May 20, 2016
On May 17, 2016, the Obama Administration announced a continuation of its easing of sanctions on Myanmar. Since the first round of relief was issued in 2013, the United States has consistently held that more relief was possible if Myanmar continued on its path towards democratization. However, the Administration has also noted that it reserves the right to remove any relief granted – and to increase sanctions more broadly – if Myanmar regresses. This most recent relief has elements of both easing and enhancing, with the White House announcing that the actions are intended to support “continued political reforms and broad-based economic growth in Myanmar, while also maintaining sanctions pressure where needed.”[1]
The May 17 announcement is based upon Myanmar’s successful November 2015 elections in which the National League for Democracy (NLD) – the long-time opposition party led by Aung San Suu Kyi – won an overwhelming majority of seats in the national legislature. Despite this victory there were significant concerns whether the army would allow the democratically-elected leadership true authority. Consequently, over the past six months as various factions jockeyed for power in the country, the Obama Administration took an incremental approach to sanctions relief, providing some carrots of relief while maintaining the majority of sticks. For an analysis of the sanctions relief provided after the elections and prior to May 17, 2016, see our Client Alerts of November 17, 2015 and December 10, 2015 and our recent webcast, “The New Era of Fluid Global Sanctions.”
Though the political environment in Myanmar has become clearer – and it appears that the NLD’s electoral victory will allow it a measure of real political leadership of the country – in adopting the most recent regulatory amendments, the Obama Administration has continued in its measured approach to removing U.S. sanctions against Myanmar. Pursuant to this last round of relief, U.S. persons[2] are now able to trade even more freely with Myanmar, move goods within Myanmar, and transact to a greater extent with Myanmar financial institutions. Also, U.S. individuals living in Myanmar can now enter into personal transactions such as paying living expenses or buying goods and services. A number of Myanmar state-owned companies and enterprises have also been removed from the list of Specially Designated Nationals (the “SDN List”), meaning that their assets will be unfrozen and that U.S. persons are now free to engage with them – in some cases for the first time in decades. However, the broad framework of sanctions on Myanmar remains firmly in place and unchanged – including with respect to major business leaders such as U Tay Za and Steven Law. Further, as noted below the Administration also took the opportunity provided by the announcement to add entities to the SDN List.
Removal of State-Owned Companies and Enterprises
On May 17, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) removed seven state-owned enterprises from the SDN List, including Myanmar Timber Enterprise; Myanmar Pearl Enterprise; Myanmar Gem Enterprise; No. 1 Mining Enterprise; No. 2 Mining Enterprise; No. 3 Mining Enterprise; and Co-Operative Export-Import Enterprise.[3] In addition, OFAC removed three state-owned banks from the SDN List, including Myanma Economic Bank (“MEB”); Myanmar Foreign Trade Bank; and Myanma Investment and Commercial Bank (“MICB”).[4] As a result, U.S. persons are free to deal with the aforementioned entities and any companies that are owned by those entities (which are not otherwise blacklisted themselves). For example, U.S. persons can now interact with the Yangon Stock Exchange (Myanmar’s first ever stock exchange) despite MEB having an ownership stake in the exchange. The fate of the stock exchange had greatly complicated the broader U.S. policy of promoting greater commerce and investment in Myanmar. The May 17 action serves in large measure to clarify the status of the stock exchange and to open up Myanmar portfolio investment to those who had shied away from such engagement due to the sanctions.
However, in the clearest example of the measured approach of the Obama Administration, while OFAC removed certain entities from the SDN List, it also added six companies to the List – although it should be noted that these entities were not “true” additions” to the list as they were already subject to SDN restrictions pursuant to the operation of OFAC’s 50 percent rule, which states that U.S. persons are prohibited from dealing with unlisted entities that are owned in the aggregate, directly or indirectly, 50 percent or more by a listed entity.[5] All six companies added are 50 percent or more owned by listed entities Steven Law and Asia World. Nonetheless, it could be argued that adding these entities to the list also promotes a degree of clarity regarding investment in and transactions with Myanmar. After all, in identifying and officially designating these six companies, OFAC’s intention was to provide additional clarity to the private sector.[6]
Authorizing Certain Banking Services (GL 19)
In February 2013, OFAC created General License 19 (“GL 19”) which authorized almost all transactions involving four of Myanmar’s major financial institutions on the SDN List (MEB, MICB, Asia Green Development Bank, and Ayeyarwady Bank).[7] Despite (or because of) the General License – which was unprecedented in that it broadly exempted from sanctions transactions with entities on the SDN List – most global companies and financial institutions continued to refrain from engaging in transactions with the four banks. In the May 17 action, OFAC attempted to ameliorate the issue by both adding two banks to the general license (Inwa Bank and Myawaddy Bank), and, more importantly, removing MEB and MICB from both the general license and the SDN List.[8]
There has been a relatively meager uptake in taking advantage of the general license with respect to the banks. This is not only because of the disconnect that arises from asking a foreign entity to “ignore” that a counterparty is an SDN, but also from the significant constraints on transactions the license includes. For example, the general license allows U.S. persons to open and maintain accounts and conduct other financial services with the listed banks. In addition, any correspondent accounts for the banks listed in GL No. 19 are not subject to the special measures against Myanmar imposed under Section 311 of the USA Patriot Act,[9] which includes recordkeeping and reporting requirements.[10] Despite this, U.S. persons are not able to participate in “new investment”[11] in or with the four listed banks.
Authorizing Trade-Related Transactions (GL 20)
In December 2015, OFAC created General License 20 (“GL 20”) which, for six months, allowed individuals and companies (including financial institutions) to conduct transactions that were “ordinarily incident” to exportations to or from Myanmar of goods, technology, or non-financial services—even if such transactions are otherwise prohibited by the Regulations.[12] This was a critical allowance as it addressed the fact that many of the country’s primary air and seaports remain owned and controlled by SDNs. As such, companies and financial institutions had been unable to undertake or finance shipments that touched these critical logistics nodes in the country, greatly impacting the effectiveness of the Administration’s goals of opening up the country to more trade.
The initial six months window allowing trade was welcomed but many international firms quickly questioned its logic given that trade and financing contracts of greater than six months duration are regularly entered into. The May 17 action removed this six-month limitation and expanded its authorization to allow additional transactions incident to the movement of goods within Myanmar, such as shipping goods from a warehouse to retail outlets.[13] Importantly, the air and seaports themselves were not removed from the SDN List.
Authorizing Personal Transactions Relating to U.S. Persons
In the May 17 action, OFAC also sought to ease the ability for U.S. persons to reside in Myanmar. OFAC provided a general license authorizing U.S. persons residing in Myanmar to engage in transactions “ordinarily incident” to the routine and necessary maintenance within Myanmar—even if such transactions are otherwise prohibited by the Regulations.[14] Permitted transactions include payment of living expenses and the acquisition of goods and services for personal use. OFAC views this license as complementary to an existing general license (31 CFR § 537.210[c]) that allows for transactions ordinarily incident to travel, such as importing or exporting accompanied baggage for personal use.[15]
Conclusion and Implications
Despite the recent sanctions relief, U.S. persons continue to face complicated compliance challenges with respect to the Myanmar sanctions. U.S. persons remain generally prohibited from dealing with entities on the SDN List as well as any unlisted entities subject to the OFAC’s 50 percent rule. Moreover, the SDN List contains many prominent Myanmar businesspeople and companies from all sectors of the economy.[16] In addition, there are restrictions on the import of jadeite and rubies mined or extracted from Myanmar,[17] as well as restrictions on financial services[18] and new investment[19] involving the Myanmar Ministry of Defense, any state or non-state armed group, or entities owned 50 percent or more in any of the foregoing.
The recent easing of U.S. sanctions against Myanmar has removed certain actors from the sanctions framework and has provided the private sector with clarity in how to effectively engage in Myanmar (in addition to new general licenses), but it has also left the existing sanctions framework largely intact. As a result, U.S. persons – and non-U.S. persons who seek to comply with OFAC measures – continue to face risks and limitations in any dealings with entities in Myanmar.
[1] U.S. Department of Treasury, Treasury Amends Burmese Sanctions Regulations, Identifies Blocked Companies Owned By Designated Persons, And Delists Several Burmese State-Owned Entities, May 17, 2016, available at https://www.treasury.gov/press-center/press-releases/Pages/jl0458.aspx [hereinafter Treasury Announcement on May 17, 2016]. See Federal Register, Burmese Sanctions Regulations, A Rule by the Foreign Assets Control Office on 05/18/2016, https://www.federalregister.gov/articles/2016/05/18/2016-11677/burmese-sanctions-regulations (accessed May 19, 2016) (hereinafter OFAC Final Rule).
[2] Defined as “United States citizens and permanent residents, wherever located, entities organized under United States federal, state or local laws (including foreign branches) and any person in the United States (collectively ‘U.S. persons’).”
[3] U.S. Department of Treasury, Publication of Burma General Licenses, Burma Removals, and Burma Designations, May 17, 2016, available at https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20160517.aspx.
[5] Id. The companies identified as owned 50 percent or more by Asia World are Asia Mega Link Co., Ltd., Asia Mega Link Services Co., Ltd., Pioneer Aerodrome Services Co., Ltd., Green Asia Services Co., Ltd., and Global World Insurance Company Limited. Shwe Nar Wah Company Limited is identified as being owned 50 percent or more by Asia World or Steven Law.
[6] See Treasury Announcement on May 17, 2016.
[9] U.S. Department of Treasury, Fact Sheet: Overview of Section 311 of the USA Patriot Act, Feb. 10, 2011, https://www.treasury.gov/press-center/press-releases/Pages/tg1056.aspx (accessed May 19, 2016).
[10] See OFAC Final Rule (to be codified as 31 CFR § 537.531).
[11] Among other things, new investment includes the purchase of a share of ownership, including an equity interest, in the economic development of resources located in Myanmar. See 31 CFR § 537.311.
[12] OFAC, General License No. 20, Certain Transactions Incident to Exportation to or from Burma, Dec. 7, 2015, available at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/burma_gl20.pdf (accessed May 19, 2016).
[13] See OFAC Final Rule (to be codified as 31 CFR § 537.532).
[14] See id. (to be codified at 31 CFR § 537.525).
[16] U.S. Department of the Treasury, Specially Designated Nationals List (SDN), May 19, 2016, https://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx.
The following Gibson Dunn lawyers assisted in the preparation of this client alert: Adam M. Smith, Robert S. Pé, Judith Alison Lee, Jose W. Fernandez, David A. Wolber and Audi Syarief.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the above developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm’s International Trade Group:
United States:
Judith A. Lee – Co-Chair, Washington, D.C. (+1 202-887-3591, [email protected])
Ronald Kirk – Co-Chair, Dallas (+1 214-698-3295, [email protected])
Jose W. Fernandez – New York (+1 212-351-2376, [email protected])
Marcellus A. McRae – Los Angeles (+1 213-229-7675, [email protected])
Daniel P. Chung – Washington, D.C. (+1 202-887-3729, [email protected])
Adam M. Smith – Washington, D.C. (+1 202-887-3547, [email protected])
David A. Wolber – Washington, D.C. (+1 202-887-3727, [email protected])
Mehrnoosh Aryanpour – Washington, D.C. (+1 202-955-8619, [email protected])
Nicholas A. Klein – Denver (+1 303-298-5795, [email protected])
Lindsay M. Paulin – Washington, D.C. (+1 202-887-3701, [email protected])
Asia:
Robert S. Pé – Hong Kong (+852 2214 3768, [email protected])
Europe:
Peter Alexiadis – Brussels (+32 2 554 72 00, [email protected])
Attila Borsos – Brussels (+32 2 554 72 10, [email protected])
Patrick Doris – London (+44 (0)207 071 4276, [email protected])
Penny Madden – London (+44 (0)20 7071 4226, [email protected])
Benno Schwarz – Munich (+49 89 189 33 110, [email protected])
Mark Handley – London (+44 (0)207 071 4277, [email protected])
© 2016 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.