Floating the Kyat: A First Step in Fighting Corruption in Burma

by Foley Hoag LLP - Corporate Social Responsibility
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On April 2, one day after its Parliamentary by-elections, Burma (Myanmar) floated its currency, the kyat. This is an important first step in normalizing the country’s investment climate and curbing corruption. For years, the official kyat exchange rate has been more than 100 times lower than the black market rate, which has led to endless headaches for organizations operating in Burma, as well as for Burmese citizens.

The distortion of the kyat also made it easier to hide corruption.  According to Sean Turnell, a leading expert on the Burmese economy, officials recorded revenues at the official exchange rate -- which undervalued them by nearly 200 percent when the black market exchange rate is taken into account -- and spirited away the remainder.

Floating the kyat will slightly enhance transparency, and will decrease the everyday annoyance of conducting business in Burma, but more reforms are needed to address corruption. Transparency International ranks Burma as one of the most corrupt countries in the world, followed only by North Korea and Somalia.

Such corruption certainly affects the business community.  A local newspaper recently reported evidence of corruption in six key ministries, including in relation to the awarding of a valuable copper mine concession. Corruption extends well beyond business into many aspects of society, with payments routinely required to obtain passports, good grades, or government jobs. These are minor symptoms of a culture of corruption that has become endemic and will take significant efforts to address.

The Burmese government has begun to publicly acknowledge the prevalence of corruption and the need to address it, but the formula to do so is not clear. A senior Burmese government official noted that petty corruption arises in part due to the gross underpayment of civil servants, which has made it challenging for many to survive without engaging in corrupt practices. One of President Thein Sein’s economic advisors added that it will take time to implement fundamental changes that diminish corruption, and highlighted the fact that powerful interests are likely to resist reforms.

In a classic twelve-step self-help program, recognition of the problem is a first step toward solving it. Floating the kyat may actually be step two therefore, with the government’s public statements identifying corruption as a significant problem constituting step one. While the government continues -- hopefully -- through steps 3-12, companies and non-governmental organizations that operate in Burma will face significant risks, including potential liability pursuant to the U.S. Foreign Corrupt Practices Act and/or the U.K. Bribery Act, and they should plan accordingly. 

For instance, companies that purchase the assets or operations of other businesses should seek to ensure that such rights were not originally obtained fraudulently and should analyze the reputations of their business partners by not only reviewing relevant legal documents, but also by talking to knowledgeable Burmese. Companies should also emphasize their anti-corruption commitments to local employees or contractors and make it clear that business as usual is not acceptable.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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