In a recent op-ed by Simon Tay and Cheryl Tan that appeared in The Japan Times, the authors suggested that it is the United States and Europe who stand to lose if their response to backsliding political reforms in Burma is to reinstate lifted or retain existing sanctions. The authors rely heavily on the fact that China and other Asian countries have reassured Burma of their continued commitment to Burma regardless of its internal political issues. In essence, the authors state that while the West gets hung up on political issues, potential Asian trading partners are only concerned with improving business conditions, i.e. infrastructure, within Burma to maximize their opportunities.
However, these conclusions overlook the fact that many of the key economic players in Burma have remained sanctioned for their prior involvement with the military junta or for their current anti-democratic or corruption-related activities. The impact of those sanctions will prevent any wide-scale improvement to Burma’s infrastructure and business viability, which the authors of the op-ed claim are the only things concerning Burma’s Asian trading partners.
Targeted sanctions have been in place in one form or another against these specific Burmese persons pursuant to Executive Orders 13310, 13448, 13464, and 13619. So even when country-based sanctions were lifted by the United States, those individuals appearing on the Office of Foreign Assets Control (OFAC) administered Specially Designated Nationals and Blocked Persons list (SDN List) have largely remained blacklisted from the U.S. economy and financial system.
U.S. persons are prohibited from undertaking virtually all direct or indirect transactions with SDNs. Moreover, U.S. persons are prohibited from transacting with entities owned at least 50 percent or controlled by SDNs regardless of whether the entity itself is listed in the annex to an executive order or otherwise placed on OFAC’s SDN List. The reason this is problematic is because the Burmese persons appearing on the SDN List own and control much of the country’s infrastructural and developmental capabilities. So even though a particular company or entity is not on the SDN List, there is still an appreciable risk that a U.S. person is prohibited from transacting with it.
Furthermore, U.S. persons are prohibited from facilitating any new investment in Burma if it involves an SDN or blocked entity not appearing on the SDN List. Prohibited facilitation includes “approving, financing . . . or guaranteeing a transaction by a person who is a foreign person where the transaction by that foreign person would be prohibited.” See 31 C.F.R. Section 537.205(a).
For example, the presence of U.S. persons on the boards of foreign companies seeking to transact with a blocked Burmese entity may expose both the U.S. board member and the foreign company to sanctions liability, especially if that U.S. person must approve or vote on the transaction. Hence the continued reluctance of many major foreign companies to invest in Burma’s infrastructure. This reluctance spreads across many companies located throughout Asia, including Korea, Japan, Hong Kong, and Singapore, who have significant shareholders, board members, and senior corporate officers who are U.S. persons. This is just one example of how U.S. sanctions impact foreign companies with limited ties to the United States.
Chinese companies do not face the kind of sanctions exposure described above (e.g., facilitation, etc.). Thus China has been one of Burma’s largest investors for many years, out-investing the United States many times over. Yet Burma’s infrastructural problems, i.e. lackluster business conditions, have persisted throughout the pre and post country-based sanctions eras. What becomes clear is that Burma needs more than just Chinese investments to effectuate an overhaul of its infrastructural and business capabilities.
Therefore, in many ways Burma’s future viability as a business opportunity for Asian companies is very much tied to its internal political reforms for as long as the United States conditions any future sanctions relief to such political reforms. With recent headlines informing the world of OFAC’s multibillion dollar fines against foreign sanctions evaders, many risk averse companies in both the West and Asia will likely wait on the sidelines until the coast is clear. However, those daring enough to currently invest in Burma should take care to be both legally and factually comprehensive in their due diligence.
Disclaimer: Blog posts should not be relied upon as legal advice and are only provided for informational purposes. Information contained in blog posts may also become outdated with the passage of time as laws change and U.S. foreign policy and national security objectives evolve.