US sanctions against Myanmar aimed at supporting economic growth
still leave an array of barriers to trade between the two
by Aye Thidar Kyaw and Steve Gilmore, MyanmarTimes,
Myanmar, May 19
Effective yesterday, the United States removed three
state-owned banks from its blacklist of Specially Designated
Nationals (SDNs), and added two military-owned lenders to a
general licence that allows financial transactions with those
It also extended and expanded a general licence allowing
transactions that go through ports and airports owned or
connected to SDN individuals or entities.
The moves were part of a reform to the US sanctions program
against Myanmar, which critics say has crippled the country’s
economy by restricting trade with the world’s largest economy
and cutting Myanmar off from the international banking system.
The struggling state-owned banks, which are increasingly
surrendering market share to private sector lenders, welcomed
the move. Myanma Economic Bank, Myanmar Foreign Trade Bank, and
Myanma Investment and Commercial Bank are now sanction-free.
MFTB’s deputy general manager Daw San San Myint said 13 years
on the sanctions list had prevented the bank from offering
decent services, lost it customers and ended its role as a
leading financial institution.
The appearance of the word “Myanmar” in transaction documents
alone causes MFTB payment transactions to fail and be returned,
she said. MFTB has over 200 correspondent banks, which can
perform services on its behalf, but this number often changed
due to the sanctions, she said.
MICB deputy general manager U Khin Pe Oo said correspondent
banks that have relationships with US financial institutions
often put strict requirements on MICB, with some European
lenders even refusing to facilitate euro payments.
State-owned bank officials are hoping that the sanctions
amendments will ease such barriers, and they will no longer have
to resort to alternative currencies or Singaporean correspondent
banks to do business.
Improving trade between the US and Myanmar – one of the
stated aims of the US reforms – also hinges on making financial
transactions between US and Myanmar easier. But there are
reasons to doubt that the amendments will do much to help.
“It’s encouraging to see that military-owned banks are
starting to be either taken off the SDN list or added to the
general licence,” said Eric Rose, lead director at Herzfeld
Rubin Meyer and Rose law firm in Yangon.
What is not encouraging is that Myanmar is still not exempt
from US Patriot Act rules that require US financial institutions
to undertake special due diligence when dealing with a
jurisdiction where money laundering is a concern, he added.
“This is despite the tremendous progress Myanmar has made
according to the Financial Action Task Force.”
That inter-governmental body develops and promotes policies
to fight money laundering and terrorist financing across the
globe. FATF removed Myanmar from its blacklist, which is
reserved for countries making the least progress in combating
these issues, in February this year.
Myanmar’s efforts to create a functioning financial
intelligence unit, criminalise terrorist financing and freeze
terrorist assets helped it move to the grey list, which includes
countries that are committed but still have “strategic
weakness”, according to FATF.
The country will have a chance to remove itself from this
grey list next month, when the FATF plenary will discuss the
results of a review of Myanmar’s progress. But while it remains
on this list, the FATF will continue to ask other countries to
take measures when dealing with Myanmar.
“That fact that Myanmar, together with Laos, Papua New
Guinea, Yemen and others, is still one of 11 high-risk
‘monitored jurisdictions’ for money laundering under the FATF is
likely to make increasingly risk-averse banks remain wary of
transacting with Myanmar,” said Vicky Bowman, director at the
Myanmar Centre for Responsible Business.
This is in addition to the SDN list, which still acts as one
of the biggest barriers to trade because US firms still find it
difficult to be sure exactly who they are dealing with. SDN
individuals are widely believed to have become adept at using
shell-companies and proxies.
Mr Rose said the US firms selling goods and services inside
Myanmar will have to continue to engineer payment offshore,
because “there is not even one US bank which will transfer money
out of Myanmar, even for documented payments between a US parent
and a wholly owned subsidiary”, he said.
This is despite no sanctions against such a transaction. This
reluctance leaves US companies wishing to export goods to
Myanmar stuck using a time-consuming and expensive system where
goods technically change hands in Singapore, which typically
requires back-to-back letters of credit and an offshore
Singaporean subsidiary, Mr Rose said, adding that only larger
firms can afford to use this method.
Myanmar citizens seeking to export goods to the US also still
face hurdles. Although some US banks are willing to transfer
money to Myanmar, for the same due-diligence-based reasons there
are only a handful. And these payments will still be heavily
scrutinised and made through ever-more-vigilant corresponding
banks in Singapore, Mr Rose said.
“If I was an investor it would not impact the way I would
approach [Myanmar’s] economy,” said Erin Murphy, founder of
Myanmar-focused Inle Advisory Group, of the sanction reforms.
“Large parts of it are still off-limits because of due diligence
and reporting requirements.”
One benefit is that the sanction amendments will make it
easier for US entities to work with the Yangon Stock Exchange,
said Ms Bowman.
The removal of MEB from the SDN list means that the Yangon
Stock Exchange is no longer a sanctioned entity. As MEB owns
51pc of the YSX, the bourse was automatically affected by the
sanctions on MEB, US officials clarified last year.
A sanction-free stock exchange avoids potential issues when
the YSX finally opens to US and other foreign investors. That
requires the passage of a new Myanmar Companies Act, which is
expected to go before parliament this year.
“If MEB was still on the sanctions list and the YSX became
open to foreigners we’re not sure if US investors would [have
been] allowed access,” said Kensuke Yazu, Myanmar representative
for the Japan Exchange Group, which co-owns the bourse.
That is no longer an issue for the YSX, but because the
exchange remains open only to domestic investors the immediate
impact of sanctions being lifted was minimal, he said. The news
was unlikely to have an effect on companies listed on the
exchange, which is still in its infancy, he added.
First Myanmar Investment is the only company on the exchange,
but it will be joined by Myanmar Thilawa SEZ Public, which lists
tomorrow. FMI’s share price was unchanged at K25,000 yesterday,
K2000 below the price at which it listed in late March.
The changes to US sanctions against Myanmar have been
interpreted as a reward for the country’s democratic transition,
but for tycoon Steven Law, who saw six of his companies added to
the blacklist, the news was not so good.
Asia World Group, Mr Law’s main conglomerate, was already on the
United States list of Specially Designated Nationals, and has
continued to expand despite being blacklisted.
The firm operates one of the country’s main ports, as well as
international airport terminals in Yangon and Nay Pyi Taw.
The six Asia World-linked companies added to the US blacklist on
May 17 are Asia Mega Link Co, Asia Mega Link Services Co,
Pioneer Aerodrome Services Co, Green Asia Services Co, Global
World Insurance Co, and Shwe Nar Wah Co.
Sanctions experts were puzzled, however, as to why another six
Asia World companies were added to the list, at a time when the
US is more generally easing sanctions against Myanmar.
An Asia World spokesperson declined to answer questions
As US firms and individuals are already barred from doing
business with entities connected to Mr Law or the Asia World
Group, the addition of the six entites to the SDN list is of
little consequence, said Eric Rose, lead director at Herzfeld
Rubin Meyer and Rose law firm in Yangon.
If US firms had done business with any of the six companies and
had failed to note through due diligence operations their
connection to an SDN, they were guilty of gross stupidity, he
Peter Kucik, a sanctions expert at Inle Advisory Group and
former senior sanctions adviser at the US Treasury’s Office of
Foreign Assets Control (OFAC), was also puzzled by the move.
“There are dozens of companies that are similarly situated –
blocked by the 50 percent rule [because they are] owned by other
individuals or entities or military holding companies [but are
not explicitly included on the SDN list],” he said.
Mr Kucik is concerned that rather than making it clear which
businesses are off limits and which not, the unexplained
addition of the six firms might give less-sophisticated
sanctions watchers the impression that Asia World-linked firms
that are not included on the SDN list are acceptable business
Senior US officials declined to comment on why the six firms had
been added, or why Mr Law in particular had been targeted.
“If he [Steven Law] or any SDN would like, they can try to
demonstrate a change in behaviour and OFAC will carefully
consider [the change],” a senior US administration official
Three of the six firms added are also covered by the extension
and expansion of General Licence 20, which permits trade-related
transactions involving entities or individuals subject to
Green Asia Port Terminal, which opened in July last year in the
Thilawa special economic zone near Yangon, was built by Green
Asia Services under a build-operate-transfer agreement.
Pioneer Aerodrome Services operates Nay Pyi Taw International
Airport and Shwe Nar Wah developed the Hteedan Port Terminal in
Yangon under a build-operate-transfer agreement with
military-owned Myanmar Economic Coroporation.
Trade that passes through these ports and airports, providing it
does not violate laws or US sanctions in other ways, will be
covered by the general licences.
– Steve Gilmore
99B Myay Nu Street, LAMAI Condo, Suite 6D, Sanchaung Twp., Yangon 11111, Myanmar - Phone: +95 1 230-5935©2015 Herzfeld Rubin Meyer & Rose Law Firm Limited. -