DEPARTMENT OF STATE
DEPARTMENT OF THE TREASURY
DEPARTMENT OF COMMERCE
DEPARTMENT OF LABOR
DEPARTMENT OF HOMELAND SECURITY
OFFICE OF THE U.S. TRADE REPRESENTATIVE

Publication Date: January 26, 2022

Title: Risks and Considerations for Businesses and Individuals with Exposure to Entities Responsible for Undermining Democratic Processes, Facilitating Corruption, and Committing Human Rights Abuses in Burma (Myanmar)[1]

SUMMARY

On February 1, 2021, Burma’s military (also known as the Tatmadaw)[2] overthrew the country’s democratically elected civilian government, reestablishing full military rule in Burma (Myanmar). The military has unjustly arrested leaders of the democratically elected government, cut off utilities and travel, and committed serious human rights abuses and other abuses against individuals in Burma, including violently suppressing peaceful protests. Additionally, the military regime has targeted the labor union movement, arrested numerous union leaders and members, and declared 16 labor unions to be illegal. These heinous acts are a rejection of the will of the people of Burma, as expressed in their November 2020 elections. Further, the coup and subsequent abuses committed by the military have fundamentally changed the direction of the economic and business environment in Burma, reversing the modest gains achieved since the country held its first parliamentary elections in 2011, and resulting in a more opaque business environment in which the military can draw from multiple sources of revenue to support its operations without civilian oversight.

According to the UN Fact Finding Mission in 2018:

No business enterprise active in Myanmar or trading with or investing in businesses in Myanmar should enter into an economic or financial relationship with the security forces of Myanmar, in particular the Tatmadaw, or any enterprise owned or controlled by them or their individual members, until and unless they are re-structured and transformed as recommended by the Mission.[3]

The U.S. Departments of State, the Treasury, Commerce, Labor, Homeland Security and the Office of the U.S. Trade Representative are issuing this advisory to inform individuals, businesses, financial institutions, and other persons, including investors, consultants, and research service providers (hereafter “businesses and individuals”) of the heightened risks associated with doing business in the country, and in particular with the military regime, which is involved in human rights abuses. Additionally, businesses and individuals should be wary of the associated illicit finance risks as well as reputational and legal risks of conducting business and utilizing supply chains under military control in Burma. The military regime’s government is undermining democratic processes and the rule of law, facilitating corruption, and committing serious human rights abuses; these actions exacerbate risks to foreign businesses and individuals operating in Burma or providing financial services to Burmese businesses.

The specific entities and sectors of greatest concern within Burma include:
□ State-owned enterprises
□ Gems and precious metals
□ Real-estate and construction projects
□ Arms, military equipment, and related activity

These entities and sectors have been identified as primary industries providing economic resources for Burma’s military regime. Many businesses and individuals associated with these entities and sectors are subject to various restrictions imposed by several countries and international organizations in addition to the United States, including the European Union, Australia, Canada, New Zealand, the Republic of Korea, and the United Kingdom. Additionally, the UN General Assembly voted in favor of a non-binding resolution restricting the sale of arms into Burma.

Businesses and individuals 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 engaging in conduct that may expose them to significant reputational, financial, and legal risks, including violations of U.S. anti-money laundering laws and sanctions.

Additionally, Burma faces significant money laundering risks and gaps in implementing its anti- money laundering (AML) and counter financing of terrorism (CFT) legal framework. The international financial sector should recognize that deficiencies within Burma’s financial sector and lack of adequate measures to address its money laundering risks led the Financial Action Task Force (FATF) to publicly identify Burma in 2020 on the list of jurisdictions under increased monitoring.[4] These risks have likely only increased since the coup and as such, financial institutions are encouraged to reconsider Burma’s deficiencies in their risk analysis. In 2003, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) designated Burma as a jurisdiction of primary laundering concern due to the lack of effective anti-money laundering controls throughout its financial sector. Although this designation was made subject to a grant of conditional exception in 2016,5 the return of the military regime will likely reverse the progress made on anti-money laundering controls that led to the 2016 exception.

Finally, a number of goods imported from Burma into the United States have been tied to labor abuses including child and forced labor. According to the 2020 release of the Department of Labor’s List of Goods Produced by Child Labor or Forced Labor and List of Products Produced by Forced or Indentured Child Labor, there are 14 goods from Burma with evidence of production by child labor, forced labor, and/or forced child labor.6

I. STATE-OWNED ENTERPRISES BENEFITING THE MILITARY

A 2018 report by the Organization for Economic Co-operation and Development (OECD) found that corruption is disproportionately higher in the oil and gas, mining, postal, energy, and transportation and logistics sectors worldwide due to the heavy involvement of state and military entities as well as their high transactional value.7 Burma’s junta-controlled state-owned enterprises (SOEs) play a dominant role in these sectors of the economy and are responsible for generating about half of the regime revenue and spending half of the regime budget.

The largest of these SOEs are in the natural resources sector and include but are not limited to: Myanma Oil and Gas Enterprise (MOGE); Myanmar Mining Enterprises 1, 2, and 3; Myanma Gems Enterprise; and Myanma Timber Enterprise (MTE). Reports also indicate that state-owned Myanma Posts and Telecommunications (MPT) actively collaborates with the regime’s surveillance program. MGE and MTE were designated by OFAC under Executive Order (E.O.) 14014 in April 2021.8

The business community should further review and, as appropriate, consider updating their risk assessments associated with continuing to do business with Burma’s other SOEs as well.

Burma’s SOEs not only generate revenue for a military regime that is responsible for lethal attacks against the people of Burma, but many of them also are subject to allegations of corruption, child and forced labor, surveillance, and other human and labor rights abuses.

Corruption – In 2018, the Burma National Risk Assessment concluded that corruption, including bribery, generates approximately 63 percent of the estimated $15 billion in annual criminal illicit proceeds in the country. Even excluding criminal activities in the country, the regime’s monopolization of resources and lack of transparency contributes to the significant corruption-related risks within the country’s economy.

Forced Labor and Child Labor – Burmese SOEs are significantly involved in industries that have been tied to human trafficking, child and forced labor, and the targeting of labor unions. In particular, teak, rubies and jade have been identified as goods made in Burma with forced labor and child labor; each of these goods are imported into the United States; and each has significant SOE involvement.

Surveillance and Internet Freedom Restrictions – In the months following the military coup, the regime seized control of telecommunications infrastructure, blocking social media, stripping the licenses of independent online news outlets, instituting partial and complete internet shutdowns, and forcing service providers to hand over personal data.
Telecommunications and internet surveillance have contributed to violent crackdowns on the people of Burma, including reports of physical assaults and enforced disappearances in retaliation for their online and offline activities.

Other Human Rights Abuses – Aside from the human rights abuses during and after the military coup in February 2021, the military faces longstanding allegations of serious human rights abuses against members of multiple minority groups in Burma, including most notably in Kachin, Shan, and Rakhine States.[9]

Businesses and individuals involved in dealings with Burma’s SOEs run a high risk of furthering corruption within Burma. Considering the risks noted above, businesses and individuals involved in dealings with SOEs in Burma should conduct appropriate due diligence to ensure they are not furthering corruption within Burma, supporting child or forced labor, or contributing to arbitrary or unlawful surveillance practices, or any other serious human rights abuses.

II. GEMS AND PRECIOUS METALS

Gems and precious metals generate billions of dollars of exports in Burma’s economy and accounted for nearly half of the country’s GDP in 2015, the last year for which credible data is available. However, because of the lack of regulation, transparency, and accountability, the sector is rife with potential for money laundering, corruption, and human rights abuses, including forced labor. These risks are only heightened by the military coup, consolidating both the industry and its oversight under military rule.

The mutual evaluation of Burma by the Asia Pacific Group on Money Laundering (APG), which tracks Burma’s compliance with the FATF Standards on combating money laundering and the countering of financing of terrorism and proliferation of weapons of mass destruction, identified several concerns in the gems and precious metals industries. These include the significant involvement of politically exposed persons (PEPs) and SOEs, insufficient anti-money laundering controls, corruption, and the reliance on cash-based transactions with poor record-keeping.

Additionally, gem industries in Burma, specifically jade and rubies, were identified by the Department of Labor’s List of Goods Produced by Child Labor or Forced Labor[10] as utilizing forced labor and child labor.

Further compounding these inherent risks identified by the FATF and the Department of Labor in Burma’s economy, the 2019 UN Fact Finding Mission report found that the military controlled a large portion of the gems and precious metal sector through two military holding companies, Myanma Economic Holdings Limited (MEHL) and Myanmar Economic Corporation (MEC), and their numerous subsidiaries, which has benefited senior military leaders involved in serious human rights abuse and other abuses. Furthermore, the UN Fact Finding Mission report found that the military has committed gross violations of human rights, including involving forced labor and sexual violence, in connection with their business activities in the gems industry.

In March 2021, MEHL and MEC[11] were designated by the Office of Foreign Assets Control at the U.S. Department of the Treasury (OFAC) under E.O. 14014 in response to the coup and the military’s abuses throughout Burma, which was quickly followed by the additional designations of Myanma Gems Enterprise (MGE) and Myanmar Pearl Enterprise (MPE) in April 2021. As a result of these designations, all property and interests in property of these entities that are in the United States or are in the possession or control of a U.S. person are blocked. Unless authorized by OFAC, all transactions by U.S. persons, wherever located, or within (or transiting) the United States that involve any property or interests in property of the designated persons have been prohibited since the relevant designations.12

Given the insufficient reporting requirements in Burma for cross-border transfers of goods and funds, the U.S. government 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 Burma. A supply chain that, on paper, does not refer to or otherwise appear to touch Burma may still involve links in which the military is the ultimate beneficiary. For example, jade, rubies, and sapphires from Burma have been previously smuggled into countries like China and Thailand to be cut and sold on the international markets as “made in Thailand,” or “made in Hong Kong” and most lab-test certificates do not often show which company profited from their sale. It is the responsibility of businesses and individuals to ensure their sourcing is consistent with what is being reported from vendors and suppliers to avoid potential liability for sanctions violations.

III. REAL ESTATE AND CONSTRUCTION PROJECTS BENEFITING THE MILITARY

Burma lacks both the necessary government regulation and oversight, and the strong banking and financial sector to adequately monitor for money laundering risks in the real estate, development, and construction sectors. Historically, the military has seized land, forced evictions, and displaced peoples while offering little to no compensation.[13] Additionally, the large presence of foreign-owned properties heightens the risks to legitimate real estate agents and developers of knowingly or unknowingly engaging in cross-border money laundering.

The return of the military regime exacerbates these risks, as the military has significant interests in the real estate sector as an owner, lessor, and seller of properties within the country. The 2019 UN Fact Finding Mission reported receiving credible information that the Pyinmabin Industrial Zone, the Golden City residential development in Rangoon, and the Sule Shangri-La Hotel and Sule Square Commercial Project are owned or controlled by the military. The report also highlighted that the military is potentially receiving payments through MEC and MEHL from foreign companies that rent spaces to maintain a physical presence in Burma. MEHL and MEC were also identified as joint venture partners for foreign firms looking to develop and build on properties within Burma.

U.S. businesses maintaining a physical presence in Burma, 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. U.S. businesses maintaining a physical presence are also encouraged to 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 (e.g., newly established corporations) used to obscure the ownership of the buyer.
□ Extremely over- or under-valued transactions.

In addition, the Department of Labor’s reporting on goods and products produced by child labor, forced labor, and/or forced child labor in Burma includes numerous construction materials, such as bamboo, bricks, palm thatch, and teak.[14] Businesses and individuals involved in construction and development in Burma involving these materials should take the necessary steps to mitigate risks of exposure to these human rights abuses.

If any of these warning signs are detected, businesses and individuals are encouraged to conduct increased know-your-customer practices to ensure that customers provide satisfactory responses to address concerns and to file suspicious transaction reports to the relevant authorities as required. For U.S.-based financial institutions and money service businesses, suspicious activity reports should be submitted to FinCEN, the financial intelligence unit of the United States.

IV. ARMS, MILITARY EQUIPMENT, AND RELATED ACTIVITY

[...]

Actors engaged in business activities or transactions in or involving Burma should consider conducting heightened due diligence and ensure compliance with all applicable U.S. laws and regulations.

Annex 1: U.S. Government Actions in Response to the Situation in Burma (Myanmar)

U.S. Department of Commerce

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U.S. Department of Homeland Security

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U.S. Department of Labor

List of Goods Produced by Child Labor or Forced Labor

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List of Products Produced by Forced or Indentured Child Labor

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Findings on the Worst Forms of Child Labor

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U.S. Department of State

[...]

U.S. Department of the Treasury

In response to the military coup, the U.S. Department of the Treasury has imposed sanctions on entities pursuant to Executive Order 14014. For additional information, refer to the Burma- Related Sanctions Program website at: https://home.treasury.gov/policy-issues/financial- sanctions/sanctions-programs-and-country-information/burma.

The Specially Designated Nationals and Blocked Persons List, which includes persons sanctioned under E.O. 14014 is available at: https://home.treasury.gov/policy-issues/financial- sanctions/specially-designated-nationals-and-blocked-persons-list-sdn-human-readable-lists.

Office of the U.S. Trade Representative

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Annex 2: Additional U.S. Government Reports and Resources on Burma (Myanmar)

U.S. Department of Labor

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U.S. Department of State

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U.S. Department of the Treasury

Updates on the Financial Action Task Force-Identified Jurisdictions with Anti-Money Laundering and Combating the Financing of Terrorism and Counter-Proliferation Deficiencies
FinCEN issues press releases to inform financial institutions of updates to the Financial Action Task Force’s (FATF) list of jurisdictions with strategic anti-money laundering and combating the financing of terrorism, and counter-proliferation financing deficiencies. The FATF’s latest update continues to include Burma on its list of jurisdictions under increased monitoring.

Annex 3: Due Diligence Requirements for Businesses and Financial Institutions

The UN Guiding Principles on Business and Human Rights, the OECD Guidelines for Multinational Enterprises, the International Labour Organization (ILO) publication, “Combating Forced Labour: A Handbook for Employers and Business,” and the Office of the High Commissioner for Human Rights guide on “The Corporate Responsibility to Respect Human Rights” (OHCHR guide) provide guidance for heightened due diligence in high-risk regions and factors to be considered in determining appropriate action, including whether and how to responsibly end relationships when a business lacks the leverage to prevent or mitigate adverse impacts.

Businesses engaged with public and private security around their operations are also encouraged to implement the Voluntary Principles on Security and Human Rights. The Voluntary Principles on Security and Human Rights provide guidance in providing security around business operations in a manner that respects human rights, including engagement with public and private security providers. Businesses exporting products, and services with surveillance capabilities are encouraged to implement the U.S. Department of State Guidance on Implementing the UN Guiding Principles for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities. The Guidance provides practical and accessible human rights guidance to U.S. businesses to prevent their products or services from being misused by regime end-users to commit human rights abuses.

With respect to U.S. sanctions programs, the U.S. government strongly encourages persons subject to U.S. jurisdiction, as well as foreign persons that conduct transactions with or involving the United States and/or U.S. persons, including the making of exports and reexports of items that are subject to U.S. export controls, to employ a risk-based approach to sanctions compliance, by developing, implementing, and routinely updating a sanctions compliance program. While each risk-based sanctions compliance program will vary depending on a variety of factors — including the company’s size and sophistication, products and services, customers and counterparties, and geographic locations — each program should be predicated on and incorporate at least five essential components of compliance: (1) management commitment; (2) risk assessment; (3) internal controls; (4) testing and auditing; and (5) training. Please refer to A Framework for OFAC Compliance Commitments and OFAC’s Sanctions Compliance & Evaluation Division for more details.

Entities with ties to the U.S. financial system should be aware that U.S. financial institutions25 are required to comply with the Bank Secrecy Act (BSA) and its implementing regulations, 26 administered by FinCEN.27 BSA requirements generally include establishing AML programs,28 filing currency transaction reports,29 and reporting suspicious activity.30 The reporting generated by these obligations is essential to detecting, investigating, and deterring criminal activity. U.S. financial institutions are expected to take a risk-based approach to identify, assess, and mitigate their money laundering and terrorist financing risks. A financial institution may ask its customers—including customers engaged in business potentially related to Burma—for additional information to establish a risk profile and understand the nature of the customer relationship. For further information, financial institutions should refer to FinCEN-issued press releases, regulations, advisories, and guidance as to their obligations under the BSA. Financial institutions may face civil enforcement as well as potential criminal penalties if they fail to comply with their BSA obligations.

U.S. financial institutions also are expected, and in some cases obligated, to comply with law enforcement processes, including but not limited to subpoenas, seeking to identify traffickers’ assets, which can be seized, forfeited, and, in human trafficking cases, used toward restitution.

***

[1] This advisory is explanatory only and does not have the force of law. It does not supplement or modify statutory authorities, executive orders, or regulations. It is not intended to be, nor should it be interpreted as, comprehensive or as imposing requirements under U.S. law, drawing any legal conclusions about specific fact scenarios regarding particular businesses or entities, or otherwise addressing any particular requirements under applicable law. Its sole intent is to provide information to businesses and individuals that they may consider in assessing their potential exposure to involvement with entities engaged in human rights abuses, as part of a risk-based approach to due diligence. Please see the legally binding provisions cited and other relevant legal authorities.
[2] For terminology throughout this advisory: the Tatmadaw refers to the military of Burma; the military regime refers to the military leadership who overthrew the democratically elected government; and the military regime refers to the military-led government.
[3] A/HRC/39/CRP.2, Report of the detailed findings of the Independent International Fact-Finding Mission on Myanmar, 17 September 2018.
[4] FATF places a jurisdiction under increased monitoring when the country has committed to resolve the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. For the latest information about Burma’s status in the FATF monitoring process visit the FATF’s website.
[5] 81 Fed. Reg. 71986 (Oct. 19, 2016).
[6] These are bamboo, beans (green, soy, yellow), bricks, garments, jade, palm thatch, rice, rubber, rubies, sesame, shrimp, sugarcane, sunflowers, and teak. More information at https://www.dol.gov/agencies/ilab/resources/reports/child-labor/burma
[7] For additional information, see the OECD report State-Owned Enterprises and Corruption: What are the risks and what can be done? at https://www.oecd.org/corporate/SOEs-and-corruption-what-are-the-risks-and-what-can-be- done-highlights.pdf
[8] Executive Order 14014, “Blocking Property with Respect to the Situation in Burma” authorizes the Department of the Treasury, in consultation with the Department of State, to impose sanctions on foreign individuals and entities identified, among other things, to be responsible for the undermining of democratic processes or institutions in Burma or to operate in the defense sector of Burma. More information at https://www.federalregister.gov/documents/2021/02/12/2021-03139/blocking-property-with-respect-to-the- situation-in-burma
[9] The Department of Labor’s 2020 Findings on the Worst Forms of Child Labor report assessed Burma as having made no advancement because it demonstrated a practice of being complicit in the use of forced child labor. The Tatmadaw continued to force civilians, including children, to work in conflict areas, including Rakhine. The Tatmadaw has perpetrated violence against and unlawfully imprisoned trade unionists. Additionally, as for the repression of trade unionists, the military regime has targeted the labor union movement, arrested numerous union leaders and members, and declared 16 labor unions to be illegal.
[10] List of Goods Produced by Child Labor or Forced Labor. See https://www.dol.gov/agencies/ilab/reports/child- labor/list-of-goods
[11] MEHL and MEC were also added to the Bureau of Industry and Security’s Entity List. See Annex I.
[12] For more information, the U.S. Department of the Treasury encourages you to visit the OFAC website on Burma- related sanctions at: https://home.treasury.gov/policy-issues/financial-sanctions/sanctions-programs-and-country- information/burma.
[13] In 2016, a Burmese government official, citing the finding of a parliamentary committee, indicated as many as two million acres of land across Burma could be considered confiscated.
[14] For additional information, refer to Annex 1: U.S. Department of Labor.
[15] More information about the Entity List is found in Annex 1
[16] Each country in this report receives an assessment to indicate the U.S. Department of Labor’s findings on the country’s level of advancement in efforts to eliminate the worst forms of child labor during the reporting period. There are five possible assessment levels: Significant Advancement, Moderate Advancement, Minimal Advancement, No Advancement, or No Assessment.
[...]
[24] Data for U.S. imports for consumption value for 2020 obtained from the Department of Labor’s Better Trade Tool: https://www.dol.gov/agencies/ilab/better-trade-tool
[25] See 31 CFR 1010.100(t).
[26] See 31 CFR Chapter X.
[27] FinCEN is the U.S. financial intelligence unit and safeguards the U.S. financial system from illicit use through the collection, analysis and dissemination of financial intelligence; it is also the administrator of the Bank Secrecy Act.
[28] See 31 U.S.C. § 5318(h)(4)(A) and 31 CFR 1010.201, See 31 CFR 1020.210(a) (banks with a Federal functional regulator, 31 CFR 1020.210(b) (banks without a Federal functional regulator); 31 CFR 1021.210 (casinos and card clubs); 31 CFR 1022.210 (money services businesses); 31 CFR 1023.210 (brokers or dealers in securities); 31 CFR 1024.210 (mutual funds); 31 CFR 1025.210 (insurance companies); 31 CFR 1026.210 (futures commission merchants and introducing brokers in commodities); 31 CFR 1027.210 (dealers in precious metals, precious stones, or jewels); 31 CFR 1028.210 (operators of credit card systems); 31 CFR 1029.210 (loan or finance companies); and 31 CFR 1030.210 (housing government sponsored enterprises).
[29] See generally 31 CFR 1010.310.
[30] See generally 31 CFR 1010.320, 1020.320, 1021.320, 1022.320, 1023.320, 1024.320, 1025.320, 1026.320, 1029.320, and 1030.320.