VIETNAMESE POLICE RAID BATES' HO CHI MINH OFFICE: ACTIONS ARE COMMON IN A COUNTRY STILL UNCOMFORTABLE WITH CAPITALISM

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Vietnamese police raided the Ho Chi Minh City office of Bates Worldwide on April 22 to search for evidence of possible violations of regulations governing the operation of agencies in Vietnam.

The team of 20 officers reportedly removed a few files and fined the agency $100,000.

REORGANIZATION UNDER WAY

An agency insider said that Bates, part of London-based Cordiant Communications Group, has appointed law firm White & Case and management consultant KPMG to assist with an internal reorganization as specified by local authorities.

Nick Brown, managing director of Bates' Ho Chi Minh City office, declined comment on the raid. But an agency finance director described the fine as "mere peanuts" and called the raid "nothing more than a little rattling of the can." That's not uncommon in a country where ads for Western brands are routinely torn down and agency offices are bugged by officials of the Communist government.

A former senior-level executive at the Bates office in Vietnam said raids and investigations happened at the agency "at least once a year and sometimes several times a year" after Bates became the first foreign agency in Vietnam in 1993. The executive, now a Bates regional director, said investigators usually looked "at invoices and media contracts" to determine if the agency was operating illegally.

He added that other agencies in Vietnam, including J. Walter Thompson Co., Ogilvy & Mather Worldwide and McCann-Erickson Worldwide, also were frequently raided.

LOOKING FOR PROFITS

It could not be confirmed whether other agencies were also raided last month, although executives at several, including Saatchi & Saatchi, Grey Advertising, JWT and McCann, said their shops either have been raided in the recent past or could be next on the hit list.

The police are typically searching for proof of business activities that generate profit or revenues. Nearly all foreign advertising agencies are issued a "representative office license," which does not permit them to set up a joint venture or earn revenues and profits.

The country, which remains uncomfortable with capitalism, has a small ad business with total billings estimated at less than $100 million.

BURNETT GAINS LICENSE

In mid-April, after a laborious 18-month effort, Leo Burnett Vietnam obtained a "business cooperation contract," or full service license, to operate in Vietnam as a joint venture with local partner M&T Advertising, according to Steve Gatfield, regional director of Leo Burnett for Asia Pacific in Hong Kong.

Paperwork and bureaucracy, compounded by conflicting advice from officials, make it extremely difficult for foreigners to get a cooperation contract.

Indeed, an earlier Bates joint venture with a local partner that had been approved was later disallowed by Vietnamese authorities, according to the Bates regional director.

OFFSHORE CONTACTS

It can be difficult to earn money through a cooperation contract because foreign agencies provide the upfront cash, train the local staff and are subject to high taxes and strict foreign exchange controls.

Most agencies work through offshore accounts or handle billings through offices in nearby Thailand, then hire a Vietnamese company to buy media on commission. The police have been dissatisfied with this practice, prompting the periodic raids.

One regional director said "the recent license grant to Leo Burnett Vietnam was hailed as a possible sign that the tight control of foreign agencies is being loosened," adding that several agencies in Vietnam are now attempting to get similar contracts.

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