Quarterly Business Magazine

The Future of U.S. Sanctions Policy and Business Engagement

Posted :
Wednesday, October 15, 2014

Myanmar has just hosted the ASEAN Regional Forum, attended by ASEAN leaders and foreign ministers as well as the U.S. Secretary of State, John Kerry. The remaining U.S. restrictions policy and relatively limited U.S. business engagement have been a major focus of the forum discussions, as well as recent visits by the U.S. Department of State Assistant Secretary for Democracy, Human Rights, and Labor, Tom Malinowski and by a business delegation led by the U.S.-ASEAN Business Council. Questions and confusion still remain regarding the overall direction of U.S. Myanmar policy, when the relationship might be fully normalized, or whether it even should be.

The U.S. has taken steps in the past few months to clarify its stance on sanctions, especially concerning the Specially Designated Nationals (SDNs) listed by the Department of the Treasury’s Office of Foreign Assets Control (OFAC). The U.S. Government has highlighted key policy concerns about the remaining legislative and executive restrictions and what needs to be done to address those issues. Both Myanmar and the U.S. have quite a lot of work to do in the next few years to attain a more normalized relationship and achieve the level of comfort necessary to increase and enhance U.S. business engagement both sides would like to see.

A More Refined Policy
The majority of U.S. financial sanctions were eased from 2012 to 2013, including allowing the exportation of U.S. financial services and new investment in Myanmar. Additionally, the U.S. removed barriers to the International Financial Institutions’ full engagement in Myanmar, licensed four major banks—Asia Green Development Bank, Ayeyarwady Bank, Myanma Economic Bank, and Myanma Investment and Commercial Bank—and, began to allow imports of Myanmar goods into the U.S., with the exception of jadeite and rubies.

The U.S. Government also revised its criteria for adding individuals and entities to the SDN list to include those threatening peace and stability in Myanmar by undermining political and national reconciliation efforts, committing human rights abuses, or engaging in arms deals with North Korea. Additionally, U.S. businesses were asked to comply with annual reporting requirements, providing both private and public reports to the U.S. Department of State if an aggregate investment exceeded USD 500,000. Investors were also required to notify the Department of State if they enter into a transactional relationship with the Myanma Oil and Gas Enterprise (MOGE).

These policy changes have contributed to new jobs, educational and training opportunities, major development and livelihood initiatives, and technical assistance and capacity building programs in Myanmar. There are now new Chevrolet and Ford cars helping to clog the streets of Yangon. Visa and Mastercard signs are everywhere and Yangon Western Union outlets are transferring money worldwide. Coca-Cola is being bottled in Myanmar for the first time in more than 60 years, and Ball Corporation has announced plans to open a manufacturing plant to supply Coca-Cola with cans. Gap Inc. is the first American retailer to source in Myanmar, and the first of the products manufactured in its two Myanmar factories should soon be in overseas stores.

Working Through Remaining Restrictions
Despite this progress, further motion on investment by major American companies has been slow.  This is no doubt due in part to the remaining U.S. restrictions and the confusion surrounding the reporting requirements. There is a way, however, to successfully work within these boundaries while enhancing and reinforcing the examples of “responsible” investment set by American business models.

Sanctions are a tool to deter or change negative behavior. The imposition of sanctions is intended to prompt the targeted government, entity, or individual to reform. In the Myanmar case, this means rejecting the discredited policies and bad practices of the former junta and instead supporting the economic and political reforms of the new government to positively impact the country’s development. Sanctions also are imposed to stop specific harmful actions, including human rights abuses, dictatorial politics, unsound and corrupt business practices, and military trade with North Korea. The U.S. tailored its sanctions policy by removing the restrictions impacting the entire country but keeping the targeted SDN list in place. Secretary Kerry stated during his recent visit that, “The sanctions are now very much focused on members of the junta and on key individuals who may still be representing challenge to achieving [the reforms].”

For this policy to be successful, the U.S. must be open to helping sanctioned individuals reform and giving them the keys to do so. U.S. officials have begun to clarify the path to removal from the SDN list, particularly for Myanmar’s most well-known businessmen. During his June 2014 trip to Yangon, Assistant Secretary Malinowski met with several sanctioned individuals to discuss the guidelines for their delisting. Removing people from the list is a legal, rather than political, process and these individuals need to demonstrate in a verifiable way changed behavior and support peace, stability, and security in Myanmar. In an interview with The Irrawaddy, Malinowski stated, “We explained that removal from the SDN list is an administrative—not a political—process managed by the United States Treasury Department in which petitioners must submit proof of fundamental behavior change. We want SDNs to change their behavior and not stand in the way of Burma’s [Myanmar’s] transition. We will look to see SDNs sever business ties with the military, respect human rights, including by avoiding involvement in land seizures, and respect civilian rule. One good way to demonstrate these things would be to conduct a credible, independent audit of all business holdings, plus a credible, independent social and environmental impact assessment of their operations. We also made clear that donations to charity, while welcome, would not be taken into consideration—for this purpose, what’s important is not how they spend their money but how they make their money.”

U.S. companies can and must lead by example and proffer the spirit of corporate governance and positive behavior that the U.S. is seeking to instill in these individuals. Changing the way business is done will not only benefit sanctioned individuals and U.S. companies, it will also benefit the people of Myanmar. This is a real opportunity to make a comprehensive difference.

Attracting Additional Investment
As Secretary Kerry recently explained, a broad reimposition of U.S. sanctions is unlikely. U.S. policymakers during the ASEAN Regional Forum did not discuss what would be done if Myanmar does not adequately address concerns. That said, the U.S. Government will likely continue to be cautious about Myanmar’s political trajectory and will not rush to unwind the remaining restrictions. Those on the SDN list will be removed only once they prove to OFAC that they have changed their ways.

Additionally, the Myanmar Government will also need to tackle its internal policies that are impeding the type of investment it seeks. Sanctions present one difficulty in investing in the country, but Myanmar’s own laws and policies hinder investment as well. The World Bank’s “Doing Business 2014” data ranks Myanmar at 182 out of 189 economies, just above Chad, the Central African Republic, and Eritrea. This placement centers on the ease and cost of starting up a business, a process that in Myanmar involves 11 different procedures, takes an estimated 72 days, and has paperwork costs of nearly USD 1,500. Myanmar also typically requires the minimum capital requirement of more than USD 50,000 to start a business, higher than in any other country. Myanmar ranks particularly low for “protecting investors” (182/189) and “enforcing contracts” (188/189)—a sign of absence of rule of law, tendencies toward protectionism, and difficulties in changing old mindsets and outdated policies. The government has taken steps to ameliorate these difficulties, but this will require careful balance to preserve Myanmar’s heritage and culture and protect the interests of its people while allowing foreign investors to enter the market more easily.

The respective policies of both governments aside, attracting investment also comes down to whether the people of Myanmar want it. The full scope of sanctions may eventually be lifted but that may not seem to be good news for everyone. For some, job and training opportunities, access to education, and ability to purchase once-banned products are incredibly appealing. For others, particularly local companies, there is a worry they will be unable to compete with foreign firms that bring brand names and greater quality and quantity of products. Although foreign investment can bite into the market share of local companies, responsible investors appropriately navigating the remaining sanctions, understanding the intent behind the imposition, and respecting Myanmar’s concerns and values can use their engagement to share and promote the upside of their business ventures—job creation, technical training, best practices, and increased capacity—that will bring to Myanmar the economic development and growth opportunities that the country very much needs.

Erin Murphy

Prior to founding Inle Advisory Group, Erin served as the Sepcial Assistant for the first ever Special Representative and Policy Coordinator for Myanmar. In that position, she participated in the most significant U.S policy shift on Myanmar in decades including joining Secretary Clinton on her historic trip to Myanmar in December 2011, overseeing the easing of economic sanctions, and advising and supporting the Office of the Special Representative during the unprecedented warning of U.S.- Myanmar ties. She is based in Washington, DC.

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