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US eases restrictions on four major Myanmar banks

US EASES RESTRICTIONS ON FOUR MAJOR MYANMAR BANKS
Date: 25/02/2013
Source: Financial Times
US eases restrictions on four major Myanmar banks

The US has taken further steps to ease restrictions on US corporate investment and business activities in Myanmar, following intense debate within the US Treasury and the State department after Washington softened sanctions against the country last July.

The move frees US citizens and companies to conduct business with four of the country’s biggest banks, of a total 19 banks. All four banks have faced US sanctions and at least two of the institutions are controlled by people who have been on so-called US “blacklists”, naming individuals with close business and financial links to the former military regime.

The US Treasury announced late last week that its Office of Foreign Assets Control (Ofac), which oversees sanctions against a range of countries, had issued a “general license” to authorise additional US economic activity in Burma.

The general license allows individuals, companies and financial institutions to conduct most transactions – including opening and maintaining accounts and conducting a range of other financial services – with four key banks: Myanma Economic Bank, Myanma Investment and Commercial Bank, Asia Green Development Bank and Ayeyarwady Bank.

Asia Green Development Bank, one of Myanmar’s biggest banks, is controlled by Tay Za, who has long been on US “blocked parties” lists. Tay Za’s conglomerate Htoo Trading spans construction, mining, agribusiness and tourism.

In its statement, the Treasury said the decision would give US companies and non-governmental organisations “greater access to some of the largest Burmese banks and allow these financial entities to access the US financial system”. It would also promote responsible US investment in Myanmar, the department noted.

The move is important, according to Pillsbury, Winthrop Shaw Pittman, a Washington DC-based law firm that specializes in US sanctions regimes, not least because it clears up confusion among US financial institutions over the legality of banking dealings with several key banks in Myanmar.

Known as General License 19, the move paves the way for US companies to develop correspondent relationships with Myanmar banks, following the easing of US sanctions last year and the passage by Myanmar’s parliament of a new foreign investment law late last year.

In a weekend briefing note, Pillsbury said that anti-money laundering “special measures” applied by the US to Myanmar and its financial institutions remain in place and have generally impeded correspondent banking relationships with US as well as international financial institutions. Although the US Treasury last year broadly authorised US financial institutions to open correspondent bank accounts with Myanmar banks, through a provision called General License 16, it did not explicitly give the green light, leaving many institutions hesitant about running foul of US financial restrictions on business activities in Myanmar.

While US companies will from now be permitted to conduct transactions through the four Myanmar banks, all four remain on the US government’s so-called “specially designated nationals” list, which means US companies are still prohibited from investing or entering joint ventures with them. Three other Myanmar banks remain on the US list that bars US companies from any transactions.

The latest easing “offers a clearer message by Ofac that US and multinational banks are authorised to transact with and via these four institutions”, added Pillsbury.

The Treasury announcement comes as Myanmar prepares to allow foreign banks to enter majority-owned joint ventures with local banks according to key officials involved in drafting new banking laws.

About 20 foreign banks have already opened representative offices in Myanmar, with UK bank Standard Chartered and Australian bank ANZ becoming the first western banks to set up in Yangon.

Rules governing foreign investment and involvement in Myanmar’s banking and financial services sector were not featured in the country’s new foreign investment law. But regulations are now being formulated and officials have told the FT that under forthcoming reforms, foreign banks will be permitted as early as April to own up to 80 per cent of a joint-venture with a local counterpart and eventually be permitted to open branch offices.

The latest moves follow the issuance last month of detailed rules and regulations for foreign investors after Myanmar’s parliament passed a new foreign investment law issuance late last year.

Many investors broadly welcomed the passage of the law, particularly key provisions that are more liberal than the former 1988 foreign investment law. These include 60-year land leases, more generous tax breaks and more relaxed financial and labour requirements. But some legal experts warn of stricter conditions in the new law on aspects such as tough requirements to complete projects on time, and also note the greatly enhanced power of the government’s investment watchdog, the Myanmar Investment Commission.

Allen & Overy, a leading UK law firm that has made strong inroads into Myanmar, says in a client bulletin on Monday that the new foreign investment framework “is more prescriptive and detailed than was the case under the former 1988 Foreign Investment Law”. It continues:

"The foreign investment rules and MIC notification are drafted in broad terms and MIC is given substantial discretion to determine the nature and scope of permissible investment in Myanmar. It remains to be seen just how restrictive the new framework will be in practice."

On one hand, adds Allen & Overy:

"MIC’s broad powers under the new rules to determine the nature and scope of permissible investment in Myanmar lends a substantial degree of flexibility to the framework, which may be less restrictive than what was otherwise anticipated."

At the same time, it warns “just how flexible and investor-friendly Myanmar’s new foreign investment framework will be in practice will not be known until MIC starts to implement the foreign investment rules”. The firm’s main advice is that foreign investors “would do well to engage actively with MIC and the relevant ministries and government regulators in the early stages of considering investing in Myanmar”.

In a further sign of the rapid expansion of US-Myanmar relations, the US Treasury announcement came as a high-level US business mission led by the US Chamber of Commerce arrived in Yangon for a week of meetings with Myanmar officials and a joint conference with its local counterpart, the UMFCCI, Myanmar’s leading business group. The US group will hold talks in Yangon and the capital, Naypyidaw, with cabinet ministers, business executives and leaders of parliament.


Topic: Financial
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