Introduction

On July 11, 2012, in conjunction with a statement by President Obama describing a revised U.S. policy toward Burma (also known as "Myanmar"), the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) announced definitive steps to ease longstanding economic sanctions against that country and to permit, subject to certain limitations and requirements, new U.S. investment and financial activity there. First, although existing sanctions regulations remain in place, OFAC issued two "general licenses" authorizing (without the necessity of further approval by OFAC) a wide range of conduct that was previously prohibited without a specific OFAC license. Separately, the President issued a new executive order: (i) defining the scope and rationale of U.S. sanctions against Burma; and (ii) adding two additional Burmese entities to the OFAC list of Specially Designated Nationals and Blocked Persons ("the SDN List").  

These developments follow the Obama Administration’s May 2012 announcement that it would take certain actions to liberalize U.S. policy toward Burma in response to historic reforms that have taken place there over the past year, with the belief that the participation of U.S. businesses in Burma will encourage economic development, contribute to the welfare of the Burmese people, and set an example for corporate social responsibility.  

The Administration’s actions to ease these sanctions are part of a calibrated policy to encourage continued reform in Burma. However, because of ongoing concerns over human rights, corruption, and the role of the military in the Burmese economy, certain sanctions remain in place against the military and other armed groups, as well as persons and entities named on the SDN List.  

Background

Burma has been ruled by a repressive military regime for decades. Although rich in natural resources, especially rubies, other precious stones, oil, and natural gas, the country has one of the least developed economies in the world.  

U.S. economic sanctions in one form or another against Burma date back to the late 1980s. However, measures specifically prohibiting new U.S. investment were initiated in 1997, when then-President Clinton issued Executive Order 13047 (May 20, 1997) following a determination that the Burmese government had been engaging in large-scale repression of the democratic opposition in the country. Subsequent laws and executive orders tightened sanctions measures to block property of the regime, its principals, and associates (including spouses and family members); prohibit the importation into the United States of Burmese-origin products; and prohibit the exportation or reexportation of financial services to Burma by U.S. persons or from the United Sates.

Since 2010, the Burmese government has initiated a series of political reforms, including the recent release of pro-democracy leader Aung San Suu Kyi from house arrest, the establishment of a human rights commission, general amnesties for prisoners, and other measures. In response, in April 2012, Canada lifted most of its economic sanctions against Burma, and the European Union announced a one-year suspension of its sanctions (except for a continuing arms embargo). Australia likewise eased sanctions beginning in April 2012, and in June 2012 announced that it was lifting its remaining measures.  

Certain U.S. Financial Services Now Authorized

OFAC’s July 11 announcement unveiled two new general licenses authorizing, respectively, U.S. financial services and new U.S. investments, subject to certain limitations and requirements.  

OFAC General License No. 16 (“GL 16”) authorizes the exportation and reexportation of U.S. financial services to Burma, subject to certain conditions. GL 16 generally authorizes transfers of such financial services benefiting persons in Burma, including even the transfer of funds to or from an account of a financial institution that is itself blocked under preexisting sanctions, provided that the account is not on the books of a U.S. financial institution or its foreign branches (i.e., there must be an intermediary non-U.S, non-blocked financial institution, and the underlying transfer must not relate either to otherwise prohib ited activity or to a blocked person). Accordingly, if the underlying activity and counterparty is otherwise authorized by OFAC for participation by a U.S. person, dollar-denominated transactions with a blocked Burmese financial institution are permitted, as long as there is an appropriate non-U.S. intermediary financial institution. Notwithstanding this general liberalization with respect to financial services, GL 16 does not authorize: (i) in connection with the provision of security services, the direct or indirect exportation or reexportation of financial services to the Burmese Ministry of Defense, any state or non-state armed group (which includes the military), or any entity in which any of the foregoing owns a 50% or greater interest; (ii) the direct or indirect exportation or reexportation of financial services to any person whose property or interests in property are currently blocked under preexisting sanctions (except for transfers to or from accounts, in non-U.S. financial institutions, of blocked Burmese financial institutions, as noted above); or (iii) any debit to a blocked account. Because of its broader scope, GL 16 replaces and supersedes previous OFAC general licenses that permitted more limited activities involving U.S. financial services, such as with respect to non-profit activities and personal remittances, which are also permitted under the more general terms of GL 16.  

Certain New U.S. Investment Now Authorized

OFAC General License No. 17 (“GL 17”) authorizes new U.S. investment (as defined and interpreted under the existing sanctions) in Burma, subject to certain limitations and requirements. Specifically, GL 17 does not authorize new investment pursuant to an agreement, or pursuant to the exercise of rights under such an agreement, that is entered into with: (i) the Burmese Ministry of Defense, state or non-state armed groups (which includes the military), or any entity in which any of the foregoing owns a 50% or greater interest; or (ii) any direct or indirect transactions with any person currently blocked under preexisting sanctions.  

To ensure that new U.S. investment takes place transparently and responsibly, GL 17 imposes reporting requirements on U.S. investors in Burma. Generally, U.S. persons will be required to report annually, subject to certain conditions, activities related to aggregate new investments in Burma exceeding $500,000. And any U.S. person who undertakes a new investment pursuant to an agreement, or pursuant to the exercise of rights under such an agreement, with the Myanma Oil and Gas Enterprise (“MOGE”), will be required to notify the U.S. State Department in writing within 60 days of such new investment. Official public information about the new investment reporting requirements is available here.  

New Executive Order Targeting Persons Threatening the Peace, Security, or Stability of Burma

Along with the general licenses described above to ease sanctions, the President issued an executive order authorizing OFAC, in consultation with or at the recommendation of the State Department, to designate for blocking persons whose actions run counter to the developments that have led to the easing of sanctions or that have been engaged in weapons transactions with North Korea, as well as persons owned or controlled by such persons or acting on behalf thereof. In connection with this action, OFAC has added to the SDN List the Burmese Directorate of Defence Industries (alleged to have engaged in weapons transactions with North Korea) and Innwa Bank Ltd. (a subsidiary of the Myanmar Economic Corporation (“MEC”), an entity previously placed on the SDN List).  

The executive order reflects the Administration’s “carrot-and-stick” approach toward easing sanctions in a calibrated way that recognizes Burma has made a start, but only a start, on its road to reform.  

Some Implications for U.S. and Multinational Companies

Resource-rich Burma offers promising opportunities, especially in the oil and gas and timber industries. But as U.S. companies consider new opportunities, they must also take into account the remaining risks. First, U.S. economic sanctions remain in place, and the newly permitted activities are subject to limitations and requirements. OFAC sanctions are highly complex and often ambiguous in their interpretation. Determining, and conforming a company's activities to, the scope of activities that are now authorized will require careful judgment and continuing attention.  

Also, U.S. companies and financial institutions that provide financial support for non-U.S. persons' activities in Burma will need to carefully scrutinize those activities to prevent the possibility of unwittingly facilitating dealings in violation of the remaining U.S. sanctions. And, their non-U.S. counterparts will need to ensure that they don’t unintentionally embroil U.S. persons in activities that remain proscribed by U.S. law.  

Companies will need to exercise due diligence to ensure that their proposed dealings fall within the expanded, but still circumscribed, range of activities now permitted by general license, comply with newly implemented reporting requirements, and do not involve persons on the SDN List, their subsidiaries, or those acting directly or indirectly for or on behalf of such persons.  

Finally, companies must exercise caution and recognize that the easing of longstanding U.S. sanctions is in response to promising but not fully mature reforms in Burma. Any backsliding in the political or human rights situation in Burma could lead to a return to a more restrictive OFAC regulatory environment.