16 July, 2012

 

Legal News & Analysis – Asia Pacific – Myanmar

 

On July 11, 2012, the US relaxed its sanctions regime against Myanmar by lifting the prohibition on the export of financial services to Myanmar and permitting US persons (which includes companies) to undertake new investment in Myanmar. The changes will allow US financial institutions to process most transfers and other remittances into Myanmar. Further, US companies may now make new investments in Myanmar for the first time in fifteen years.
 

Changes to the US / Myanmar Regime

 

The US Department of Treasury, Office of Foreign Assets Control ("OFAC"), implemented the changes to the US Myanmar sanctions regime through the issuance of two general licenses and one Executive Order ("E.O.").  

 

General License 16 authorizes the export or re-export of financial services to Myanmar, directly or indirectly, from the US or by a US person. Previously, the US ban on the export of financial services prohibited US persons – including financial institutions – from transferring or remitting any funds into Myanmar. General License 16 allows US persons to transfer funds into Myanmar provided that they do not transfer funds to Specially Designated Nationals (persons whose property has been frozen by OFAC in furtherance of the US/Myanmar Sanctions regime) or other groups and entities designated under the terms of the General License (such as the Burma Ministry of Defense or the Office of Procurement). Under General License 16, US financial institutions are authorized to process transfers that involve accounts held at financial institutions whose property has been blocked by OFAC, provided that the account is not on the books of a US financial institution.

 

General License 17 broadly authorizes US persons to engage in new investment in Myanmar subject to similar restrictions as those set out in General License 16 (i.e. the investment may not involve the Burma Ministry of Defense or other listed persons). Further, all investment in Myanmar by US persons is now subject to two separate reporting requirements. First, any US person undertaking new investment pursuant to an agreement with Myanma Oil and Gas Enterprise (MOGE) must notify the Department of State about the investment. Second, any US person whose aggregate investment in Mynamar exceeds US$500,000 must file a report with the US Department of State. The latter requirement is potentially onerous and requires the investor to provide details not only about the investment, but also about the investors' policies and procedures in relation to human rights, workers' rights, anti-corruption and environmental protection.

 

The General Licenses will generally permit US persons to conduct business in Myanmar, but not without restriction. Also on July 12, 2012, the US took additional steps to give new authority to the Department of Treasury, in conjunction with the Department of State, to "block" or "freeze" the US assets of certain broad categories of persons or entities. Notably, this restriction is not limited to US persons and includes anyone:

 

  • deemed to have engaged in acts that directly or indirectly threaten the peace, security, or stability of Myanmar (including any person engaged in actions that obstruct the political reform process or the peace process with ethnic minorities in Myanmar);
  • responsible for or complicit in, ordering, controlling, or otherwise directing, or to have participated in, the commission of human rights abuses in Myanmar;
  • deemed to have, directly or indirectly, imported, exported, re-exported, sold or supplied arms or related material from North Korea or the Government of North Korea to Myanmar or the Government of Myanmar;
  • ·who is a senior official of an entity that has engaged in the foregoing acts;
  • who has materially assisted any of the foregoing acts; or
  • whose property and interests in property are blocked pursuant to the order; or to be owned or controlled by, or to have acted for or on behalf of, such a person.

 

Current Status of the US / Myanmar Sanctions Regime

 

Despite the developments, the US maintains a robust sanctions regime against Myanmar. The US sanctions targeted at Myanmar are set forth in five federal statutes, five E.O.s, and two general licenses. They can be generally divided into several broad categories.  

 

  • Trade Restrictions: There is no general ban on the export of goods to Myanmar, but in practice the restrictions on dealing with the Government of Myanmar, and designated political parties, can impair trade. Limits on trade include a general prohibition on the import of Myanmar products into the US that has not been affected by the July 11, 2012 General Licenses. 
  • Asset Freeze: The US has "blocked" or "frozen" all property interests of a number of targeted individuals or entities ("Specially Designated Nationals" or "SDNs"), many of which are members or associates of the Government of Myanmar or entities that do business with it. http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx. If an individual/entity is on the SDN list, it will be impossible for US persons to enter into trading/payment arrangements with them. Further, the asset freeze applies to any entity that is owned or controlled by an SDN, even if the entity does not appear on the list.
  • Restrictions on Engaging in Prohibited Activities or Dealing with the Government of Myanmar: The US authorities are empowered under the July 12, 2012 E.O. and E.O. 13464 to block the US assets of a person or entity deemed to have, among other things, obstructed the political reform process in Myanmar, or provided financial, material, or technological support to the Government of Myanmar.
  • Narrow Restrictions on Financial Exports: As described above, General License 16 generally allows US persons to provide financial services (including fund transfers, guarantees, insurance) to Myanmar or facilitate another parties' (including foreign persons) performance of such services.  US persons remain restricted from providing financial services to any SDNs or other persons designated under the license.
  • Reporting of New Investment: As described above, General License 17 lifts the previous ban on new investment in Myanmar, and allows US persons to enter into contract that involves the "economic development of resources" in Myanmar provided that the investment does not involve SDNs or other prohibited persons in Myanmar. However, US persons are required to abide by the reporting requirements with respect to any investment in Myanmar.

 

Conclusion

 

The recent actions should generally provide US persons the flexibility to enter the burgeoning Myanmar market and bring US policy more in line with that of EU, which suspended sanctions against Myanmar on May 14, 2012. However, US persons should be mindful of US sanctions when evaluating potential opportunities in Myanmar as the risk of implicating US sanctions remains high given the government's historical dominance over the economy.

 

 

 

Jessica Fei, Partner, Herbert Smith

jessica.fei@herbertsmith.com

 

Kyle Wombolt, Partner, Herbert Smith

kyle.wombolt@herbertsmith.com

 
Matthew Galvin, Herbert Smith
matthew.galvin@herbertsmith.com

 

 

 

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