U.S. Regulators Publish Myanmar Sanctions Advisory

On January 26, 2022, the U.S. government issued an advisory discussing certain risks and considerations for businesses and individuals with exposure to entities responsible for “undermining democratic processes, facilitating corruption, and committing human rights abuses” in Myanmar (the “Advisory”). According to a press release, the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) explained that it “joined the Departments of State, Commerce, Homeland Security, Labor, and the Office of the U.S. Trade Representative in issuing a business advisory to inform the public of the heightened risks associated with doing business in Myanmar, particularly business involving the military regime.”

We previously discussed U.S. sanctions related to Myanmar on June 1, 2021, May 19, 2021, April 23, 2021, April 1, 2021, March 11, 2021, and February 11, 2021.

The Advisory addresses the following entities and sectors, which are discussed in further detail below:

• State-owned enterprises;
• Gems and precious metals;
• Real-estate and construction projects; and
• Arms, military equipment, and related activity.

State-Owned Enterprises Benefiting the Military

According to the Advisory, Myanmar’s state-owned enterprises (“SOEs”) “not only generate revenue for a military regime that is responsible for lethal attacks against the people of [Myanmar], but many of them also are subject to allegations of corruption, child and forced labor, surveillance, and other human and labor rights abuses.” As such, businesses and individuals involved in dealings with Myanmar’s SOEs “run a high risk of furthering corruption within [Myanmar].”

Accordingly, the Advisory recommends that businesses further review and, as appropriate, update their risk assessments associated with continuing to do business with Myanmar’s SOEs. Considering the risks noted above, businesses involved in dealings with SOEs in Myanmar should conduct appropriate due diligence to ensure they are not furthering corruption within Myanmar, supporting child or forced labor, contributing to arbitrary or unlawful surveillance practices, or leading to any other serious human rights abuses.

Gems and Precious Metals

In March 2021, OFAC designated Myanma Economic Holdings Limited (“MEHL”) and Myanmar Economic Corporation (“MEC”) and later designated Myanma Gems Enterprise (“MGE”) and Myanmar Pearl Enterprise (“MPE”) in April 2021, pursuant to Executive Order 14014.

The Advisory recommends that gem, pearl, and precious metal importers undertake enhanced due diligence to better understand their supply chains and to ensure they are not sourcing from or brokering through military-owned or -operated entities, even if their supply chain seems to be completely outside of Myanmar, as a result of “the insufficient reporting requirements in [Myanmar] for cross-border transfers of goods and funds.” The Advisory cautions that, “[a] supply chain that, on paper, does not refer to or otherwise appear to touch Myanmar may still involve links in which the military is the ultimate beneficiary.” Thus, it is the business’s responsibility to ensure their sourcing is consistent with what is being reported from vendors and suppliers to avoid potential liability for sanctions violations.

Real Estate and Construction Projects Benefiting the Military

According to the Advisory, U.S. businesses maintaining a physical presence in Myanmar, including leasing or purchasing facilities for corporate offices, retail, wholesale, warehousing, and related physical infrastructure, should investigate as appropriate to determine whether payments are benefiting designated entities, and should take appropriate measures to ensure their compliance with applicable requirements related to U.S. sanctions and money laundering controls. In addition, U.S. businesses maintaining a physical presence should also conduct heightened due diligence around land tenure to identify, mitigate, and redress issues regarding possible land seizures.

Warning signs of real estate-based money laundering include, but are not limited to:

• Significant and unexplained geographic distance between agent, customer, and property;
• Customers with unclear true beneficial ownership or controlling interest;
• High-value cash payments;
• Counterparties, government or otherwise, that are not subject to monitoring or supervision;
• The speed of the transaction;
• Successive transactions;
• Introduction of unknown or substitute parties at the late stage of a transaction;
• Third party vehicles used to obscure the ownership of the buyer; and/or
• Extremely over- or under-valued transactions.

If any of these warning signs are detected, the Advisory recommends that businesses conduct increased know-your-customer (“KYC”) practices to ensure that customers provide satisfactory responses to address concerns and to file suspicious transaction reports to the relevant authorities as required.

Arms, Military Equipment, and Related Activity

The Advisory notes that Myanmar is subject to a range of U.S. export control restrictions.  In response to the February 2021 military coup, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued a notice announcing a more restrictive review policy for certain license applications as well as several amendments imposing restrictions under the Export

Administration Regulations (“EAR”), 15 C.F.R. Parts 730-774, on the export and reexport of items (commodities, software, and technology) subject to the EAR that are destined for Myanmar and/or certain entities located in Myanmar. Pursuant to the EAR, BIS regulates the export and reexport of U.S.-origin dual-use, purely commercial, and certain less-sensitive military items. In addition to U.S.-origin items, certain foreign-produced items are also subject to the EAR, if they meet a certain “de minimis” level of U.S.-origin content by value that is “controlled” to the destination in question (in the case of Myanmar, greater than 25%).

On February 18, 2021, BIS issued a Federal Register notice announcing that it would review license applications for items destined for Myanmar’s Ministry of Defense, Ministry of Home Affairs, armed forces, and security forces under a presumption of denial. BIS also suspended the availability of four license exceptions for items destined for Myanmar.

On March 8, 2021, BIS implemented new restrictions on Myanmar under the EAR, moving the country to a more restrictive country group (Country Group D:1), and subjecting it to “military end use” and “military end user” controls.

Finally, on April 9, 2021, BIS added Myanmar to the list of destinations subject to military intelligence end-use and end-user restrictions and identified the Office of Chief of Military Security Affairs (“OCMSA”) and the Directorate of Signal on an illustrative list of military-intelligence end-users. Exports of all items subject to the EAR require a license to military-intelligence end users in Myanmar.

Conclusion

In sum, the Advisory warns that businesses “with potential exposure to, or involvement in operations or supply chains tied to, the military regime that do not conduct appropriate due diligence run the risk of significant reputational, financial, and legal risks, including violations of U.S. anti-money laundering laws and sanctions.” Furthermore, Myanmar “faces significant money laundering risks and gaps in implementing its anti-money laundering (AML) and counter financing of terrorism (CFT) legal framework.” As such, the Advisory recommends that the international financial sector and other businesses conduct heightened due diligence to ensure compliance with all applicable U.S. laws.

We will continue to monitor developments in this area, and encourage you to subscribe to be kept informed of latest developments. Please contact the authors or your usual Herbert Smith Freehills contacts for more information.