Overview
On October 7, 2016, the President issued an Executive Order (which we will refer to as the New EO) immediately lifting all US economic and financial sanctions on Myanmar, pursuant to a September 14, 2016 announcement on which we previously advised. The Treasury Department’s Office of Foreign Assets Control (OFAC) has issued a fact sheet, frequently asked questions (FAQ), and delisting announcement; the Financial Crimes Enforcement Network (FinCEN) has issued a press release and an exceptive relief announcement implementing and explaining these changes.
The most significant development in the New EO is the termination of the national emergency involving Myanmar and revocation of the previous executive orders imposing economic and financial sanctions on Myanmar. These sanctions have been set forth in OFAC’s Burmese Sanctions Regulations, which OFAC should soon remove in their entirety from the Code of Federal Regulations (CFR). With the issuance of the New EO, OFAC no longer administers any economic or financial sanctions on Myanmar, although certain restrictions on commerce and financial activity, detailed below, will remain.
The sanctions removed by the New EO were first imposed under Executive Order 13047 of May 20, 1997, in which President Clinton declared a national emergency to address the finding that the “Government of Burma has committed large-scale repression of the democratic opposition . . . [and] the actions and policies of the Government of Burma constitute an unusual and extraordinary threat to the national security and foreign policy of the United States . . .”. In the New EO, President Obama states that the “deepening pattern of severe repression by the State Law and Order Restoration Council, the then-governing regime in Burma . . . has been significantly altered by Burma's substantial advances to promote democracy, including historic elections in November 2015 that resulted in the former opposition party, the National League for Democracy, winning a majority of seats in the national parliament and the formation of a democratically elected, civilian-led government; the release of many political prisoners; and greater enjoyment of human rights and fundamental freedoms, including freedom of expression and freedom of association and peaceful assembly.”
Many observers have been surprised by how far the Obama Administration has gone in revoking these sanctions, after the more gradual sanctions relief measures that have been implemented since the initial round of major changes in 2012. The implications for US trade and investment with Myanmar will be significant.
Sanctions Removed
All of the BSR’s restrictions on trade, investment and financial activity involving Myanmar have been lifted, including the ban on certain new investments and financial services involving the Myanmar military (Tatmadaw) and other armed groups, the requirement for detailed reporting on certain new investments (which is now “voluntary” and will no longer be enforced by OFAC), and the ban on the importation into the United States of rubies and jadeite (and jewelry containing them).
In addition, all 111 Specially Designated Nationals (SDNs) listed by OFAC under the authority of the BSR (i.e. under the “[BURMA]” tag) have been delisted. All property and interests in property of these individuals and entities, which had been blocked pursuant to the BSR, are now unblocked. This list includes top government officials, major private sector businesses and – quite notably – military-linked state-owned enterprises and military procurement/contracting entities. This means that in general it will now be lawful from a sanctions perspective for US companies and individuals to do business with former SDNs, although various legal and reputational risks will continue to complicate any such endeavor, especially for dealings with military-linked entities. To implement these delistings, the New EO also sets out a renewed waiver of the financial and blocking sanctions otherwise mandated by Section 5(b) of the Tom Lantos Block Burmese JADE (Junta’s Anti-Democratic Efforts) Act of 2008. The President first issued this waiver in August 2013, as we previously advised.
OFAC has reiterated in the New EO its standard policy in revoking sanctions programs that this action will not impact past, pending, or future OFAC enforcement actions or investigations related to apparent violations of the BSR that took place while the BSR were in effect.
Remaining Restrictions
While the core US economic and financial sanctions on Myanmar – the entire BSR – have been revoked, important risks and restrictions remain in place.
Visa Ban
While the New EO states that the former SDNs under the now-revoked [BURMA] tag will no longer be subject to the visa entry ban set forth in Presidential Proclamation 8693 of July 24, 2011 (which covers those sanctioned by the United Nations and by US executive orders), that does not change the visa ban mandated by the JADE Act. The JADE Act visa ban has not been waived and remains in place, covering certain military officials, along with “any other Burmese persons who provide substantial economic and political support” for the military. This will likely include some of the individuals who were removed from the SDN list by the New EO. The President does have the power to waive this statutory mandate, but has not done so. The list of those subject to this visa ban is not public.
Arms Embargo and Export Controls
The US arms embargo imposed under the State Department’s International Traffic in Arms Regulations (ITAR) and other export controls will remain in place. For example, the Export Administration Regulations (EAR), administered by the Commerce Department’s Bureau of Industry and Security (BIS), generally requires a license to conduct trade with Myanmar in certain high-tech or otherwise sensitive goods, software or technology with a nexus to the United States, including foreign-made items with more than 25% US-origin content by value.
Financial Institution Enhanced Due Diligence Requirements
US financial institutions are still subject to enhanced due diligence requirements in processing financial transactions involving Myanmar (e.g., through correspondent banking relationships), because Myanmar remains designated by FinCEN as a “jurisdiction of primary money laundering concern” under Section 311 of the USA PATRIOT Act, a finding that has been in place since 2003. However, FinCEN has conditionally suspended the prohibition against US financial institutions maintaining correspondent accounts for Myanmar banks (a prohibition which had already been greatly loosened under the BSR and previous FinCEN rules), leaving in place only the enhanced due diligence requirement. This FinCEN action follows Myanmar’s removal in June 2016 from the Financial Action Task Force’s (FATF) list of countries with strategic anti-money laundering (AML) deficiencies.
It is worth noting the conditional nature of FinCEN’s suspension of this prohibition, which it could re-impose at any time. FinCEN states that the suspension “is based on Burma’s progress in improving its anti-money laundering regime and its commitment to continue making progress to address money laundering, corruption, and narcotics-related activities. FinCEN intends to rescind its action [i.e., the correspondent banking prohibition] in its entirety when Burma has made sufficient progress in addressing these issues.”
The issues to watch in the future include whether the new government in Myanmar takes steps to implement recent laws and policies that have been enacted to put in place a basic AML regime, and to reduce or control the large portion of the domestic financial system that relies on informal money transfer systems. The US Government also expects Myanmar to continue efforts to reduce systemic corruption, e.g., as measured by the Transparency International Corruption Perceptions Index, and to cooperate with US law enforcement and combat drug trafficking.
Whether the FinCEN correspondent banking prohibitions remain suspended, or are revoked or re-imposed in the future, the continuing requirement for enhanced due diligence will complicate, and possibly may even deter, certain commercial activity involving Myanmar.
Other SDNs
While all of the SDNs designated under the BSR have been delisted by the New EO, there are other SDNs located in Myanmar who will remain listed under authorities related to North Korea (there are 2 individuals currently listed under the “[DPRK2]” tag, both of whom are North Korean government officials) and narcotics trafficking (there are 31 individuals and entities currently listed under the “[SDNTK]” tag). Moreover, OFAC could add more names in the future under these and other remaining authorities. Some of the SDNs under the narcotics trafficking program include major businesses such as Yangon Airways and a group of companies linked to the United Wa State Army (USWA) in Kachin state, the jade mining region in northern Myanmar. In light of these continued SDN designations, it will in many cases still be prudent to conduct enhanced due diligence prior to conducting business in Myanmar, particularly in higher risk areas.
Other Risks
Furthermore, there are risks under the US Foreign Corrupt Practices Act (FCPA) and other anticorruption regimes, particularly when dealing with entities linked to the military. Also, in light of the continued ethnic conflicts in some regions of Myanmar, there are risks related to human rights and security-related compliance standards that companies will need to consider.
Outlook and Implications
The New EO represents a sea change in US policy towards Myanmar and may open the door for the first time in many years to significant trade and investment in Myanmar by international companies. It is important to keep in mind, however, that the President retains the authority to re-impose sanctions on Myanmar, and a future US administration will retain the same authority.
Even while lifting these legal restrictions and moving to grant Myanmar other trade benefits, the US Government can be expected to continue to use diplomatic and other tools to support Myanmar’s ongoing democratic reform, and its efforts toward greater transparency. In addition, it is expected that there will continue to be pressure from Congress and civil society stakeholders to keep US companies conducting business in Myanmar accountable to international norms of human rights and business ethics. Nonetheless, this may be viewed as a turning point in US-Myanmar relations, and in the ability of US companies to engage more fully in the Myanmar economy.
We will continue to keep you informed about sanctions developments. If you have any questions, please contact Peter Jeydel at +1 202 429 6291or Meredith Rathbone at +1 202 429 6437 in our Washington office. Further commentary is available on the Steptoe International Compliance Blog. You can also follow us on Twitter (@SteptoeIntlReg).
