Sanctions Intelligence Update – Burma: Examining Risk Post Sanctions Relief

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Executive Summary

In October 2016, the United States substantially lifted sanctions on Burma as an economic incentive to continue positive political developments within Burma. The lifting of sanctions is intended to encourage an increase in international commercial activity with, and foreign investment in Burma. Corporates and financial institutions with exposure to Burma should consider the illicit finance and money laundering risks that underpinned the sanctions measures, many of which persist regardless of the political dynamics. The October 2016 FinCEN guidance on Burma outlines “remaining concerns” in its exceptive relief to its Patriot Act 311 action, and numerous Burma-related entities remain sanctioned under the Foreign Narcotics Kingpin Act. Burmese individuals materially associated with sanctioned actors maintain a substantial presence in certain industries such as mining, and commercially significant de-listed entities have a long track record of illicit activities.

On 7 October 2016, President Obama signed an Executive Order (EO) terminating the national emergency with respect to Burma, revoking all six-Burma-related sanctions EOs, and waiving other statutory blocking and financial sanctions on Burma. These revocations remove 111 entities and individuals from the SDN list to include senior Burmese Government officials, family members of Burmese Government officials and associated networks, and Burmese state-owned enterprises and conglomerates with interests in mining, banking, hotels, and construction. The EO revokes the ban on the importation of Burmese-origin jadeite and rubies as well as mandated compliance with the US State Department’s Responsible Investment Reporting Requirements. In December 2016, President Obama lifted sanctions barring US government aid to the Burmese government.

 

FinCEN Guidance

The FinCEN exceptive relief guidance in October 2016 points to a number of AML/CFT “remaining concerns.”

  • The FinCEN guidance states that Burma has yet to implement AML/CFT reforms and display adequate effectiveness in mitigating money laundering and terrorist financing risks. It notes the significant use of largely unregulated and unsupervised informal money transfer systems in Burma.
  • With respect to corruption, FinCEN cites Burma’s high ranking on Transparency International’s Corruption Perceptions Index (136 of 176 in the 2016 Index) as an area of concern. The US State Department’s 2017 International Narcotics Control Strategy Report (INCSR) on Burma, while acknowledging “significant progress” on AML concerns, states that “endemic corruption remains an issue despite recent economic reforms… [and] the lack of financial transparency, the low risk of enforcement and prosecution, and the large illicit economy makes it potentially appealing to the criminal underground.”
  • The FinCEN guidance notes that the US continues to recognize Burma as a major haven for illicit drug trafficking and that Burma’s cooperation with US law enforcement remains nascent and largely untested. The 2017 INCSR identified Burma as a significant illicit drug manufacturing country with extremely porous borders and drug producing territory controlled by non-state armed groups.

In June 2016, the Financial Action Task Force (FATF) determined that Myanmar (Burma) was no longer one of approximately ten jurisdictions with strategic AML/CFT deficiencies, and in October 2016, FinCEN issued exceptive relief to its Patriot Act Section 311 Action—permitting US financial institutions to maintain correspondent accounts with Burmese banks.

 

Remaining Sanctions Programs Relating to Burma

Although the six Burma-related sanctions executive orders were lifted and other statutory blocking and financial sanctions were waived, other sanctions programs relevant to Burma remain in place. For example, as of April 2017, 31 Burma-related entities and individuals are still sanctioned under the Foreign Narcotics Kingpin Act. The United Wa State Army (UWSA), sanctioned by the US government in 2003 based on evidence of narcotics trafficking, is an armed ethnic group composed of approximately 20,000 to 30,000 fighters in control of territory near the Burma-China border.

  • The UWSA maintains diverse commercial interests across a network of companies in the transportation, mining, construction, gems, and electronics sectors. Companies and industries under UWSA control engage in cross-border trade with Chinese firms, some of which in turn act a suppliers to US corporates.
  • US-sanctioned narcotics trafficker Li Myint oversees mining operations at two Burma-based companies that operate jade mines, according to a 2015 interview with Mr. Myint. Firms controlled by Wa State actors—many subject to narcotics sanctions—operate dozens of jade mines in Burma that generate revenues and serve to launder criminal proceeds, according to a 2015 investigative report.

UNITED WA STATE ARMY AND TIN ORE MINING

In a 2016 speech, a Wa State official highlighted that “of the tin mined from the Wa State, except for what is stored by the Wa State Ministry of Finance, everything is exported to China, and over 98 percent of China’s tin imports are from the Wa State.” A November 2016 Reuters report highlighted how major multinationals list among their suppliers Chinese-controlled firms that indirectly buy tin ore from a Burma-based mine controlled by the United Wa State Army.

The transnational criminal organizations sanctions program, established in July 2011, is also relevant with respect to managing Burma-related AML/CFT risk. In a 2016 UN Office on Drugs and Crime report on the expansion and diversification of organized crime in Southeast Asia, Burma was identified as a source, transit, and destination country for various forms of criminal activity, including wildlife, timber, and drug trafficking. The 2017 US State Department INCSR report also identified the illegal trade in wildlife, precious minerals, and timber as a source of illicit proceeds in Burma.

Human rights groups have raised concerns about the termination of Burma-related sanctions due to the Burmese military’s continued political and economic control and the government’s persecution of ethnic minorities. In March 2017, a US and EU-backed UN Human Rights Council (UNHRC) resolution was passed to investigate alleged human rights abuses in Burma following a February 2017 UN report citing “widespread human rights violations against the Rohingya population” by the Burmese military. In Shan State on the China-Burma border, fighting between rebel forces and the Burmese military has created a stream of refugees into Yunnan Province, China that recent reports estimate to be 20,000 and growing. Human rights-focused legislation has been proposed in both the US and UK that would create an international framework for the imposition of sanctions on persons who commit abuses.

 

Delisting and Sanctions Rollback Risk

Another remaining risk factor relates to commercially active individuals and entities no longer subject to sanctions, but which have a long history of engaging in illicit financial conduct.

  • Although Max Myanmar Trading Company was removed from the US sanctions list in October 2016, one of its directors is identified in Burmese corporate records as a director of Tet Kham Gems Company, which remains sanctioned pursuant to the Kingpin Act.
  • Steven Law, who is no longer sanctioned, has a track record of extensive involvement in illicit activities including drug trafficking, according to a February 2010 US Department of the Treasury designation statement. In October 2016, nine companies owned 50 percent or more by Steven Law and his conglomerate, Asia World, were also delisted.
  • Tay Za—previously described by the US as an “arms dealer and financial henchman” with ties to the Burmese military—was removed from the sanctions list. Ty Za owns companies that have conducted transactions with a front company set up by North Korea’s Tanchon Commercial Bank, according to a 2014 media report. In September 2016, a senior State Department official stated that pockets within the Burmese military may still be cooperating with North Korea despite opposition from the civilian government and military leadership.

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This Sanctions Intelligence Update was prepared with research and analysis provided by Kharon, a sanctions intelligence platform that connects users to deep data research and analysis on the networks of individuals and entities targeted by US and international sanctions programs. Kharon is a Camstoll Group company.

The Camstoll Group advises on sanctions, illicit finance, national security, and regulatory matters. Our research-intensive approach for financial institutions, multinationals, and governments is designed to generate insights and options for complex policy, regulatory, or competitive challenges.

Contact Howard Mendelsohn: mendelsohnh@camstoll.com