United States, European Union and United Kingdom Intensify Sanctions on Burma

White & Case LLPOn March 25, 2021, the United States imposed sanctions on Myanma Economic Holdings Public Company Limited ("MEHL") and Myanmar Economic Corporation Limited ("MEC"), Burma's two largest military conglomerates.1 On the same day, the United Kingdom announced sanctions on MEHL. On April 8, the United States imposed sanctions on Myanma Gems Enterprise ("MGE"), a Burmese state-owned entity responsible for all gemstone activities in Burma,2 and on April 9 the United States introduced further export controls on Burma.3 These sanctions follow a wave of restrictive measures imposed by the United States, the United Kingdom, Canada, and the European Union targeting those associated with the Burmese military and security forces who participated in the military's takeover of the country on February 1, 2021, and the subsequent military and police repression against the Burmese people. The sanctions substantially increase the compliance, commercial, and reputational risks faced by companies that continue to operate in Burma.

Background

As detailed in our previous Client Alert, the Burmese military seized control of the country on February 1, 2021, after suffering a major defeat in national elections in November 2020. The United States and other governments quickly condemned the takeover as a coup, and the United States signaled that it would target individuals and entities connected with the coup and the repression of domestic protests that followed. 

On February 10, President Joseph R. Biden issued Executive Order ("EO") 14014, "Blocking Property with Respect to the Situation in Burma," which introduced new sanctions authorities specific to the post-coup situation in Burma. As analyzed in detail in our previous client alert, EO 14014 authorizes the designation of any foreign individual or entity that, inter alia: operates in Burma's defense sector; participated in the events in Myanmar described above (either directly or indirectly); is a leader or official of the military or security forces of Burma or of the Government of Burma; is a political subdivision, agency or instrumentality of the Government of Burma; has provided material support to Burma's military or security forces or persons blocked pursuant to EO 14014; or is owned or controlled by Burma's military or security forces or persons blocked pursuant to EO 14014.4

The consequence of designation is the blocking of the targeted person's property and interests in property that is located in the United States or in the possession or control of a US person. This prohibits US persons from engaging in nearly any transaction that directly or indirectly involves the targets or their property, unless authorized or exempt.

To date, the US Department of the Treasury's Office of Foreign Assets Control ("OFAC") has acted pursuant to EO 14014 on six occasions (on February 11, February 22, March 10, March 22, March 25 and April 8), designating individuals and entities connected with the Burmese military and security forces.5 The US Commerce Department's Bureau of Industry and Security ("BIS") amended the Export Administration Regulations ("EAR") in February and March to implement new export controls on Burma,6 and in March added entities linked to the coup to the Entity List.7

OFAC Designation of MEHL, MEC and MGE 

On March 25, in what US Secretary of State Antony J. Blinken described as the United States' "most significant action to date to impose costs on the military regime,"8 OFAC designated MEHL and MEC as Specially Designated Nationals ("SDNs") pursuant to EO 14014 for "being owned or controlled by the military or security forces of Burma."9 OFAC had previously designated three subsidiaries of MEHL active in Burma's gem industry,10 as well as Sr. Gen. Min Aung Hlaing,11 a leader of the February 1 coup, who according to the US government, leads MEC.12 On March 8, BIS added both MEHL and MEC to the Entity List,13 prohibiting the export or reexport of any item subject to the EAR to these entities absent a BIS license, with such license requests subject to a presumption of denial. 

The accompanying March 25 press release stated that the sanctions against MEHL and MEC "specifically target the economic resources of Burma's military regime" and "are not directed at the people of Burma."14 OFAC Director Andrea M. Gacki described the designations as "targeting the Burmese military's control of significant segments of the Burmese economy, which is a vital financial lifeline for the military junta."15 The press release described MEHL as a "vast and secretive military conglomerate" with business interests across the Burmese economy "from banking, trade, logistics, construction, and mining to tourism, agriculture, tobacco, food, and beverage." The press release described MEC as a "holding company with businesses in the mining, manufacturing, and telecommunications sectors, as well as companies that supply natural resources to the military, and operate factories producing goods for use by the military." 

By operation of OFAC's "50 percent rule," any entities that are owned, directly or indirectly, 50 percent or more by one or more SDNs are also automatically blocked, whether or not they appear on the SDN List. A recent report by a group of UN experts identified 106 businesses that it "concluded on reasonable grounds are fully owned by MEHL and MEC," and noted that there are likely to be more.16 Not only are these fully owned subsidiaries all blocked under OFAC's 50 percent rule, but also all subsidiaries owned 50 percent or more by either MEHL or MEC.

Concurrently with the designations of MEHL and MEC, OFAC issued four Burma-related General Licenses ("GLs")17 and two Burma-related "Frequently Asked Questions."18 Notably, Burma GL 4 authorizes, subject to certain conditions, all transactions prohibited by EO 14014 that are ordinarily incident and necessary to the wind down of transactions involving, directly or indirectly, MEC or MEHL, or any of their 50 percent rule subsidiaries, through 12:01 a.m., eastern daylight time, on June 22, 2021. Thus, for the duration of GL 4, US persons that engage in business with entities blocked under EO 14014, and non-US persons engaged in business with such entities having a US nexus (such as US dollar payments), that wish to cease those transactions have until June 22 to do so, provided that such wind-down activity is consistent with GL 4. Winding down such businesses will also greatly reduce the risk that the US government will impose sanctions on non-US companies under EO 14014.

On March 28, 2021, President Biden affirmed that the Administration was working on additional responses to the situation in Burma, potentially including increased sanctions.19 On March 29, 2021, the US Trade Representative ("USTR") suspended US engagement with Burma under the 2013 Trade and Investment Framework Agreement ("2013 TIFA"), and stated that it would consider the situation in Burma with respect to Congressional reauthorization of the Generalized System of Preferences ("GSP") program.20 This could include revoking Burma's status as a "beneficiary developing country" whose exports to the United States are eligible for preferential tariff treatment under GSP. 

Then, on April 8, OFAC designated MGE, a Burmese state-owned entity that operates under Burma's Ministry of Natural Resources and Environmental Conservation.21 According to the accompanying press release, MGE is a subdivision of Burma's Ministry of Mines, which is responsible for managing the mining and marketing of jade and other gemstones, and in charge of all functions relating to gemstones (e.g., permitting, licensing, enforcing the regulatory framework, participating in joint ventures on behalf of the state, collecting royalties and marketing jade and gemstones in Burma). MGE is also responsible for supervising and granting permits for local private individuals and companies, as well as organizing emporiums and special sales three times a year for extracted gems and jade. OFAC designated MGE for being a political subdivision, agency or instrumentality of the Government of Burma. Director Gacki described the designation as an additional action to "deny[] the Burmese military sources of funding, including from key state-owned enterprises throughout Burma."22

BIS Implements Further Export Controls

On April 9, BIS published an interim final rule amending the EAR to apply military-intelligence-related controls to Burma and restrict US persons' activities in connection with military-intelligence end uses and end users in Burma.23 The rule amends § 744.22 of the EAR to impose a license requirement on the export, reexport or transfer (in-country) of any item subject to the EAR if an exporter, reexporter or transferor has knowledge, or is informed by BIS, that the item is destined for a military-intelligence end use or end user in Burma.24 In addition, BIS amended other sections of the EAR to add Burma to the list of countries in which US persons are prohibited from supporting military-intelligence end uses or end users, even when such support does not involve an item subject to the EAR.25

UK, EU and Canada Response

Over the course of February and March, the United Kingdom, Canada, and the European Union also imposed targeted sanctions against individuals and entities connected to Burma's military and security forces.26

On March 25, 2021, UK Foreign Secretary Dominic Raab announced in a press release that the UK was sanctioning MEHL under the UK Global Human Rights sanctions regime.27 According to the press release, the designation is in response to evidence that MEHL contributed funds to support the Burmese military in an ethnic cleansing campaign against Burma's Rohingya minority in 2017, and that MEHL is associated with the Commander in Chief and Deputy Commander in Chief of the Burmese military. Foreign Secretary Raab also stated that the goal of the sanctions is to "help drain the sources of finance for [the Burmese military's] campaigns of repression against civilians." Designation under the UK's Global Human Rights sanctions regime also prohibits funds being made available to entities "owned or controlled directly or indirectly" by the designated entity.

The EU has not taken action against either MEHL or MEC. However, on March 22, 2021, the EU expanded its criteria for designating persons under the asset freeze28 and added to its asset freeze29 11 individuals responsible for the military coup and subsequent actions by military and police against peaceful demonstrators. Ten of these persons belong to the highest ranks of the Burmese military, while the other is the new Chairperson of the Union Election Commission, sanctioned for his role in canceling the results of the 2020 elections in Myanmar. 

Both MEHL and MEC have been subject to sanctions in Canada since 2007.

Outlook

The US designations of MEHL, MEC and MGE, and the UK designation of MEHL, will further complicate foreign business in Burma. These sanctions cover subsidiaries of both entities (for the United States, 50 percent or greater subsidiaries, and for the UK, directly or indirectly owned or controlled entities).30 The identities of all such subsidiaries are not known, and determining corporate ownership or control of individual Burmese counterparties, even for joint venture partners, can be difficult.31 Companies are therefore advised to assess their commercial ties in Burma and make particular efforts to determine the ultimate beneficial ownership of all counterparties. Companies should act to address any sanctions exposure preemptively. Failure to do so can expose a company not only to the risk of sanctions enforcement and designation, but also to broader commercial and reputational risks emanating from involvement with companies or regimes engaged in human rights abuses. 

Persons exporting, reexporting or transferring items to a party in Burma must conduct diligence to determine if the new military-intelligence end use or end user restrictions apply to the transaction. Violations of the EAR may be subject to both criminal and administrative penalties. Companies active in Burma are advised to continue to monitor the unfolding international response to the events in the country closely. 

1 US Department of the Treasury, Press Release, "Treasury Sanctions Military Holding Companies in Burma," (March 25, 2021) ("Burma March 25 Press Release"). The US Government continues to use the name "Burma" instead of "Myanmar" despite the country's name change in 1989.
2 US Department of the Treasury, Press Release, "Treasury Sanctions Key Gem Enterprise in Burma" (April 8, 2021) ("Burma April 8 Press Release").
3 US Department of Commerce Bureau of Industry and Security, Interim Final Rule, 86 Fed. Reg. 18433 (April 9, 2021) ("Interim Final Rule of April 9").
4 See our Client Alert of March 9, 2021 for additional background on EO 14014, including designation criteria.
5 See US Department of the Treasury, Press Release, "United States Targets Leaders of Burma's Military Coup Under New Executive Order," (February 11, 2021) ("Burma February 11 Press Release"); US Department of the Treasury, Press Release, "United States Targets Members of Burma's State Administrative Council following Violence against Protestors" (February 22, 2021); US Department of the Treasury, Press Release, "United States Targets Family Members Profiting from Connection to Burmese Coup Leader" (March 10, 2021); US Department of the Treasury, Press Release, "United States Targets Burmese Military Forces for Repression of Pro-Democracy Protests " (March 22, 2021); Burma March 25 Press Release, supra, n.1; and Burma April 8 Press Release, supra n.2. 
6 US Department of Commerce Bureau of Industry and Security, Notification, 86 Fed. Reg. 10011, "Burma: Implementation of Sanctions" (February 17, 2021); US Department of Commerce Bureau of Industry and Security, Final Rule, 86 Fed. Reg. 13173, "Burma: Implementation of Sanctions" (March 8, 2021). The latter rule added Burma to the list of countries subject to the military end use and end user ("MEU") and National Security ("NS") licensing policy restrictions. For additional information on MEU licensing restrictions, see our Client Alert of January 7, 2021.
7 US Department of Commerce Bureau of Industry and Security, Final Rule, 86 Fed. Reg. 13179, "Addition of Entities to the Entity List" (March 8, 2021)
8 US Department of State, Press Statement, "Sanctions on Two Burmese Entities in Connection with the Military Regime," (March 25, 2021).
9 Burma March 25 Press Release, supra n.1; see also OFAC, Recent Actions, "Burma-related Designations," (March 25, 2021).
10 Burma February 11 Press Release, supra n.5; see also OFAC, Recent Actions, "Issuance of Executive Order ‘Blocking Property with Respect to the Situation in Burma;' Burma-related Designations and Designations Updates" (February 11, 2021). The sanctioned companies were Myanmar Ruby Enterprise; Myanmar Imperial Jade Co., LTD; and Cancri (Gems and Jewellery) Co., LTD. All three were identified as subsidiaries of MEHL in a 2019 United Nations report. See Human Rights Council, The Economic Interests of the Myanmar Military, UN Doc. A/HRC/42/CRP.3, at 73-74 (2019) (2019 UN Economic Interests Report).
11 The United States sanctioned Hlaing for his role as a coup leader on February 11. See Burma February 11 Press Release, supra n.5. Hlaing was also previously designated under Executive Order 13818, which builds upon and implements the US Global Magnitsky sanctions program for serious human rights abuses. See US Department of the Treasury, Press Release, "Treasury Sanctions Individuals for Roles in Atrocities and Other Abuses" (December 10, 2019).
12 See Burma March 25 Press Release, supra n.1. Separately, the 2019 UN Economic Interests Report concluded that Hlaing is a leader of MEHL's "Patron Group," and as such has "apparent significant control and influence" over MEHL. See Human Rights Council, supra n.10, at 19-20, 23-24. 
13 See BIS Final Rule March 8, supra n.7. In general, adding an entity to the Entity List restricts the export, reexport or transfer (in-country) to it of items subject to the EAR. The EAR imposes additional license requirements on and limits the availability of most license exceptions for exports, reexports and transfers (in-country) to listed entities. Such Entity List licensing requirements apply whenever a listed entity is party to the transaction, regardless of the role that a listed entity has in the transaction (i.e., as a "purchaser," "intermediate consignee," "ultimate consignee," or "end-user"). Adding an entity to the Entity List does not implicate or change the prohibitions related to designation as an SDN by OFAC.
14 See Burma March 25 Press Release, supra n.1.
15 Id. 
16 See Human Rights Council, supra n.10, at 24. 
17 A general license authorizes a particular type of transaction without the need to apply for a specific license. See 31 CFR § 501.801. The licenses issued on March 25 were: General License No. 1 "Official Business of the United States Government"; General License No. 2 "Official Activities of Certain International Organizations and Other International Entities"; General License No. 3 "Certain Transactions in Support of Nongovernmental Organizations' Activities"; and General License No. 4 "Authorizing the Wind Down of Transactions Involving Myanmar Economic Corporation Limited and Myanma Economic Holdings Public Company Limited."
18 FAQ 882 relates to General License 2; FAQ 883 relates to General License 4.
19 White House, "Remarks by President Biden before Air Force Once Departure" (March 28, 2021).
20 Office of the US Trade Representative, Press Release, "USTR Suspends Trade Engagement with Burma following Military Coup and Violence against Civilians" (March 29, 2021).
21 Burma April 8 Press Release, supra n.2; see also OFAC, Recent Actions, "Burma-related Designation" (April 8, 2021).
22 Burma April 8 Press Release, supra n.2.
23 BIS Interim Final Rule of April 9, supra n.3. In an earlier interim final rule published on January 15, 2021, BIS added new § 744.22 to the EAR, which imposed supplemental license requirements on the export, reexport or transfer (in-country) of all items subject to the EAR to military-intelligence end uses and end users in China, Russia or Venezuela, or countries listed in Country Groups E:1 and E:2 of supplement no. 1 to part 740 of the EAR. See US Department of Commerce Bureau of Industry and Security, Interim Final Rule, "Expansion of Certain End-Use and End-User Controls and Controls on Specific Activities of U.S. Persons" (January 15, 2021). The interim final rule of April 9 amends the text of § 744.22 to include Burma in the list of enumerated countries. 
24 The interim final rule provides two specific examples of military-intelligence end users: Burma's Office of Chief of Military Security Affairs ("OCMSA") and the Directorate of Signal. The interim final rule applies to military-intelligence end uses (defined at § 744.22(f)), as well as to specific end users. 
25 The amended sections are §§ 736.2(b)(7)(i)(A)(5) (General Prohibition Seven, on US Person controls) and 744.6(b)(5) (Restrictions on specific activities of "US Persons").
26 Initial US, UK, and Canadian sanctions developments related to the coup are also covered in our Client Alert of March 9, 2021, supra n.4. For additional information on the EU sanctions targeting the leadership of the Burmese coup, see European Council, Press Release, "Myanmar/Burma: EU Sanctions 11 People over the Recent Military Coup and Ensuing Repression" (March 22, 2021)
27 Gov.uk, Press Release, "UK Sanctions Major Military Business Interests in Further Measures against Myanmar Military Regime" (March 25, 2021).
28 Council Decision (CFSP) 2021/482 and Council Regulation (EU) 2021/479 of 22 March 2021.
29 Council Decision (CFSP) 2021/483 and Council Regulation (EU) 2021/480 of 22 March 2021.
30 Under the UK Global Human Rights Sanctions Regulations 2020, SI 2020/680, part 2 ¶ 7, a person who is not an individual ("C") is "owned or controlled directly or indirectly" by another person ("P") if P (1) holds directly or indirectly more than 50 percent of the shares or the voting rights in C, or holds the right directly or indirectly to appoint or remove a majority of the board of directors of C; or (2) under all the circumstances, P can generally direct C's affairs. 
31 See, e.g., Kana Inagaki and John Reed, "Kirin under Fire as Probe into Myanmar Unit Fails to Uncover Military Ties," Financial Times (January 7, 2021).

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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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