US banks stay picky on Myanmar transfers

By Jeremy Mullins / YANGON |  MyanmarTimes - June 20, 2015

American banks continue to hesitate on money transfers to and from Myanmar, despite the removal of most sanctions on finance in 2012 and 2013.

Businesspeople say that while there are now few explicit rules preventing transfers, a fear of sanctions and a shallow understanding of the local market prevents the movement of money between Myanmar and the world’s largest economy.

Some say the continued existence of the Specially Designated Nationals (SDN) blacklist may also be dissuading American banks and companies from doing business with Myanmar. “US banks, by-and-large, are steadfastly refusing to undertake any transactions with Myanmar, with few exceptions,” said Eric Rose, lead director at Herzfeld Rubin Meyer & Rose Law firm in Yangon.

 The result has been that businesses and even non-governmental organisations (NGOs) are having trouble getting bank transfers to their Myanmar bank accounts, even to non-blacklisted banks, he said.

A number of US small and medium businesses looking to do business with non-SDN Myanmar entities have contacted Herzfeld Rubin Meyer & Rose and followed its advice to check with their banks before proceeding, said Mr Rose. “Subsequently, without exception, they chose not to proceed even with sales transactions, as US banks, including a large US bank which does limited banking with Myanmar, will not transfer funds from Myanmar to the US without an OFAC license, even where no SDN is involved,” he said.

The main problem slowing transfers is not the letter of the law or the remaining sanctions.

American financial exports to Myanmar’s non-sanctioned institutions were specifically allowed under Burma General License 16, issued in 2012.

Two of the country’s roughly 25 private banks, Ayeyarwady Bank and Asia Green Development Bank, and five of the state-owned banks are still on the American sanctions list. However, Ayeyarwady, Asia Green Development, and state-owned Myanma Economic Bank and Myanma Investment and Commercial Bank were covered in a subsequent General Licence issued in February 2013, which allowed Americans to open bank accounts and take part in financial transactions with them.

A number of other American sanctions do remain in place. Prominent entrepreneurs such as Steven Law and U Tay Za and their businesses are still on the blacklist. Americans are also forbidden from doing business with military-owned companies, such as Myanmar Economic Holdings Limited and Myanmar Economic Corporation, two of the country’s largest conglomerates.

The US State Department also requires businesses investing more than US$500,000 in the Myanmar economy to file an annual report disclosing a range of different actions in the country. So far, about 15 companies have filed the reports, including Coca-Cola, Colgate Palmolive and Western Union. Some, like Gap, do not meet the requirements to file, but do so voluntarily.

Although the sanctions have been drastically scaled back since 2012, Mr Rose said their continued existence may have a “chilling effect” on inbound investment.

A US embassy spokesperson said the banks themselves are best-placed to reply to a question on their activities, but according to the bank representatives they have spoken with, the reluctance does not stem from a misunderstanding of US sanctions.

“Rather, banks, like other foreign investors, are taking into account the various political and economic factors that form their cost-benefit analysis and risk profile of Myanmar,” the spokesperson said.

“The Foreign Commercial Service Officer at the US Embassy in Yangon is actively engaging American businesses, including US banks that are considering entering the market here.  The State Department has also provided information to the international banking associations to educate the industry about the current state of play regarding sanctions.”

Separately, at a briefing last month, American officials also pointed to concerns over anti-money laundering that entered the risk calculation of foreign banks. Myanmar routinely shows up on watch lists put out by anti-money laundering and anti-terrorism finance organisation the Financial Action Task Force (FATF).

They added that doing business with Myanmar is an internal decision made by banks, not one made by the embassy.

Some say American officials may be underestimating the impact of the sanctions. Mr Rose said that while FATF’s reports do represent a concern, there are number of other countries listed in their reports alongside Myanmar that do not face the same restrictions. “I don’t remember any banks having issues dealing with either Algeria or Ecuador,” he said.

“It is the enormous fines that banks dealing with SDN countries are being subjected to which have scared them, and not FATF’s position versus Myanmar,” he said.

Mr Rose added that if one looks at the bank due diligence requirements and combines this with OFAC’s strengthening of the SDN rules issued on August 13, 2014, “you can easily see how the banks will run the other way if Myanmar money is involved, considering the huge fines potential if one makes a mistake, and the small transactions US companies engage in with Myanmar at present”.

Philippe May, chief business officer at Ayeyarwady Bank, said some international banks go way beyond the level of scrutiny required by US rules. “If the country has the SDN list, the banks don’t do any business there,” he said.

Part of the problem is a lack of awareness about the nature of sanctions. Often, legal and compliance officials are tasked with running inward and outbound Myanmar transactions past computer databases.

These database queries can return partial checks. “Often, the people doing this have no clue about Burmese names,” said Mr May. “If a person on the list is named Maung Maung, and the bank is querying the name Aung Maung, it will receive a partial match, even though these two people are entirely unrelated.”

Banks are also able to go beyond the law. If their compliance officials are nervous about Myanmar, they may skip the country altogether.

“Banks don’t say this openly,” said Mr May. “Customers may get upset when they transfer money [and it falls foul of the bank’s compliance measures]. The money kind of disappears, and it can take months to solve.”

The best way to avoid this problem is to avoid US banks, and use Singaporean dollars instead of the greenback.

“That’s 95 percent of the trouble,” he said. “People are too fixated on USD.”

Instead of moving the entire amount at once and hoping it does not get held up by overzealous banks, a person could instead do a test transfer of $100 or so. Although the amount is small, banks still follow the same procedures when testing to see whether or not it will be allowed.

On the whole, though, Mr May said the continued existence of sanctions does more harm to US companies than to Myanmar.

“The existence of the remnants of the SDN list adds to the country’s risk profile,” he said.

Still, there appears to be no immediate end in sight for Myanmar sanctions. US President Barack Obama last month renewed the remaining sanctions for another year, and any decision on their total removal must likely wait for the Myanmar election later this year.

American elected officials such as senate majority leader Mitch McConnell have said US officials will be closely watching the election. “If the Burmese government gets this right – if it ensures a transparent, inclusive, and credible election, with results accepted by the competing parties – that would go a long way toward reassuring Burma’s friends around the globe that it remains committed to political reform,” he said in a speech on June 4, according to website Roll Call.

“But if we end up with an election not accepted by the Burmese people as reflecting their will, it will make further normalisation of relations – at least as it concerns the legislative branch of our government – much more difficult.”

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