On May 17, 2016, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced its long-awaited changes to US sanctions on Myanmar (which the US government refers to as Burma). Following the landslide electoral victory last year of the longtime opposition party, the National League for Democracy (NLD), these changes, while offering limited relief, fall short of the hopes held by some for a significant relaxation of US sanctions.
Specifically, on May 17, 2016, OFAC removed from the Specially Designated Nationals (SDN) list three state-owned banks along with seven other state-owned enterprises. On May 18, 2016, OFAC issued a final rule revising the Burmese Sanctions Regulations (BSR), which added the two remaining SDN banks to a fairly broad general license authorizing most transactions with those banks, and making other minor changes relating to US persons resident in Myanmar and certain transactions related to the transport of goods within Myanmar. In addition, on May 17, 2016, the President issued the annual notification continuing the basic legal framework of the BSR for one more year.
We also note that, on April 21, 2016, the EU extended its restrictive measures against Myanmar for another year, though these EU sanctions are considerably more limited than US sanctions. In 2013, the EU lifted most of its sanctions against Myanmar, including its trade restrictions and targeted sanctions against individuals and entities in Myanmar, which were far more extensive at the time than the US SDN list. The EU has retained an arms embargo and a ban on exports of equipment for internal repression.
OFAC’s move to lift most of the remaining restrictions on banks in Myanmar will facilitate authorized commerce with that country, but the rest of the US sanctions program remains largely unchanged. Overall, these developments do not significantly reduce the level of sanctions risk faced by US companies conducting business in Myanmar, in particular due to the fact that most of the major private business groups remain on the SDN list. Until more private enterprises are removed from the SDN list, US persons will continue to face significant compliance challenges. To many observers, this was viewed as a modest change in sanctions policy by the US government, in contrast to the dramatic political developments that have taken place in Myanmar over the past six months, which may raise questions about the US government’s commitment to allowing a material level of trade and investment between the United States and Myanmar to begin to take root before the end of the Obama Administration.
Lifting Restrictions on Banks
The most significant change here is OFAC’s removal from the SDN list of three state-owned banks, and the addition of the two remaining SDN banks to a broad general license. OFAC has delisted Myanma Economic Bank (MEB), Myanma Foreign Trade Bank (MFTB), and Myanma Investment and Commercial Bank (MICB), removing all specific US sanctions restrictions on those entities. Delisting MEB means that the Yangon Stock Exchange, which is 51% owned by MEB, is no longer treated as blocked under OFAC’s 50% rule.
OFAC has also added Innwa Bank and Myawaddy Bank, which remain SDNs, to the general license at Section 537.531 of the BSR, which authorizes all transactions involving those banks, except new investment in or with those banks and any transactions involving other SDNs. With these moves, all SDN banks in Myanmar have now either been delisted or added to this general license, which will provide greater flexibility in using Myanmar’s financial sector to conduct authorized commerce.
Section 537.531 also clarifies that the restrictions under Section 311 of the USA PATRIOT Act do not apply to the operation or use of correspondent accounts for authorized transactions involving the banks listed in that general license. However, all financial sector transactions in Myanmar will remain subject to scrutiny under US anti-money laundering (AML) laws, including expectations of enhanced due diligence.
Delisting of Other State-Owned Entities
In addition to the banks, OFAC has delisted the following state-owned enterprises: Co-operative Export-Import Enterprise (CEIE), Myanma Gem Enterprise (MGE), Myanma Timber Enterprise (MTE), Myanma Pearl Enterprise (MPE) and the Nos. 1, 2 and 3 Mining Enterprises. All of these entities are under nominal civilian control, or otherwise no longer exist. Delisting these sector-specific entities, which typically serve as state-mandated joint venture partners and regulators, could in theory allow US companies to seek to establish joint ventures in these sectors. However, the gem industry in particular remains subject to other sanctions restrictions, and the extractive sector in Myanmar as a whole remains plagued by reputational and other legal risks.
Expanded General License for Authorized Trade Involving Intermediary SDNs
By adding new Section 537.532 to the BSR, OFAC has made General License No. 20, which was set to expire in June, a permanent feature of this sanctions program. General License No. 20 authorized transactions “ordinarily incident to an exportation to or from Burma of goods, technology, or non-financial services,” unless the exportation was to, from, or on behalf of an SDN. As we have previously advised, it is generally understood that General License No. 20 was intended to authorize transactions with SDNs in intermediary roles, in particular to allow companies to use the major port facilities in Yangon, which are operated by an SDN, for authorized trade. US financial institutions should note that OFAC has retained the related general license authorizing them to unblock and return property retroactively that was blocked on or after April 1, 2015, if the transaction would have been authorized under General License No. 20. This unblocking provision remains subject to a requirement to report to OFAC.
In addition, Section 537.532(d) adds to the pre-existing General License No. 20 a new authorization for transactions “ordinarily incident to the movement of goods within Burma,” provided that the goods are not being sent to, from, or on behalf of an SDN. While such transactions may have already been viewed as covered by General License No. 20, it is nonetheless helpful that OFAC has clarified that, not only can SDN services be used to import and export items, they can also be used to transport goods within Myanmar. Much of the basic infrastructure in Myanmar is operated by SDNs.
However, OFAC has not added a corresponding authorization to unblock and return funds related to the in-country movement of goods. That retroactive unblocking general license remains limited to import/export transactions, which means that banks will need to scrutinize any moves to unblock property to be sure it does not involve any funds related to the in-country movement of goods. That restriction may make this general license prohibitively difficult to use in practice, as many commercial payments to freight forwarders tend to lump together port services with onward transportation services. This is a potential problem that would benefit from some additional clarification by OFAC.
New General License for US Persons Resident in Myanmar
OFAC has also added a new general license at Section 537.525 of the BSR authorizing transactions “ordinarily incident to the routine and necessary maintenance within Burma, including payment of living expenses and acquisition of goods or services for personal use, of US person individuals who reside in Burma.” It is important to note that this general license does not authorize the employment of US persons by SDNs. While this is a useful addition to the BSR for situations of longer-term residency, travel-related transactions have long been exempt from the prohibitions of the BSR pursuant to a statutory restriction on the President’s authority to regulate or prohibit travel-related transactions in this context.
Additional Sanctions Designations
In addition to relaxing some sanctions, OFAC has added six entities to the SDN list based on their affiliation with Steven Law and the Asia World group. This includes some economically significant companies, such as Pioneer Aerodrome Services Co., which operates the airport in the capital city, Nay Pyi Taw. However, these entities were already treated as blocked in any case under OFAC’s 50% rule, so the practical effect of this action is minimal.
One takeaway from this move could be that the US government is continuing to scrutinize the activities of the private SDN business groups in Myanmar, and remains intent on tightening the screws on at least some of these groups. While there is a reasonable chance of some private SDNs being de-listed in the short- or medium-term, this action indicates that others, such as Asia World, may remain on the SDN list for longer. An alternative interpretation may be simply that OFAC has added these entities to the SDN list to facilitate compliance by making the restrictions under the 50% rule more explicit, though if that is the case the absence of numerous other entities that are owned or controlled by SDNs, such as Asia World subsidiary Yangon Aerodrome Co. Ltd., which operates the Yangon airport, may create more confusion than clarity.
These relatively modest changes to the US sanctions program on Myanmar are a step forward in facilitating authorized commerce, but they do not represent a major change in sanctions policy. This leaves open the possibility that the US government may come out with a more meaningful relaxation of sanctions on Myanmar prior to the end of the Obama Administration, commensurate with the dramatic shift in the political landscape in Myanmar that has taken place over the past six months. Adam Szubin, the Acting Under Secretary of the Treasury for Terrorism and Financial Intelligence, has acknowledged that “Burma reached a historic milestone over the last year by holding competitive elections and peacefully transitioning to a democratically-elected government.” However, as long as most private business groups in Myanmar remain on the SDN list, it remains challenging for US companies to enter the market there. From a purely economic point of view, the incentives are strong: according to the Asian Development Bank, Myanmar is expected to be the fastest-growing economy in all of Asia this year.