REGULATORY: International Trade: United States Eases Sanctions Against Burma, but Companies Should Proceed with Caution

by King & Spalding

Following Burma’s landmark elections last spring that marked a transition from military to quasi-civilian rule, the United States took a number of steps to ease existing sanctions against Burma in an effort to promote democracy and economic reform. The efforts to ease the sanctions culminated with President Obama’s November 19, 2012 visit, which marked the first time a sitting U.S. president has visited Burma.

Notably, while the United States recently eased economic sanctions against Burma, on January 14, 2013, a representative of the UK Foreign and Commonwealth Office stated that the EU may consider reinstating sanctions amid reports of civilian deaths during a military offensive in Kachin. The EU Foreign Affairs Council is due to consider the sanctions against Burma in April 2013.

Efforts by Burmese Government to Attract New Investment

Since the easing of the U.S. sanctions administered and enforced by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”), the Burmese Government has been actively seeking investors in its economy, particularly in the energy sector. For instance, the Myanmar Ministry of Electric Power hosted the Myanmar Power Summit in January 2013, which brought together private sector and public sector entities to highlight development plans and investment opportunities in the industry. A similar public/private summit is scheduled for June 2013 for oil and natural gas industries. Any foreign firm investing in Burma’s oil and gas sectors is required under Burmese law to enter into a partnership with the state-owned Myanma Oil and Gas Enterprise.

Current Status of U.S. Sanctions Against Burma

Although U.S. persons may now engage in most transactions with Burma, caution should still be exercised, as many restrictions against dealings with the Government of Burma and leaders of the military junta remain in place. Some government ministers are current or former military officials that have been sanctioned by the United States and their assets have been blocked, which generally means that transactions with these persons and possibly with agencies that they head are prohibited.

Entities owned or controlled by persons whose property and interests in property are blocked are also sanctioned under U.S. law. Specifically, a person whose property and interests in property are blocked is considered to have an interest in all property of an entity in which the person owns, directly or indirectly, a 50 percent or greater interest. Even if a blocked person has a significant ownership interest that is less than 50 percent, the blocked person may still be deemed to control an entity by means other than a majority ownership interest. In practical terms, this means that persons engaging in business transactions with Burma can find themselves in situations that require a factual determination of whether a Burmese entity is owned or controlled by a blocked person. Such determinations can be difficult to make as they are based on factual information that is not always readily accessible. Although it is not the aim of the U.S. sanctions to explicitly prohibit transactions with the Burmese Government and its instrumentalities, the facts of transactions should be carefully considered to make determine whether, for instance, a blocked person “controls” a government Ministry that plans to participate in a transaction.

Authorizing Certain Transactions with Sanctioned Banks

On February 22, 2013, OFAC issued General License No. 19 authorizing most transactions, including opening and maintaining accounts and conducting a range of other financial services, involving four of Burma’s major banks: Asia Green Development Bank, Ayeyarwady Bank, Myanma Economic Bank, and Myanma Investment and Commercial Bank. Importantly, however, new investment in or with these four banks remains prohibited.

As a result of this General License, the “special measure” against Burma imposed under Section 311 of the USA PATRIOT Act no longer applies to the operation of correspondent accounts for the four banks listed above, or to transactions that are conducted through such accounts, provided that such transactions are authorized under the Burmese sanctions. In 2004, the Secretary of the Treasury designated Burma as a “jurisdiction of primary money laundering concern” and applied the “special measure” against Burma under Section 311 of the USA PATRIOT Act prohibiting financial institutions from establishing, maintaining, administering, or managing in the United States any correspondent or payable-through account directly or indirectly for, or on behalf of, Burmese banking institutions. In October 2012, the Secretary of the Treasury stated explicitly that the finding and the “special measure” under Section 311 remain in effect. Thus, this action by OFAC represents ongoing efforts by the U.S. Government to facilitate U.S. economic involvement in Burma by allowing transactions with this selective group of Burmese financial institutions.

Lifting of the Import Ban

On November 19, 2012, OFAC issued General License No. 18, which generally authorizes importation into the United States of any item that is a product of Burma, other than jadeite or rubies mined or extruded from Burma and jewelry incorporating them.

Lifting of the Prohibition Against “New Investment”

On July 11, 2012, OFAC issued General License No. 17, generally authorizing new investment in Burma by U.S. persons. The definition of the term “new investment” remains unchanged from the one currently included in the Burmese sanctions regulations. Importantly, any U.S. person undertaking new investment pursuant to an agreement with the Myanma Oil and Gas Enterprise must notify the State Department in writing within 60 days of such new investment, and any U.S. person whose aggregate investment in Burma exceeds $500,000 must file an annual report with the State Department.

Lifting of the Prohibition Against Exportation or Reexportation of Financial Services

Also on July 11, 2012, OFAC issued General License No. 16 generally authorizing the exportation or re-exportation of financial services by U.S. persons to Burma. The exportation or re-exportation of financial services includes the provision of insurance services, investment or brokerage services, banking services, money remittance services, loans, guarantees, letters of credit, other extensions of credit, or the service of selling or redeeming traveler’s checks, money orders, and stored value.


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