Following the announcement this May that the United States would lift certain sanctions on Burma (Myanmar), on July 11, the US Treasury Department, in concert with the US State Department, outlined two general licenses to the Burmese Sanctions Regulations1 that ease certain US financial and investment restrictions. These licenses permit the export to Burma of a wide range of financial services and financial products, and authorize the first new US investment in Burma in nearly 15 years.
In light of concerns within the US government regarding Burma's record on human rights and corruption, these new general licenses impose specific limitations on the export of financial services and the scope of authorized new investment. The US ban on imports from Burma also remains in effect - as do "Special Measures" under the USA PATRIOT Act relating to anti-money laundering concerns about Burma, Myanmar Mayflower Bank and Asia Wealth Bank. As with all foreign investments or exports, underlying US laws and regulations prohibiting "US persons"2 from doing business with entities on the list Specially Designated Nationals ("SDNs") remain in place. US persons are also barred from business dealings with entities in which an SDN holds a 50% or greater interest. This list currently includes several entries for components of the Burmese government and related parties.
In addition to these specific restrictions, the general license for new investment also includes new and unprecedented corporate social responsibility reporting requirements. These additional requirements for new investment are likely to result in substantially heightened scrutiny for those companies engaging in Burma investments. On July 11, the US also released a new Executive Order authorizing sanctions on persons who threaten the peace, security or stability of Burma, including individuals or entities who are involved in human rights abuses in Burma or the arms trade between Burma and North Korea.
Exports of Financial Services to Burma
General License No. 16 broadly authorizes "the exportation or reexportation of financial services to Burma." Included within the scope of this authorization is the transfer of funds from the United States or by a "US person" to Burma. General License No. 16 also covers the provision to persons in Burma of a wide range of financial services, including insurance, investment or brokerage services, banking services, money remittance services; loans, guarantees, letters of credit or other forms of credit; or the service of selling or redeeming traveler's checks, money orders and stored value instruments.
However, certain restrictions remain in effect with respect to the export or reexport of financial services in connection with the provision of security services. To prevent US financial services from benefiting the Burmese military or the various armed groups operating in that country, by its terms, General License No. 16 expressly does not authorize any such exports or reexports to the Burmese Ministry of Defense or any state or non-state armed groups. General License No. 16 also does not authorize any such exports or reexports to any entities in which the Burmese Ministry of Defense or any state or non-state armed group holds a 50% or greater interest.
Further, General License No. 16 does not encompass the debiting of a blocked account—thus prohibiting US persons from transferring funds from a blocked account to Burma, even if such a transfer were to constitute an export of financial services to Burma that would otherwise be authorized under this license.
New Investment in Burma
General License No. 17 authorizes US persons to engage in "new investment in Burma." This license covers several types of activities, including entering into a contract for the development or exploitation of "any resources, including natural, agricultural, commercial, financial, industrial and human resources, located within the territory of Burma, including the territorial sea, or located within the exclusive economic zone or continental shelf of Burma."3 General License No. 17 also authorizes US persons to supervise and guarantee the performance of a third party's contract involving the economic development of resources located in Burma. Additionally, General License No. 17 permits US persons to take an ownership interest in the economic development of resources located in Burma, including by entering into a contract for royalties, earnings or profits from such activities.
By its terms, General License No. 17 does not permit new investment undertaken with the Burmese Ministry of Defense or any state or non-state armed groups.4 General License No. 17 also maintains the prohibition on transactions with or involving any person whose property interests are blocked pursuant to the various US sanctions against Burma.5
Responsible Investment Reporting Requirements
General License No. 17 contains a reporting provision unique among all US sanctions programs. Specifically, the license requires any US person engaging in "new investment" in Burma under the general license to report to the US State Department in compliance with new Reporting Requirements on Responsible Investment in Burma ("Reporting Requirements"). The proposed6 Reporting Requirements consist of two separate reporting regimes: (1) the Myanma Oil and Gas Enterprise Investment Notification and (2) the Annual Reporting Requirement.
Myanma Oil and Gas Enterprise Investment Notification. Any US person undertaking a new investment pursuant to an agreement with the Myanma Oil and Gas Enterprise ("MOGE") must notify the State Department of this new investment in writing within 60 days of making the investment.
MOGE is the Burmese state-owned energy conglomerate that is responsible for Burma's upstream petroleum sector. The company has been the subject of intense criticism by many human rights advocates who contend that its revenues primarily benefit the Burmese military, which has been implicated in significant human rights abuses, corruption, and anti-democratic actions.
While US persons may now engage in certain transactions involving MOGE, extraordinary caution should be exercised to identify, evaluate, and address the possible exposure to legal, regulatory, and reputational risk associated with any such relationship.
Annual Reporting Requirement. Any US person whose aggregate investment in Burma exceeds $500,000 must annually provide the State Department with two reports: (i) a confidential7 US Government Report and (ii) a Public Report. Persons subject to the Annual Reporting Requirement ("submitters") must report to the State Department on April 1 of each year. Submitters may report on either a fiscal year or calendar year basis, provided that their reports identify the relevant time period covered.
Both the US Government Report and the Public Report must contain several components, including but not limited to the following:
- Overview of Operations. An overview of the submitter's operations in Burma, including the names of all of the submitter's companies operating in Burma (and their subsidiaries), the nature and location(s) of the submitter's business in Burma, and the approximate number of the submitter's Burmese and non-Burmese employees in Burma during the reporting period;
- CSR Policies and Procedures. A summary or copies of the submitter's human rights, worker rights, anti-corruption, community and stakeholder engagement, employee grievance, environmental, and corporate social responsibility policies and procedures as they relate to the submitter's operations and supply chain in Burma - or a statement that the submitter does not have such policies or procedures;
- Dealings with Security Service Providers. Information regarding any arrangements the submitter has with security service providers, including whether any such providers are signatories to the International Code of Conduct for Private Security Service Companies;
- Land/Property Acquisition. Information about any purchase or lease of land or real property in Burma where the purchase or lease price was greater than $500,000 or the amount of land involved is 30 acres or more; and
- Transparency and Governmental Payments. Information about any payments during the reporting year to the Government of Burma and any of its agencies or instrumentalities that possess (or claim to possess) authority over the submitter's new investment activities in Burma.8
The US Government Report also must contain certain additional information that is not required in the Public Report. This additional information includes, without limitation, the following:
- Responsible Individual(s). The name and contact information of the individual(s) responsible for preparing the report;
- Communications with Burmese Armed Forces. Whether the submitter (or any representative of the submitter) has had any communications with the Burmese armed forces and/or other armed groups that were material to the submitter's investments in Burma and, if so, the date, persons involved, and the nature of and reason for the communication; and
- Due Diligence Disclosure. Information about whether the submitter conducted any due diligence regarding human rights, worker rights, and/or environmental issues, including a summary of any risks or impacts identified and any steps taken to mitigate these risks or impacts. If no such due diligence was conducted, the submitter must indicate accordingly.
New Executive Order and Designations
As part of the efforts by the US to prevent the new economic openings from benefiting individuals or entities at odds with US reform objectives, on July 11, the US also announced a new Executive Order authorizing the imposition of sanctions on individuals or entities "threatening the peace, security, or stability of Burma."
Under this Executive Order, the Secretary of the Treasury, in consultation with the Secretary of State, may add to the SDN list any persons who have engaged in acts threatening the peace, security or stability of Burma, those who are implicated in human rights abuses in Burma, and individuals or entities who have been involved in the arms trade between Burma and North Korea. The Executive Order also authorizes the imposition of sanctions on any person who is a senior official of an entity engaged in the foregoing, and any person who materially supports persons involved in the these activities. Consistent with ordinary US sanctions practice, the Executive Order also authorizes sanctions on any person that is owned or controlled by a person who has been subject to sanctions under the Executive Order.
Pursuant to this new Executive Order, on July 11, the US designated the Burmese Directorate of Defense Industries for inclusion on the SDN list, noting that this entity engages in missile research and development in cooperation with North Korea.
Under a separate pre-existing authority,9 the US also designated Innwa Bank for inclusion on the SDN list because it is owned or controlled by Myanmar Economic Corporation - which was previously designated in its own right.
Outlook and Recommendations
The easing of US sanctions on Burma provides a potentially significant opportunity for US persons to make new investments in a country with substantial natural resources. It is also a potentially major opportunity for US persons to export to Burma a wide range of financial services, such as insurance, banking, and various forms of financing. In a sign of the economic and political importance of this opening, on July 14-15, Robert Hormats, the US Under Secretary of State for Economic Growth, Energy, and the Environment, led the highest level US economic and commercial delegation to Burma in more than 25 years.
Companies considering entering the Burmese market need to understand both the US sanctions and regulatory framework for operating in Burma, as well as the new and unprecedented corporate social responsibility reporting requirements that could expose businesses to extraordinary degrees of governmental and public scrutiny.
As a legal matter, the Proposed Requirements claim not to create a new system of legal liability. Rather, the Reporting Requirements state that, at least for the Annual Reporting Requirement, "[t]he reporting requirement shall not give rise to any liability beyond that which exists under U.S. law." Nonetheless, the existing statutory and regulatory framework governing compliance with economic sanctions and licensure provides ample basis to make compliance with the Reporting Requirement critical. Failure to abide by the terms of a US Treasury Department license can have serious consequences, including substantial civil and/or criminal penalties, as well as expensive and time-consuming administrative procedures. Given the sensitive political context that often is associated with US sanctions programs, even the perception that a company is not fully complying with US rules can often generate substantial and unwanted media or political attention.
Of equal importance, companies entering Burma must also be mindful of the unprecedented disclosures required by the Public Report. The requirement that a company provide its various CSR policies—or note their absence—exposes businesses to an exceptional degree of scrutiny. Companies will need to be mindful that their policies and procedures—or lack thereof—could generate significant interest and attention from US and foreign government agencies, business counterparts, politicians, the media, shareholders, and members of the public. Given the exceptionally dynamic nature of recent events in Burma and the new changes to longstanding US sanctions policies, active monitoring of the policy landscape is critical.