Fools Rush In: Social and Environmental Due Diligence in Burma

by Foley Hoag LLP - Corporate Social Responsibility
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Following the success of Daw Aung San Suu Kyi and her National League for Democracy (“NLD”) party at the polls and today's announcement that the United States will soon lift some of its sanctions against Burma, companies are closely scrutinizing the possibility of conducting business in the long-isolated country. 

Recent events should not, however, be considered a green light to conduct business in Burma for at least two reasons:  

  • First, governments are likely to take a step-by-step approach to the sanctions, awarding Burma for specific actions taken, rather than lifting them wholesale. 
  • Second, even if all the sanctions were lifted tomorrow, companies would be wise to proceed with great caution and conduct robust, project-specific social and environmental due diligence.

In a statement issued earlier today, U.S. Secretary of State Hillary Clinton announced that the United States will lift sanctions related to international development aid and some travel restrictions and will begin

the process of a targeted easing of [the] ban on the export of U.S. financial services and investment as part of a broader effort to help accelerate economic modernization and political reform.

Today's announcement signals impending change in U.S. sanctions policy, but should not be understood to mean that the U.S. government will lift all or most investment-related sanctions in the immediate future. Rather, the Obama Administration has noted that it will lift sanctions in a stepwise process if Burma takes more actions to demonstrate that it is moving toward a democratic system. 

The Obama Administration and Congress will condition the further lifting of sanctions on whether Suu Kyi comments positively on the elections; her party’s ability to operate freely in the Parliament and institutionalize rule of law; and whether Burma makes progress on resolving the myriad ethnic conflicts along its borders.  How, exactly, improvement in these areas will be measured is not clear, but Burma is unlikely to make substantial progress on them overnight, meaning that it will take time for the sanctions to be lifted.  Furthermore, Congress and the Obama Administration may hold different views on what constitutes sufficient progress, which will slow the lifting of sanctions because the process requires coordination between the two branches of government.

In the meanwhile, companies should consider how they would conduct business responsibly in Burma, were the investment-related sanctions to be lifted.  Widespread corruption, ethnic conflict, and antiquated social and environmental regulations present significant challenges. Companies will need to conduct robust social and environmental due diligence that takes into account the specific industry and location -- general country due diligence will not suffice. 

Context matters enormously. For instance, infrastructure projects even in central Burma raise significant human rights concerns, given the Burmese government’s resettlement practices, but infrastructure projects in ethnic regions are even more problematic. The central government is disliked and has limited control in ethnic areas, and companies should not assume that a government permit provides a social license to operate. Companies that seek to operate in ethnic areas should consider the risk that they will exacerbate conflict between ethnic groups and the central government -- a determination that requires detailed due diligence, taking into account the specific ethnic groups involved.

In instances in which investments would not have a large physical footprint, companies should still exercise caution. Corruption is a significant problem, and the military and its affiliates play an outsized role in the economy. Even if local companies are not on sanctions lists, they may be associated with notorious military officers who are linked to human rights abuses. Accordingly, conducting business with such companies, even if legal, could have negative reputational effects.  Projects in Burma face other challenges as well because Burma inadequately regulates labor rights, privacy, freedom of expression, and the environment, so companies that merely follow national law would fall well below international standards for good practice.

In short, the United States will lift some sanctions on Burma in the near future, but will not end most related to investment for some time. This provides an opportunity for responsible companies to consider what forms of due diligence they would carry out so that their investments do not have negative social or human impacts, and do not bring excessive corruption risks. Companies should become familiar with Burma’s complex political and ethnic make-up so that if the investment-related sanctions are lifted, they are prepared to conduct due diligence that is granular and specific to avoid the myriad pitfalls related to operating in Burma.

 

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