Proving loan sharks in sham transactions: the tough legal path

1. Loan sharks – current thread in Vietnam

Currently, state agencies are concentrating in handling of cases related to usury because these are cases that adversely affect the security situation of Vietnam. Grasping this situation, many loan sharks have turned around, using fake contracts to hide their loan sharks. And when necessary, the lenders can deny the existence of loan relationship and use dispute resolution options such as Arbitration or Court to require the borrower to perform fake contract. 

These contracts are built with a strict system of provisions, protect loan sharks and are difficult to prove their fakeness. These sharking loans are usually covered as contracts of sale, processing, service, etc. to bypass the authorities in case the borrower report such usury transactions to the authorities.

2. Example illustration of a loan-sharking case  

For example, Mr. A lends Mr. B a usury loan of VND 500 million with an interest rate of 10%/month. Knowing that the above loan transaction will be declared invalid and Mr. A may be criminally prosecuted for loan sharking, Mr. A proposes Mr. B sign a contract to sell his car owned him for 500 million dongs (the actual value of the car at that time was more than 1 billion dongs) instead of a loan agreemnet. After being unable to pay interest for a period of time, Mr. A sued Mr. B to request the handover of the car. 

In this case, Mr. B claims that he borrowed money from Mr. A and did not sell his car, however, based on existing documents including a car sales contract, Mr. B is obliged to transferred his car to Mr. A for half the actual value of the car. It is very difficult in this case to prove that the parties’ transaction is a loan and not a sale. 

In order to change the narrative of the case, at court, Mr. B needs to present evidence that he has paid interest (bank statements, confirmation of interest payment, …) to be able to prove that the transaction is actually a loan agrement, and at the same time, carry out an assessment of the car’s value at the time of signing the sale contract to determine the unreasonableness between the actual value of the car and the value on the contract. 

By considering all the evidence, the will of the parties and the contract performance process, the court may judge the car  transaction/contract to be fake and invalid according to Article 124 of the Civil Code 2015. In addition, if there are sufficient grounds to determine the existence of usury, the court may temporarily suspend the settlement of the civil case under Article 214 of the Civil Procedure Code 2015 and transfer the evidence to the competent investigating agency to identify and settle the criminal signs of the case before continuing the trial. 

However, as mentioned, proving that the actual transaction is a loan, not a sale relationship, will be very difficult due to the lack of evidence, because the sale and purchase contract is a contract signed and agreed by both parties. The existence of this transaction is clearly shown and does not need to be proved, especially if this contract is notarized. 

Before entering into the transactions and signing such agreement, it is necessary to consult a lawyer or a person knowledgeable in the law to avoid creating fake contracts but extremely difficult to prove.   

In addition, the assistance of a lawyer in cases involving sham contracts to prove the objective truth of the case is also extremely important if you are the borrower. 

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