175. Telegram From the Embassy in Vietnam to the Department of State1

1515. Subject: Discussion with President Thieu January 30— Corruption. Ref: Saigon 1514.2

Having set the stage for my remarks on corruption, I had a very frank talk with Thieu saying that I felt that of the three problems I had mentioned (reftel) corruption “is now the number one problem”. I then said that this was his problem, but it was also ours. The inability of the GVN to do anything about high level corruption is sharply affecting my ability—the American ability—to help you. The problem is thus a problem of Vietnamese-American relations.
I said that during the last few months the McClellan Committee had been holding hearings on black market currency transactions in Viet-Nam. Many Americans had been named, as well as Indians, Chinese and Vietnamese operators. These names were well known to the GVN authorities. The losses to the RVN were spectacular, running to many tens of millions of dollars a year. Congressional and press criticism had been so sharp that the President had ordered establishment of a high-level inter-agency committee in Washington to deal with this problem.
I said that unless there is some real progress in the attack on corruption I see serious trouble ahead—politically, economically, and in his relations with the US.
I said the GVN had asked US for more assistance for their forces in food and housing as they take on more responsibilities. In the present mood of the Congress it would be very difficult for the President [Page 553] to get more assistance unless the GVN demonstrated its willingness to tap available sources of revenue which are now outside of its control. As an example I cited that the revenue loss from black market cigarettes alone may be as high as 2.5 billion piasters a year. One Vietnamese factory had to shut down because of the flood of foreign cigarettes into the black market. Far greater amounts were lost to the government through illegal currency dealings, some of which seemed to take place with the tolerance of the authorities.
We on our part were trying to do some things to limit American involvement in corruption. Our mission had long had an illegal practices committee to examine reports of black marketing, illegal currency operations, pilfering of government supplies, etc. I understood that within the last few days he had formed a committee on corruption to be chaired by the Minister of Finance and including the Ministers of Economy and Interior, the Governor of the National Bank, and the Director General of the National Police. I termed this a constructive move and suggested that the two committees work together.
We had also taken drastic steps here to control the use of military payment certificates, US currency, travelers’ checks and bank drafts by American and allied foreign payments to third country nationals were now made in piasters; any dollar payments went to the government and were converted into their currencies. We no longer allowed allied forces to use any American PX, they now had their own PX’s and each was rationed in terms of supplies. Strong controls had been established over all allied clubs and messes in relation to cigarettes, liquor and food purchases. Gift items now had to be mailed at the time of purchase and could not be taken away. The effect of all this had been to greatly reduce American supplies which could go into the black market.
American soldiers or government or contract employees who were caught illegally engaging in currency transactions were tried and punished, and civilians are sent home. However, I said, there were still hundreds of Americans legally or illegally in the country who were deeply engaging in the black market. We had asked the Prime Minister a month ago to see that these men were deported and not allowed to return, and we had offered to cooperate with him. I regretted to say nothing had been done.
I went on to say that obviously there were many aspects to corruption. It could not be entirely eliminated, but it could be greatly reduced by a variety of measures. Obviously Thieu had to decide where he could move with vigor and where he could not do all that he would like to do. Among the most glaring kinds of trafficking that had come to our attention I listed the following:
First, there were the notorious organized rings that operate at Tan Son Nhut and in the ports to bring in goods and smuggle currency. [Page 554] These rings were obviously protected by high government officials. Customs and fraud supervision squads could do little and were not to be blamed. Obviously it was a tolerated racket. The result, I said, was that the GVN was losing billions in revenue and the illegal demand for dollars was weakening the piaster.
Another large demand for black market currency was coming from the practice of under-invoicing which deprived the GVN of much needed customs revenue. So-called travelers to and from Hong Kong, Vientiane, Bangkok, and Singapore are engaged in a large traffic of goods for which little or no customs are paid as well as in illegal currency and gold movements. Some of this may provide revenue for the government in an indirect way, but most of it clearly just goes into the private pockets of individuals with protectors in high places.
We had been talking about the need for an accommodation rate and the benefits that would accrue to the government if foreigners would start changing their money legally. But what was the use of establishing a more realistic rate if the piaster was constantly being further weakened so that the black market dollar rate continued to rise? It could be brought down, I said, only by a vigorous campaign on many fronts including closing down the smuggling of goods at Tan Son Nhut and the ports, deporting foreigners who were here on the black market, etc. There is real danger that the piaster rate may rise even higher; if that happens it can create dangerous economic and political problems for the government.
In short, I said, some radical measures were required against the large-scale corruption which was running the economy and sapping the political strength of the country. Too many people were bleeding the economy for their private benefit. All this was gravely impairing the GVN’s image abroad and especially in the US. Finally, I said, corruption was a moral problem for it involved the whole question of morale—of the military, of the government servants, of the people generally. A corrupt society, I said, is a weak society. It is a society in which everyone is for himself, no one is for the common good. “It is in such a situation that everything you and we have worked so hard to create can be undermined unless you move with energy.”
Thieu had followed attentively without interrupting, and had taken notes as I spoke. When I finished he said he was glad I had brought the matter up because it was also one of great concern to him. He had already appointed the committee to which I had referred, although he was not certain how effective it could be and he thought it important that we should work together on the problem of corruption for we had sources of information that could be useful, and of course some of our people were also involved as well as many Vietnamese and other foreigners. It was important to try to get at the sources of corruption, to identify them and move in on them.
Thieu then suggested that instead of the two committees just cooperating together we should establish a joint committee or a mechanism for close liaison so that efforts at control could be coordinated. He was aware that much smuggling was going on at the airport and the harbors, and he agreed that the time had come to move in on it vigorously. He mentioned that he had come under some pressure from Vietnamese businessmen recently who had complained that illegal imports and black marketing were undercutting prices and ruining their business. Thieu said he would like to meet again on this subject just after Tet. He intended to get suggestions from his people immediately on how we could best work together, and he would welcome also more detailed suggestions from us.
Comment: I think it is possible that Thieu may in fact welcome American pressure to move more vigorously on this front. While we must not expect miracles, I think he recognizes better now that corruption is not just an internal problem but also a problem in his foreign relations; that it is not merely one of his economic problems but perhaps the most important one; and indeed quite possibly one of the most important among all his problems. The most important thing now is to get some momentum going, and to let Thieu get the word out to the right people that he means to show results soon.
  1. Source: National Archives, RG 59, Central Files 1970–73, POL 15–1 VIET S. Secret; Nodis. On January 12 Nixon asked White House Staff Assistant John Brown to send Kissinger a memorandum asking that Bunker do “some quiet work” on corruption in South Vietnam. (Memorandum from Lake to Brown, January 21; ibid., Nixon Presidential Materials, NSC Files, Box 142, Vietnam Country Files, Vietnam, Vol. XIV–2, 16–30 January 1970) Kissinger dispatched a backchannel message to Bunker asking him what could be done about corruption in South Vietnam. (Telegram WH003 to Bunker, January 21; ibid., Box 410, Backchannel Messages, Southeast Asia, 1970) Bunker responded in backchannel message 622 from Saigon, January 23, to the White House for Kissinger’s eyes only, on the ways to combat it much as he explained the problem and solutions to Thieu as reported in telegram 1515 from Saigon. (Ibid.) In a January 26 memorandum to Nixon, Kissinger summarized Bunker’s initial response to the request for “quiet work” on corruption and indicated Bunker planned to raise the issue with Thieu in the next few days. (Ibid., Box 142, Vietnam Country Files, Vietnam, Vol. XIV–2, 16–30 January 1970)
  2. Telegram 1514, January 31, transmitted a summary of the ThieuBunker conversation of January 30 on issues other than corruption. (National Archives, RG 59, Central Files 1970–73, POL 15–1 VIET S)