Images of Myanmar's military chief General Min Aung Hlaing are pictured as a group of Myanmar activists protest outside United Nations University building in Tokyo on February 1, 2021, following a military coup in the country after arresting civilian leader Aung San Suu Kyi and other senior officials. Photo: AFP/Philip Fong

BANGKOK – New US sanctions on Myanmar’s military coup makers will make doing business in the increasingly combustible country much riskier, though some legal experts feel the Joe Biden administration could have gone harder.

On February 11, Biden issued an executive order placing ten new Myanmar nationals on an existing US sanctions blacklist while freezing some US$1 billion in military-held assets and imposing new restrictions on US exports to Myanmar.

The punitive move was seen as a first step in what is likely to be a new generation of sanctions on Myanmar’s military, or Tatmadaw, in the weeks to come, particularly if the junta intensifies its crackdown on nationwide anti-coup protests which show little sign of abating.

Coup-leader Senior General Min Aung Hlaing was on Biden’s new sanctions list even though he was already blacklisted in December 2019 under the Magnitsky Act.

Those sanctions were imposed on him and three other army generals deemed most responsible for the Tatmadaw’s brutal attacks on and forced expulsion of over 700,000 Rohingya Muslims from the Rakhine state in August 2017.

Under Biden’s February 11 sanctions, an additional ten Myanmar individuals were added to an existing blacklist of Specifically Designated Nationals (SDNs) along with three Tatmadaw-connected companies.

The sanctions have thus far been limited to give Min Aung Hlaing and his newly established State Administration Council junta room to back-pedal on the coup and seek a political compromise with coup-toppled Aung San Suu Kyi and her National League for Democracy (NLD) party, according to Eric Rose, a counsel with Herzfeld & Rubin PC, the first US law firm to establish an office in Yangon in 2013 and thereafter the first to pull out in 2018.

“To understand how limited the US sanctions are at this time, President Biden could have sanctioned Senior General Min Aung Hlaing’s son, U Aung Pyae Sone, who, among his assets, has A&M Mahar company, which sells Myanmar FDA (Food & Drug Administration) clearances and brokers imports of pharmaceuticals and medical technology,” Rose said in an interview with Asia Times. 

“Furthermore, there are dozens of MEC or MEHL-controlled companies and their affiliates which could be sanctioned, as they are directly under the control of Senior General Min Aung Hlaing,” he added.

Myanmar military chief Senior General Min Aung Hlaing has vast economic resources at his disposal. Photo: Sefa Karacan / Anadolu Agency via AFP

Myanmar Economic Corp (MEC) and Myanmar Economic Holdings Ltd (MEHL) are two of the Tatmadaw-controlled conglomerates with wide-ranging investments in mining, tourism, banking and a host of other business activities which, along with the activities of several “crony companies”, account for an estimated 50% of Myanmar’s gross domestic product (GDP).

Biden’s new executive order also includes sanctions “to limit exports of sensitive goods to the Burmese [Myanmar] military and other entities associated with the recent coup,” with immediate export restrictions imposed on Myanmar’s Ministry of Defense, Ministry of Home Affairs, Tatmadaw and security services.

Under the order, the US government promises to develop “additional regulatory amendments to impose further export restrictions on the Burmese military to ensure that entities involved in dismantling of democratic norms and institutions do not have access to US technologies.”

So what does this mean for companies doing business in Myanmar?

“Western businesses with operations in the US, or American companies, have to again enhance their sanctions-compliance functions in order to ensure that the ultimate destination of US technology is not a SDN sanctioned company, while at the same time continue the compliance with the FinCEN (Financial Crimes Enforcement Network) sanctions,” Rose said. 

“I fully expect that, in addition to these restrictions, more of the MEC and MEHL-controlled companies will be added to the SDN list if substantial progress is not made soon in reversing the coup, freeing the arrested NLD members and re-establishing of the elected Hluttaw (Parliament),” he added.

Myanmar’s Tatmadaw-dominated economy has been one justification for the slew of economic sanctions formerly imposed by Western democracies and multilateral lenders against the country.

Those were slapped on in layers between September 1988 – after the military crackdown on a pro-democracy uprising that left 3,000 dead – until 2011, when former Myanmar president Thein Sein opened the door for long-time political prisoner Suu Kyi to play an official role in national politics.

A sign with the image of detained Myanmar civilian leader Aung San Suu Kyi is carried at a demonstration against the military coup in front of the Chinese embassy in Yangon, February 12, 2021. Photo: AFP/Sai Aung Main

There is little doubt that one of the main reasons the quasi-elected but military-backed Thein Sein government freed Suu Kyi from detention in 2011 and allowed her to contest a by-election in early 2012 was to coax the West to ease their economic sanctions.

The raft of mostly Western sanctions was deemed ineffective in beggaring the military top brass but were without question crippling economic development, barring the flow of official development assistance (ODA) and making Myanmar’s already impoverished people even poorer.

The tactic worked, at least temporarily. Soon after Suu Kyi and a handful of NLD members won parliamentary seats in an April 2012 by-election, Western sanctions began to ease off in recognition of the move towards democracy.

Multilateral lenders such as the World Bank and Asian Development Bank reopened Myanmar offices and ODA started to flow again to one of the world’s least developed nations after five decades of military mismanagement.

The Thein Sein administration (2010-2015), a mix of military men and technocrats, facilitated the process by pushing through an impressive reform agenda that included easing restrictions on the press, releasing political prisoners, issuing new laws to encourage foreign direct investment (FDI) and opening up the telecoms and banking sectors to foreign players.

Ironically, the granting of licenses in 2013 to foreign telecom giants Norway’s Telenor Group and Qatar’s Ooredoo Group to operate 2G-4G mobile phone services in the country led to the explosion in digital-based communications and the use of social media that has facilitated the nationwide protests and civil disobedience campaigns now challenging junta rule.

Recent efforts to shut down the internet and telecommunication services are a sad statement on how far the military has back-peddled on what were initially military-supported political and economic reforms.

“Under the current circumstances, Telenor faces several dilemmas in Myanmar,” Telenor said in a press statement responding to the coup and sporadic closures of communication services. “We entered Myanmar in 2013 with a clear ambition to support the country in its progress and economic development. Access to telecom services is essential for people to exercise their basic right to freedom of opinion and expression, and to gain information.” 

Access to telecom services has also become crucial to day to day functioning of the Myanmar economy, which has become even more reliant on digital services in the era of Covid-19, which hit Myanmar’s economy hard last year. The World Bank estimates the economy grew only 1.7% in fiscal year 2019/20 compared with 6.8% growth in 2018/19. It had projected 2% growth in 2020/21, but that was before the coup.

A Myanmar man counts local kyat notes at a market in Yangon on April 19, 2017. Photo: AFP/Roberto Schmidt

Telenor is not the only western company to have benefitted from Myanmar’s re-emergence. US private-equity firm TPG Capital bought a stake in Myanmar Distillery and then sold it to Thai billionaire Charoen Sirivadhanabhakdi in 2017 for an estimated $500 million.

The Texas Pacific Group (TPG) has also made several profitable investments in Apollo Towers, a telecom-related firm. US-based Chubb was one of five international companies that won a license to run 100% foreign-owned insurance business in Myanmar in bids held in April 2019 by the now-ousted NLD government. The other winners were Britain’s Prudential, Japan’s Dai-ichi Life, Hong Kong’s AIA and Canada’s Manulife.

Development of the local insurance sector is seen as crucial for building a Myanmar bond market, among other benefits for the generally uninsured populace.

Despite the new US sanctions, Yangon-based businesses do not expect a return to the pre-2010 era of comprehensive sanctions, which hurt the Myanmar people more than they impacted the targeted military. 

“We don’t think there will be a return to the bad old days of trade and investment sanctions on Myanmar,” said one western consultant who requested anonymity. “What it means for business is, first, do your due diligence on who your partners are and understand the military links for your partners.”

A handful of investors have already thrown in the towel, including Japan’s Kirin Group, which announced soon after the coup its decision to pull out of its 2015 investment in Myanmar Brewery, a joint venture with MEC. Thailand’s Amata Group, meanwhile, has suspended its investment in a massive $1 billion industrial estate outside of Yangon.

The impact of the coup and renewed sanctions is expected to be more pronounced on new investments, or the lack thereof.

“Existing projects may continue, but it’s the new ones which will be lost as companies go elsewhere,” said one Yangon-based investor.

In some ways, US companies are ahead of the game. US firms had been laggard in snapping up opportunities in Myanmar during its so-called “democracy decade” (2010-2020) due to the slow pace at which US sanctions were removed compared with European and other Western sanctions.

US approved investments in Myanmar between 2010 to 2020 amounted to $331.1 million, compared with $22.2 billion from Singapore, $11.8 billion from China.

In October 2016, then-US president Barack Obama signed an executive order that finally scrapped most of the US’ economic sanctions on Myanmar, including the Office of Foreign Assets Control (OFAC), in place since 1997. That effectively removed scores of Myanmar nationals from the blacklist, unfroze Myanmar assets in the US and dropped a ban on jade imports from Myanmar.

State Counselor Aung San Suu Kyi speaks with US President Barack Obama during a bilateral meeting at the White House in Washington, DC, September 14, 2016. Photo: AFP

While the easing of US sanctions was significant, they were not deemed enough for US investors who continued mainly to stay away from Myanmar in the 2017-2020 period, due in part to the Rohingya refugee crisis and the NLD’s initial teething problems with competently running a government.

Obama, however, stopped short of removing Myanmar from supervision of sections 311 and 312 of the US Patriot Act, which deals with money laundering and terrorist financing and imposes stringent due diligence requirements on US financial institutions dealing with Myanmar or Myanmar-based companies.

Myanmar was also put back of the US Financial Action Task Force’s “grey list” in 2020 in response to signs of ethnic cleansing of the Rohingya in Rakhine state.

The “grey” and uncertain picture for US companies was one of the reasons that Herzfeld & Rubin PC decided to shut up shop in Yangon in 2017.   

“The US government’s refusal to remove the 2003 FinCEN sanctions against Myanmar have contributed to American businesses not investing in Myanmar,” said Rose, who is now based in Washington.

Rose spent several years facilitating clients’ investments in Vietnam before shifting to Myanmar in 2013, hoping to replicate his firm’s success in what was then being referred to as a “last frontier” market.  

While he was based in Yangon, Rose was a vocal proponent of easing US sanctions on the country to facilitate US investments in the fast-growing, emerging economy. In retrospect, pulling out in 2017 may have been a wise move.

“Businesses, foreign and domestic, need stability and a predictive path for their investments, in order to establish a credible return on investment,” Rose said. “Under the current circumstances, that is an impossibility.”