Perfume Empire Exposed as Sham, Showing Vietnam the Smelly Side of Capitalism

Nguyen Van Muoi Hai, with his apparently fast-growing perfume company, his array of retail shops and his taste for high-priced cars, seemed the very model of the successful young capitalist Vietnam needs to rejuvenate its economy.

Taking advantage of Vietnam’s liberalized rules on private investment, Hai’s Thanh Huong Perfume Co. attracted more than $25 million from Vietnamese desperate to find an interest-paying investment that would keep ahead of inflation.

But when investigators finally looked into Hai’s empire, they found it was a hollow pyramid--producing only $45,000 in income--far less than the interest it was paying its investors.

The subsequent crash of Thanh Huong and the arrest of its 30-year-old proprietor sparked a chain reaction of failures among unregulated credit cooperatives that lent money to Thanh Huong investors.

It also triggered rare public protests at Ho Chi Minh City Hall by hundreds of ruined investors demanding repayment.

“The Thanh Huong fiasco reflects government incompetence,” said Nguyen Xuan Oanh, a member of Parliament and economic adviser to the Communist Party.

“It has crumbled confidence in government management of the economy,” the Harvard-trained economist said.

The aggressive young Hai started his career as a kung fu trainer and black marketeer selling smuggled blue jeans to Ho Chi Minh City youth eager for imported goods.

He soon branched into the perfume business, using the names of Western brands such as Paco Rabanne unprotected by Vietnamese law.

The perfume company, however, was only a front for his real business--accepting loans on promise of 180% annual interest, according to police and reporters who investigated the company.

The dashing young entrepreneur purchased two Mercedes-Benzes, part of his fleet of 20 cars in a city where most people still travel by bicycle.

He built an elegant five-story house, had a huge portrait of himself in the perfume company headquarters, and traveled with a 34-man bodyguard retinue.

“He created the superficial appearance of success and wealth so people believed in him,” said Bao Vinh, the reporter for Tuoi Tre (Youth) newspaper who started the investigation of Hai’s operations with a critical article in 1988.

“I raised the question of what collateral was being provided for all these loans raised from the public,” Vinh said.

Hai’s response was to get official certification from a senior official, whose wife, it is alleged, accepted a $3,300 loan from him.

He also visited Tuoi Tre’s executive editor, Tran Ngoc Chau.

“He threatened me that ‘when you write in my blood, you will have to pay in your blood,’ ” Chau said.

Hai weathered the critical newspaper coverage with protection from senior officials, who may not have understood what the perfume company was actually doing, Vinh said.

Police didn’t become serious about the investigation until late 1989 and finally arrested Hai on March 10.

Vu Hac Bong, chief of foreign relations for Ho Chi Minh City’s People’s Committee, said several officials have been suspended while police continue their investigation.

So far police have confiscated more than 233 pounds of gold packed for shipment to Hong Kong, 20 cars and 20 shops.

But the total comes to less than 30% of the money owed by the company. Many of those stung by the scam were retirees trying to make the most of meager savings. Others borrowed from credit cooperatives to lend the money at higher interest to Thanh Huong.

Demonstrations sparked by the company’s failure had city security forces on edge throughout the April 30 celebrations of the end of the 15th anniversary of the end of the Vietnam War.

The anniversary passed without incident. But, as a senior security official had said, “We are not worried about disturbances by those who lost in 1975--it is those who lost out in Thanh Huong who might do something.”