Effective today, the US Office of Foreign Assets Control (“OFAC”) has narrowed the remaining US sanctions restricting trade and investment in Myanmar by US companies, US individuals and other persons located in the US (“US persons”). Some significant US sanctions remain on Myanmar, to which the US government continues to refer, for policy reasons, as “Burma”.
These changes may make it easier, going forward, for US companies to find a non-sanctioned bank in Myanmar to support trade or business in Myanmar, and may reduce the number of US investors that must file lengthy “responsible investor” reports with the US State Department. With these changes, the US government intends to recognize Myanmar’s transition to a democratically-elected government, and signal its “strong support for this political and economic progress”.
This is the first significant relaxation of the remaining US sanctions on Myanmar since February 2013. The US has for several years been alone in maintaining substantial sanctions on Myanmar. The EU suspended in 2012 and permanently lifted in 2013 essentially all of its sanctions, other than an arms embargo and export controls on certain sensitive items.
Exports of non-export controlled items
US sanctions and export controls generally do not restrict the export of goods and technology that are not export-controlled (meaning they are classified "EAR99" under US export controls), so long as no prohibited end-use or prohibited end-user is involved. US persons generally cannot engage in a transaction involving any person on the primary US list of sanctioned persons, the US Specially Designated Nationals List (“SDN List”), or any entity in which they hold a 50% or greater ownership interest.
Lifting of most banking sector sanctions
OFAC has noted, in announcing today’s changes, that most transactions are no longer prohibited with the Myanmar banks that were, prior to yesterday, on the SDN List:
- Transactions with Asia Green Development Bank and Ayeyarwady Bank have been generally authorized by general license since February 2013. These banks remain on the SDN List, so any of their assets “blocked” (frozen) by US persons must remain blocked.
- Innwa Bank and Myawaddy Bank were added today to this general license, so all prospective transactions with these banks are now authorized, though their previously blocked assets must remain blocked.
- The same was true until yesterday for Myanma Economic Bank and Myanma Investment and Commercial Bank. They were removed from the SDN List yesterday, so transactions with these banks are no longer prohibited.
Remaining sanctioned persons
Yesterday OFAC removed several state-owned banks and companies from the SDN List. However, several of the largest companies and most prominent businessmen in Myanmar remain on the SDN List. US persons are generally prohibited from dealing with such persons and entities in which they hold a 50% or greater ownership interest, and must “block” (freeze) their assets. Flagging the importance of these remaining listings, several more of these entities were added to the SDN List yesterday.
Many of the sanctioned persons have interests in a number of other companies through complex corporate structures, and in several sectors of the Myanmar economy it can be a challenge to find suitable investment targets or business partners that are verifiably free of direct or indirect SDN ownership. While today’s easing of the sanctions may be helpful, it will not greatly reduce this due diligence and compliance burden for US companies considering an investment.
Other remaining sanctions
US persons remain prohibited from making any “new investment” in Myanmar involving the Ministry of Defense, other Myanmar armed groups or their majority-owned subsidiaries, or involving any of person remaining on the SDN list which still includes four Myanmar banks as noted above. It is also generally prohibited for US persons to provide financial services to Myanmar if those services would be related to the provision of security services to the Myanmar military or armed groups.
US persons must file a detailed “responsible investor” report with the State Department on new investment aggregating over $500,000. The State Department is currently considering whether to increase this threshold to $5 million. Separately, US persons must report any investments involving Myanma Oil and Gas Enterprise (MOGE). Some US companies have filed lengthy reports in response to this requirement, and most sections of these reports are released to the public. In some other cases the reporting requirement may not be triggered if the investment is made independently by a non-US affiliate or subsidiary.
US law still restricts the import of Myanmar jadeite or rubies to the US, and exports to Myanmar of US-export controlled items.
Burma was designated as a “jurisdiction of primary money laundering concern” in 2004 under Section 311 of the USA PATRIOT Act, and as a result US banks are generally restricted from providing correspondent accounts to Myanmar banks. However, OFAC has confirmed that correspondent accounts may be opened, following the sanctions relief described above, so long as the transactions carried out through those accounts do not violate any of the remaining sanctions.
Other general licenses
A general license is an authorization of certain otherwise-prohibited activity that OFAC releases to the public. Any person may rely on a general license, if their transaction meets the terms and conditions set out in the general license, in most cases without prior notice to or approval by OFAC.
Effective today, OFAC has eliminated the expiration date of a general license it issued five months ago to authorize certain transactions “ordinarily incident to” exports to or from Myanmar that indirectly involve an SDN or other “blocked” person under US sanctions. Several major banks had requested this because such sanctioned persons are apparently indirectly involved in certain port or airport operations in Myanmar. This general license was expanded today to cover certain transactions relating to the movement of goods within Myanmar.
OFAC also issued today a general license that expands on existing authorizations and exemptions to authorize transactions ordinarily incident to routine and necessary expenses of US persons residing in Myanmar. The general license does not authorize employment of a US person by an SDN or other blocked person.