal commits the fraudulent act after it has acquired the properties then the crime is not the crime of fraud but could be the crime of abusing trust to appropriate property (lạm dụng tín nhiệm chiếm đoạt tài sản) under Article 175 of the Penal Code 2015;

• When commenting on the crime of abusing trust to appropriate property under Article 175 of the Penal Code 2015, some authors cite an example where a borrower borrows monies for task A (e.g., for buying a car) but then uses the loan proceeds for task B (e.g. repaying an existing loan). The authors consider that if task B is legal then the relevant person is not automatically considered as using the monies for illegal purpose. While this example is cited for the crime of abusing trust to appropriate property, arguably it could also be used for the crime of fraud.

This post is written by Nguyen Quang Vu with research assistance from Le The Hung.