Following the declaration of the state of emergency, the situation in Myanmar remains fluid. Indeed, even as we go to press with this alert, reports are emerging of a significant escalation in the use of force by Myanmar’s policy and military in confrontations with protestors, resulting in multiple deaths. Foreign investors and other stakeholders in the country will need to continue to pay close attention to ongoing developments. In this alert, we highlight some of the key recent developments potentially affecting businesses with investments in Myanmar or who have dealings with Burmese companies or individuals.
1. International sanctions
For the time being, there are no global sanctions against Myanmar as a whole, but only targeted sanctions imposed by certain countries. The U.S. government has taken the most forceful and wide-ranging measures against the Burmese government and military. We highlight below some of the key sanction measures that have been implemented recently.
(A) U.S. government sanctions
On 10 February, U.S. President Joe Biden announced that he formally approved sanctions against Burmese military leaders and their families, and demanded that the Burmese military surrender the power it has acquired through military means and release the detainees concerned.. On 11 February, President Biden issued Executive Order 14014, which blocks all property and interests in property that are in the United States or come within the possession or control of U.S. persons anywhere in the world of persons whom the Secretary of the Treasury determines: (1) operate in the defence sector of the Burmese economy, (2) are responsible for actions undermining democracy in Myanmar, (3) are military leaders or post-coup government leaders or officials, or (4) part of the Burmese government.
Other recent sanction and trade-related restriction adopted by the U.S. government are discussed below:
- The U.S. Department of the Treasury The Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury announced the addition of eight current and former military officials from Myanmar and three Burmese entities (wholly owned subsidiaries of large conglomerates owned or controlled by the Burmese military in the jade and ruby sector) to the Specially Designated Nationals and Blocked Persons List (“SDN List”). The three entities include Myanmar Ruby Enterprise, Myanmar Imperial Jade Co and Cancri Gems & Jewellery Co. On 2 February, OFAC added two more Burmese generals to the SDN List. All assets and interests in assets of the sanctioned persons and entities, as well as any entities owned directly, indirectly or jointly with other blocked persons (50 percent or more), that are in the United States or that come within in the possession or control of a United States person anywhere in the world, must be frozen and reported to OFAC.
- The U.S. Department of Commerce
According to an announcement by the U.S. Department of Commerce, the Bureau of Industry and Security (“BIS”) has imposed a number of restrictions on the export of sensitive items to the Ministry of Defence, the Ministry of Home Affairs, the armed forces and security services in Myanmar, including:
- presumption of denial of applications for licences to export or re-export to these entities;
- revocation of licences previously issued to these entities; and
- suspension by BIS of certain licensing exceptions that were previously applicable to Myanmar (currently in a group of countries under the Export Administration Regulations (EAR) that largely permits unlicensed exports and reexports), including the Shipments to Group B Countries (GBS) and Technology and Software under Restriction (TSR) exceptions. While these measures have already taken effect, BIS has stated that it is evaluating further restrictions, including:
- adding Myanmar entities to the Entity List;
- subjecting Myanmar to the Military End Use and End User (MEU) rule (EAR 744.21) and the forthcoming Military Intelligence End Use and End User (MIEU) rule (EAR 744.22, effective 16 March, 2021) and adding Myanmar to the Military Entities List (MEU), both of which could impose stricter licence requirements on shipments of U.S.-origin items to Myanmar; and
- downgrading Myanmar’s Country Group status under the EAR.
(B) Canadian government sanctions
According to a statement on the Canadian government's website, Canada's Foreign Minister Marc Garneau announced sanctions against nine members of the Myanmar military under The Special Economic Measures (Burma) Regulations on 18 February 2021. The assets of the members of the list will be frozen, and persons in Canada and Canadians outside Canada are prohibited from buying or selling any property or providing financial or related services to these individuals.
(C) UK government sanctions
The British Foreign Secretary, Dominic Raab, has announced the imposition of asset freezes and travel bans on three members of the Burmese military for serious human rights violations during the military coup.
(D) New Zealand
On 9 February, New Zealand announced that it was suspending all high-level political and military contacts with Myanmar, imposing a travel ban on the country's military leaders and suspending aid to the government.
At the time of writing, Australia had not yet imposed any additional sanctions (on Myanmar’s military and their business interests or otherwise).
2. Investment withdrawal and work stoppage by foreign companies
A number of foreign companies have already suspended works or deferred investment plans. In particular, Japanese companies which have invested nearly $2 billion in Myanmar since 2011, have been reviewing their operations in the country.
Apart from Japanese companies, other foreign companies have also taken steps to suspend or defer investments and operations. For example Amata, Thailand's biggest industrial-development company, suspended a $1 billion investment in a property project in Myanmar. The World Bank has implemented a hold on payments to projects in Myanmar for withdrawal requests made after 1 February 2021. It is also closely monitoring projects already underway (for which funding has already been disbursed), to ensure compliance with the bank’s policies. Some of these foreign companies have begun to resume partial operations but it remains to be seen whether full operations will be resumed.
3. Suspension of certain provisions of the Law Protection of the Citizen for Personal Freedom and Personal Security
On 13 February, Myanmar's State Administration Council (“SAC”) led by Commander-in-Chief of Defense Services Sen-Gen Min Aung Hlaing announced the suspension of Articles 5, 7 and 8 of the Protection of the Citizen for the Personal Freedom and Personal Security Law. These suspended articles relate to privacy and security of citizens, detention of persons and entry into citizen’s private residence for purposes of search or seizure. The amended law now allows government authorities to enter private residences without warrants for search or arrest and to detain suspects for more than 24 hours without court permission. The suspension of the articles was undertaken pursuant to the "Amendment to the Law on the Protection of Civil Liberties and Security". Reportedly, the new restrictions of these rights are to apply on a temporary basis only until power is transferred to the newly elected government.
4. Movement restrictions, and disruptions in transportation and communication
Since the state of emergency was put in place, Myanmar has seen various restrictions and disruptions in movement and communication, In particular:
- International flights, and travel between states in the country have been banned, and also the military government has banned gatherings of more than 5 people, and imposed curfews in major cities between 8 p.m. and 4 a.m..
- The Internet and communications have experienced several disruptions since the state of emergency was put in place. Access to Facebook has been blocked on 4 February for the sake of “stability” (with Facebook subsequently announcing that it would ban the accounts of the military and related media entities). Earlier, communication blackouts have been imposed by the military in major cities to forestall organization of protects (hence resulting in activists turning to Facebook and other social media platforms).
- On 17 February, multiple government websites, including those of Myanmar's central bank, the military's official propaganda page and Myanmar government departments, were hacked by a group called the Myanmar hackers as a protest against the military take-over.
Since the military takeover, major cities in Myanmar have experience mass protests. Public transport, health care and banking services have been significantly affected by the increasing participation of citizens in demonstrations in cities across the country, with certain local banks being unable to operate due to their staff participating in the demonstrations. Some government offices remain closed as civil servants take part in demonstrations. On 2 February 2021, healthcare workers and civil servants across the country launched a national civil disobedience movement.
6. Banking disruption
- Myanmar's military-controlled banks face the risk of bank runs Due to distrust of the military, large numbers of depositors have been withdrawing money from private banks controlled by the military (which have been on the U.S. sanctions list since 2016). The military-controlled Myawaddy Bank in Yangon which opened on 15 February was forced to close at 11 a.m. on the same day after it ran out of cash for withdrawals. When the bank reopened on the morning of 16 February, customers were required to limit the amount of money they could withdraw. Presently, the bank allows only about 200 customers a day to withdraw cash, capped at MMK 5m ($3,525) per person. To manage the risk of bank runs on the military controlled banks, the Central Bank of Myanmar (“CMB”) may, in accordance with Articles 94 and 103 of the Financial Institutions Act 2016, take various management measures such as providing liquidity support to private banks with insolvency or liquidity constraints. However, it does not appear that any of these measures have been adopted as yet.
- Private banks in Yangon remain closed On the afternoon of 1 February, the Myanmar Banks Association (“MBA”) announced that all domestic banks would resume normal operations as of 2 February, following an emergency meeting of its executive committee. However, since 8 February, many private banks have been forced to close their branches and offer only internet banking and ATM services due to the large number of employees participating in the civil disobedience campaign. No announcement (whether from MBA, CMB or other government entity) has been made as to when these banks will resume operations. In addition, security forces are reportedly stationed in front of the state-owned banks, and it is unclear whether business can be conducted normally. On 19 February, the Yangon branch of Myanmar's military-owned Myawaddy Bank closed again four days after reopening, leaving all private banks in Yangon, Myanmar's largest economic centre, closed.
7. Exchange rate fluctuation
Since the morning of 3 February local time, the exchange rate of the Kyat, the Burmese currency, has plummeted. According to the Myanmar CB Bank, the Kyat fell to 1,395 from 1,330 to the U.S. dollar at 12 noon local time. The central bank has yet to intervene, and the country's currency market has been on a roller-coaster ride.
The situation in Myanmar continues to require close observation and circumstances may change rapidly with little notice. Until recently, Myanmar was a promising destination for foreign investments and investments have been made in a variety of sectors in the country. While cautiously hoping for a return to stability in the country in the medium term, it will be prudent for investors to pay close regard to the ongoing developments and take appropriate measures to safeguard their existing investments and minimize risk exposures to the extent possible.