US move could signal softening on
Myanmar blacklist

by SIMON LEWIS - Asian Review - May 4

YANGON -- Just two weeks before President Barack Obama paid his second visit to Myanmar last November, the U.S. Treasury announced that Aung Thaung, a parliamentarian in Naypyidaw's lower house, had been added to its Specially Designated Nationals list. The U.S. considers those on the list to have links to terrorism, drug running or human rights violations, and bars American companies and individuals from doing business with them.

A U.S. Treasury official said at the time that Aung Thaung, a former minister of industry, had been "intentionally undermining the positive political and economic transition" in Myanmar. Those reading between the lines concluded that Aung Thaung was being punished for his alleged support of an extremist Buddhist movement that has been linked to attacks on Muslim communities since 2012.

One of Aung Thaung's sons is involved in the conglomerate IGE Group and United Amara Bank, one of Myanmar's private banks, but no companies or other individuals linked to Aung Thaung were sanctioned. In the days following the announcement, however, United Amara was forced to reassure the public that the MP was not a shareholder in order to contain a run on the bank.

Whatever Aung Thaung's connections, the US move riled many circles in Myanmar's government and parliament. A recent U.S. announcement however was more welcome. The U.S. Treasury said on April 23 that it had removed from the SDN list Win Aung, the head of the Dagon construction group, and two of his companies. Win Aung is also president of the Union of Myanmar Federation of Chambers of Commerce and Industry, the country's most influential business group, and has been a key figure in welcoming foreign business groups to the country.

The removal of Win Aung from the list - after years of lobbying - offers hope to the 41 Myanmar business people and officials still on the SDN list, a handful of whom are thought to be in ongoing talks with the U.S. government to have their names cleared.

However, the contrasting treatment of the two individuals - Win Aung and Aung Thaung - shows how the U.S. "blacklist" acts as both a carrot and a stick as Washington attempts to exert influence in Myanmar. The country has elections later this year and is struggling to break free of an overbearing military that retains vital powers under a constitution written by the former military-backed regime.

While human rights campaigners say the SDN list may encourage better behavior from Myanmar's so-called cronies, others say the list is a blunt instrument that will have a negative impact on the country's wider economy. It remains a significant barrier to investment from the U.S., and may be locking American companies out of a foreign direct investment boom in Myanmar. Not only that, multinationals from other countries also hesitate about Myanmar if they have significant operations in the U.S. or involving U.S. companies.

Significant choice

Win Aung is a significant choice as the first businessman to be removed from the U.S. list (some of Myanmar's political leaders were removed much earlier). Not only does he head the country's most important business association, he chairs the consortium representing Myanmar's interest in the Thilawa Special Economic Zone, a Japanese-backed project close to Yangon that Japanese and Myanmar business intend to transform into a manufacturing hub.

The U.S. State Department said in a statement that decisions to remove people from the list were based on the submission of "verifiable information demonstrating that changed circumstances warrant their removal, including that they have taken positive steps and changed behavior."

"We will lift targeted sanctions based on actions by the SDNs and add individuals or entities to the SDN List as appropriate, for example, where there is evidence they have undermined the reform or peace processes, committed human rights abuses in Burma, or participated in military trade with North Korea," the statement said.

Shine Zaw-Aung, country analyst at New Crossroads Asia, a Yangon-based consultancy, said that Myanmar's business community had mixed feelings about the SDN list. While it was a way to punish "noxious" generals and their families who had used their positions to accumulate wealth, some decisions related to listings were "arbitrary," he said

"There are many 'crony capitalists' and government hardliner reactionaries who are not on the list," he noted, adding that some listed individuals had little choice but to collaborated with the junta that ran Myanmar before the administration of President Thein Sein took office in 2011.

"When you were living under a dictatorship, you were roped into helping and supporting the government and its projects; and that was the only way businesses could obtain necessary permits and contracts."

Vicky Bowman, director of the Myanmar Centre for Responsible Business, said the changes to the SDN list could make it stronger. "A sanctions list has more impact when it is clear that people can be removed, added, or even put back on the list, and there are clear benchmarks for what is required for this to happen," she said.

Bowman, a former U.K. ambassador to Myanmar, was involved in advising Brussels on the EU's Myanmar sanctions list, which has now been scrapped. She said that Win Aung and Dagon group had shown a commitment to transforming business practices, as demonstrated by the group's performance in a report that MCRB prepared last year on corporate transparency.

"Obviously there is always room for Dagon to improve, for example through greater transparency on land issues and other human rights impacts that the company has, so we hope they will strive even harder in 2015," Bowman said.

Win Aung joins a tiny group of Myanmar individuals who have been removed from the list, including President Thein Sein and parliamentary Speaker Shwe Mann, both retired military officers.

Arms deals

As well as Aung Thaung, another 40 Myanmar individuals and 77 entities remain blacklisted. They include prominent tycoons such as Zaw Zaw, head of the Max Myanmar conglomerate, and Tay Za of Htoo Group. The former is tipped to be next to be removed from the list, but the latter seems unlikely to qualify for early removal, given his admission last year during an interview with Forbes Asia that he facilitated arms deals with North Korea.

In a sign of how much it hurts to be on the list, both have gone to some lengths, including forming charitable organizations, to demonstrate their "clean" credentials. The U.S. government insists that philanthropy alone will not influence SDN decisions.

There are plenty of Myanmar business figures not on the list, and they are the most desirable partners for American companies if they want to enter the country through joint ventures. U.S. fast food company Yum! Brands' Kentucky Fried Chicken is set to enter the country in a joint venture with tycoon Serge Pun. Pun is not blacklisted, and as a result has been able to enter into a number of similar partnerships, as well as gain assistance from the World Bank's International Finance Corporation.

However, the impact of the list may go beyond those targeted. Yangon-based U.S. attorney Eric Rose said the Treasury's enforcement of SDN rules globally was having a "chilling effect" in Myanmar.

Despite foreign direct investment approvals in Myanmar amounting to more than $8 billion in the last fiscal year to March 31, few significant investments have come from the U.S. The country ranks only 13th in total investment in Myanmar since 1988, according to Myanmar government data.

The major bright spots for recent American investment are limited to The Coca-Cola Company, which set up Coca-Cola Myanmar to bottle and sell throughout Myanmar, U.S. can maker Ball Corp., which will make cans for Coca-Cola Myanmar, apparel company Gap, which announced last year it would begin sourcing clothes from two factories in Yangon, and Colgate, which has announced an investment of $100 million in a local toothpaste factory.

U.S. financial institutions fear inadvertently doing business with an SDN, or a related company, and therefore some steer completely clear of financial transactions involving Myanmar, Rose said. The country is also regarded as high-risk for money laundering.

"The result is that U.S. companies' exports to Myanmar, and investment, especially by SMEs, are hampered by antiquated trade and sanctions policies which have outlived their usefulness long ago," he said.

"The [U.S.] banks are giving [Myanmar] a miss at this point," agreed John Goyer, the U.S. Chamber of Commerce's senior director for Southeast Asia. "This is obviously unfortunate, both for potential U.S. investors, but also for Myanmar, whose under-developed financial services sector will constrain economic growth and development."

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