US sanctions Myanmar’s economic holdings companies - sanctions extend to all majority-owned subsidiaries

Eversheds Sutherland (US) LLP

Eversheds Sutherland (US) LLP

On March 25, 2021, in its effort to intensify international pressure on Min Aung Hlaing’s military government, the US placed sanctions, pursuant to Executive Order 14014, on two holding companies, Myanma Economic Holdings Public Company Limited (MEHL) and Myanmar Economic Corporation Limited (MEC). MEHL and MEC are conglomerates through which the US alleges that the Myanmar (Burmese) military controls significant segments of the country’s economy, including the mining, manufacturing, alcohol, cigarettes, and consumer good sectors.

New general licenses and FAQs

OFAC has issued four general licenses and two FAQs in connection with the designations:

  • General License 1, "Official Business of the United States Government," authorizes transactions and activities that are for the conduct of the official business of the US Government by employees, grantees, or contractors.
  • General License 2, “Official Activities of Certain International Organizations and Other International Entities” authorizes transactions and activities by employees, grantees, or contractors that are for the conduct of the official business of certain international organizations, such as the UN.
  • General License 3, “Certain Transactions in Support of Nongovernmental Organizations' Activities" authorizes transactions and activities by NGOs ordinarily incident and necessary to: 
    • humanitarian projects to meet basic human needs in Burma,
    • democracy building in Burma, 
    • education in Burma,
    • non-commercial development projects directly benefiting the people of Burma, and
    • environmental and natural resource protection in Burma,
      including processing and transfer of funds; payment of taxes, fees, and import duties, and purchase or receipt of permits, licenses, or public utility services. 
  • General License 4, “Authorizing the Wind Down of Transactions Involving Myanmar Economic Corporation Limited and Myanma Economic Holdings Public Company Limited” authorizes transactions and activities ordinarily incident and necessary to the wind down of transactions involving MEHL, MEC, or any other entity owned – directly or indirectly – in the aggregate, 50% or more by MEHL and/or MEC, through 12:01 am on June 22, 2021. 
  • FAQs 882 and 883
    • FAQ 882 clarifies which UN organizations are covered under General License 2.
    • FAQ 883 
      1. clarifies that: 

wind down transactions may be processed through the US financial system or involve US persons until June 22, and those unable to wind down their activities by June 22 should approach OFAC; 

  1. warns that non-US persons who do not wind down by June 22 consistent with General License 4 may be exposed to secondary sanctions.

Implications of the new designations

  • All property and interests in property of MEHL and MEC that are in the US or in the possession or control of US persons (including US investment firms or financial institutions) are blocked and must be reported to OFAC. 
  • Any entities that are owned, directly or indirectly, 50 percent or more by MEHL and/or MEC (and/or any other SDN) are also blocked. See OFAC’s 50% Rule here
  • US persons are prohibited from engaging in transactions involving or benefiting MEHL and MEC (or any subsidiary also designated under the 50% Rule). 
  • All US persons are required to wind down their transactions with MEHL, MEC or any related entity covered under the 50% Rule by June 22.
    • According to the Executive Order 14014, persons who are found to have “materially assisted” or “provided financial, material, or technological support for, or goods or services to, MEHL and MEC (and their designated subsidiaries) may be subject to sanctions. Like US persons, non-US persons are permitted (and advised) to wind down their existing transactions with MEHL, MEC, and their designated subsidiaries without exposure to sanctions until June 22.
      • Non-US persons who do not wind down their activities with MEHL, MEC, and their designated subsidiaries risk becoming subject to US sanctions themselves.

Individuals and companies involved with these designated holding companies should begin winding down their activities as soon as possible.

[View source.]

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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