Recent Actions Suspending Myanmar Sanctions

Myanmar’s April 2012 by-elections produced substantial victories for the country’s opposition party, led by the internationally famous political dissident Aung San Suu Kyi. The international community has viewed these developments as signifying a new era in the country’s leadership, which has long been criticized by the European Union and the United States for its poor record on democracy and human rights issues.

In response to positive assessments of the April 2012 elections, the international community has begun taking steps to ease existing sanctions against Myanmar. On May 16, 2012, the European Union officially suspended all sanctions against Myanmar until April 30, 2013, with the exception of the arms embargo. The United States also announced the easing of certain financial and investment sanctions on May 17, 2012, and implemented those measures on July 11, 2012.

Companies engaged in new investment, development or financial activities in Myanmar are advised to undertake careful trade sanctions and corruption-related due diligence as part of broader legal and political risk planning in order to protect their interests.  Affected companies should also carefully consider and establish policies and procedures to manage the new reporting requirements that address a range of legal and corporate social responsibility issues that are likely to attract both regulatory authority and investor scrutiny.

This alert provides a brief background of the political situation in Myanmar and existing sanctions regimes against the country, followed by a summary of initial concrete steps taken to ease these sanctions in the European Union and the United States and practical implications of these changes for potential investors.

Background

After four decades of military rule, Myanmar’s government transitioned to a nominally civilian administration under President Thein Sein in the spring of 2011, following the first general election in 20 years in November 2010. Thein Sein’s government has since been recognized for undertaking an unprecedented process of reform, including steps to increase political freedom and participation in government.

March of 2012 marked a significant turning point when Myanmar’s election commission approved 19 political parties, including eight new parties, for the April parliamentary by-elections. Notably, the pro-democracy National League for Democracy (NLD), led by Aung San Suu Kyi, was among the parties approved. NLD swept the April 1, 2012 by-elections, winning 43 of 45 contested seats in a landslide victory. As a result of these developments, the European Union and United States have begun the process of re-engaging with Myanmar and suspending sanctions enacted while the country was under military rule. 

Summary of Sanctions Regimes

United States

Prior to its announcements on May 17, 2012 and July 11, 2012, and the subsequent issuance of the Office of Foreign Assets Control (OFAC) General Licenses 16 and 17 (described below and posted here), the United States maintained an active sanctions regime against Myanmar (still referred to as Burma in the U.S. law), which, though more limited than comprehensive U.S. sanctions against Iran, Sudan, Cuba and other countries, imposed substantial restrictions on commercial activities by U.S. persons. The core authorities underlying the U.S. sanctions against Myanmar are based on five laws and four presidential orders.¹

Key provisions from these measures include prohibitions against:

• importing Myanmar-origin goods into the United States
• exporting U.S. financial services to Myanmar, including the transfer of funds from the United States or a U.S. person to Myanmar
• engaging or participating in a new investment in Myanmar, including contracts for the development of resources (including energy resources) of Myanmar
• engaging in any transaction with U.S.-blacklisted Specially Designated Nationals and Blocked Parties (SDNs) of Myanmar or engaging in any transaction that involves the property or property interests of such SDNs, which, in any case, are blocked under the sanctions program
• facilitating any of the commercial transactions prohibited by the sanctions program between a non-U.S. person and Myanmar.

Additionally, the United States maintains an arms embargo against Myanmar in accordance with the International Traffic in Arms Regulations (ITAR).²

European Union

EU Council Regulation (EC) No. 194/2008 provides the main framework for rules and restrictions for economic sanctions against Myanmar. Similar to the aim of U.S.-imposed sanctions, the EU’s sanctions against Myanmar compel restrictive trade and economic measures on the military regime and its affiliates, along with particular sectors considered sources of income for these parties. Sanctions against Myanmar implemented by EU Member States have now been suspended. The suspended sanctions include: 

• restrictions targeting Myanmar’s timber industry and certain extractive industries such as coal; bans on imports from, exports to, and investments in timber, high value metals and the precious stones sectors
• investment bans on the financing of certain state-owned enterprises, and enterprises owned or controlled by persons or entities associated with the country’s military regime
• freezing of funds and economic resources of designated persons related to important governmental functions in Burma, and their families
• travel/visa bans on designated persons associated with the military regime
• suspension of certain aid and development programs.

As discussed in more detail below, as an exception to the suspension of sanctions, the general arms embargo against exports of arms and related material, including weapons and ammunition, weapon and non-weapon platforms, and ancillary equipment remains active and in place.

Recent Modifications to Sanctions Regimes

United States

On May 17, 2012, Secretary of State Hillary Clinton announced that the United States would be following suit with the European Union, Canada and the United Kingdom by suspending economic sanctions against Myanmar. The same day, the United States also named its first ambassador to the country in 22 years, Derek Mitchell. On July 11, 2012, the United States issued OFAC General Licenses Nos. 16 and 17 to permit the first new U.S. investment in Myanmar in nearly 15 years.

General License No. 16 (GL 16) authorizes the exportation of financial services to Myanmar, including:

• the transfer of funds to Myanmar, directly or indirectly, from the United States or by a U.S. person
• the provision, directly or indirectly, to persons in Myanmar of insurance services, investment or brokerage services (including, but not limited to, brokering or trading services regarding securities, debt, commodities, options or foreign exchange), banking services, money remittance services; loans, guarantees, letters of credit or other extensions of credit; or the service of selling or redeeming traveler’s checks, money orders and stored value.

OFAC General License No. 17 (GL 17) authorizes new investment in Myanmar, including:

• the entry into a contract that includes the economic development of resources located in Myanmar (e.g., development of refined petroleum, natural gas, timber or other crops, minerals in the ground, mining operations or the acquisition of land)
• the entry into a contract providing for the general supervision and guarantee of another person’s performance of a contract that includes the economic development of resources located in Myanmar
• the purchase of a share of ownership, including an equity interest, in the economic development of resources located in Myanmar
• the entry into a contract providing for the participation in royalties, earnings or profits in the economic development of resources located in Myanmar.

Key limitations to GL 16 and GL 17:

• do not authorize the exportation of financial services (in connection with the provision of security services) to, or new investment with, the Myanmar Ministry of Defense, state or non-state armed groups, including the military, or to entities owned 50 percent or more by the foregoing
• do not authorize the exportation of financial services to, or new investment involving, any U.S.-blacklisted SDNs of Myanmar or to entities owned 50 percent or more by an SDN.

Key sanctions that remain in place include:

• the arms embargo against Myanmar, in accordance with ITAR
• the ban on importation of Myanmar-origin goods into the United States.

Key reporting requirements of GL 17 include:

• U.S. persons (both individuals and entities) undertaking a new investment with the Myanmar Oil and Gas Enterprise (MOGE) must notify the U.S. Department of State in writing within 60 days
• U.S. persons (both individuals and entities) engaging in new investment in Myanmar pursuant to GL 17 whose aggregate new investment exceeds $500,000 must provide to the State Department a disclosure that includes, among other items, information regarding:
• policies and procedures with respect to human rights, workers’ rights, environmental stewardship and anticorruption
• land acquisitions
• arrangements with security service providers
• aggregate annual payments exceeding $10,000 to Burmese government entities, including state-owned enterprises.

See “Reporting Requirements on Responsible Investment in Burma,” available at www.HumanRights.gov/BurmaResponsibleInvestment.

The limitations and requirements associated with GL 16 and GL 17 echo Secretary Clinton’s concerns about the protection of human rights, corruption and the role of the military in the Burmese economy. The secretary vowed that the U.S. Department of State would work closely with Congress and other federal agencies, particularly the U.S. Department of the Treasury, to ensure that the recent suspension of sanctions resulted in responsible investment. The secretary emphasized, “We’ll expect U.S. firms to conduct due diligence to avoid any problems, including human rights abuses. We expect our businesses to create a grievance process that will be accessible to local communities; to demonstrate appropriate treatment of employees; respect for the environment; to be a good corporate citizen; and to promote equitable, sustainable development that will benefit the people.”

New Executive Order

On July 11, 2012, President Obama also issued a new Executive Order (attached here) that will allow the U.S. government to sanction individuals or entities that threaten the peace, security or stability of Myanmar, including those who undermine or obstruct the political reform process or the peace process with ethnic minorities, those who are responsible for or complicit in the commission of human rights abuses in Burma and those who conduct certain arms trade with North Korea. Individuals or entities engaging in such activities would be subject to Treasury action that would cut them off from the U.S. financial system.

European Union

On May 16, 2012, the European Union adopted Council Regulation No. 409/2012, officially suspending for one year the EU’s sanctions against Burma/Myanmar. Suspension of the sanctions until April 30, 2013, allows European firms to re-open trade and investment across a range of sectors including logging, timber processing and mining of precious stones. Additionally, certain individuals and entities formerly subject to asset-freezing provisions will be removed from the targeted list and allowed access to such assets without having to seek prior authorization.

The new regulation is consistent with the European Union’s previous announcement on April 23, 2012, that as a means to welcome and encourage the reform process, it would suspend all sanctions against Myanmar for a year, with the exception of the embargo on arms and equipment. Consistent with Secretary Clinton’s statements, the EU Council emphasized that future engagement in Myanmar should be accomplished through the highest standards of integrity and corporate social responsibility, outlined its continued expectation for the unconditional release of remaining political prisoners and expressed continued concern regarding human right abuses.

Practical Implications

As a result of EU Council Regulation No. 409/2012 and OFAC General Licenses 16 and 17, EU and U.S. companies may now engage in a number of previously prohibited activities with respect to Myanmar, including, among others, making new investments involving the development of Myanmar’s natural resources, financing sales and providing other financial services, and providing aid to and supporting developmental programs in the country.

However, the EU regulation leaves open several questions for EU companies that desire to reengage with Myanmar as authorized by the regulation. Such unresolved issues include whether sanctions will be reinstated in less than a year if Myanmar does not continue its reform process and whether companies will have a window of time in which to wind down relevant activities if sanctions are reinstated or the suspension of sanctions is allowed to lapse after a year.

With respect to the United States, while the U.S. government has implemented changes to permit new investment and the exportation of financial services to Myanmar, the Obama administration has acknowledged that the transition in Myanmar remains unfinished. The administration has made it clear that the core authorities underlying the sanctions remain in place and that a number of sanctions, including the import ban, will remain on the books for now. The administration has also expanded the Treasury Department’s authority to sanction those who undermine the nascent political reforms, those who are responsible for or complicit in the commission of human rights abuses and those who conduct certain arms trade with North Korea.

Companies engaged in new investment, development or financial activities in Myanmar are advised to undertake careful trade sanctions and corruption-related due diligence as part of broader legal and political risk planning in order to protect their interests. Affected companies should also carefully consider and establish policies and procedures managing the new reporting requirements—which address a range of legal and corporate social responsibility issues (including specific measures relating to anticorruption, worker rights and human rights) that are likely to attract both regulatory authority and investor scrutiny.

Additionally, companies that wish to do business in Myanmar need to remain vigilant to the possibility that the United States, European Union and other countries could reinstate suspended sanctions, expand the scope of the sanctions to include additional prohibitions more closely resembling the comprehensive sanctions imposed on Iran or further ease sanctions depending on the direction of the ongoing reform efforts in Myanmar.

¹In particular, the five laws are: (1) Section 138 of the Customs and Trade Act of 1990 (Section 138) (P.L. 101- 382); (2) Section 307 of the Foreign Assistance Act of 1961 (Section 307) (P.L. 87– 195), as amended by the Foreign Relations Authorization Act, Fiscal Years 1994 and 1995 (P.L. 103-236); (3) Section 570 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1997 (Section 570) (P.L. 104-208)1; (4) The Burmese Freedom and Democracy Act of 2003 (2003 BFDA) (P.L. 108-61); and (5) The Tom Lantos Block Burmese JADE (Junta’s Anti-Democratic Efforts) Act of 2008 (2008 JADE Act) (P.L. 110-286); Additionally, the four presidential Executive Orders that impose sanctions on Myanmar are: (1) E.O. 13047—May 20, 1997; (2) E.O. 13310—July 28, 2003; (3) E.O. 13448—October 18, 2007; and (4) E.O. 13464—April 30, 2008.

²See 22 C.F.R. 126.1, Prohibited Exports and Sales to Certain Countries.

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