Myanmar investment: US and EU reporting requirements explained

Author: Ashley Lee | Published: 13 Sep 2012
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Although Myanmar’s Parliament passed a foreign investment law last week, multinationals may find that there are investment hurdles closer to home in the US’ reporting requirements and the EU’s recently lifted sanctions.

While Myanmar’s natural resources and population are highly attractive, corporates in the US and EU must tread carefully to comply with both domestic and home country law.

The New York Department of Financial Services’ actions regarding Standard Chartered’s transactions in sanctioned Iran is a reminder of the importance of staying in line with international compliance laws.

“Before leaping ahead into a project, multinationals should spend the time learning about the market to avoid being blindsided by domestic or international law,” said Michael Aldrich, managing partner at Hogan Lovells Ulaanbaatar.

US reporting requirements

On July 11 the White House formally eased US sanctions on Myanmar. But significant restrictions on investment remain.

A State Department fact sheet says that US persons are prohibited from investing with the Burmese Ministry of Defense, state or non-state armed groups.

But counsel have warned multinationals may find this difficult due to the military’s influence and involvement in the private sector. Mark Lehmkuhler, partner at Davis Polk & Wardwell Hong Kong said this restriction would continue to be a thorny issue.

Moreover US persons cannot deal with Specially Designated Persons (SDNs) or any entity in which an SDN has a majority stake. Blocked persons are listed by the Treasury Department’s Office of Foreign Assets.

Many have complained that the SDN list is out of date and that SDNs with government and military connections control many of Myanmar’s valuable companies. For example well-known Myanmar company Max Myanmar Group is owned by SDN and businessman U Zaw Zaw.

Sources are unconcerned. Although it may be inconvenient, Aldrich said that it is possible to consider what sort of ancillary business transactions are viable within the scope of US transactions.

For example, if the Myanmar aviation sector consists of companies that have contacts with the former military regime, it is possible to handle related transactions under the US sanctions regime, such as aircraft financing, spare parts, aviation fuel distribution or catering.

“The opportunities are limitless but in each instance, an investor will need to obtain proper guidance from US trade law specialists,” added Aldrich.

But the reporting requirements also pose due diligence hurdles. The announcement requires companies to include information regarding policies and procedures with respect to human rights, workers’ rights and environmental stewardship among others.

But standards in relation to environmental stewardship and human rights are not well-defined.

Regardless counsel have warned that extensive due diligence will be required in certain sectors, such as energy and natural resources.

“Although some of the most attractive potential investments involve energy and natural resources, making investments in these sectors will be complex as there have been extensive allegations of environmental and human rights associated with these issues,” Lehmkuhler added.

Surprisingly there are few restrictions on investing with national oil and gas company Myanmar Oil & Gas Enterprise (MOGE), which has a history of corruption and lack of transparency. While US persons can invest with MOGE, they must report all transactions within 60 days.

Aside from reporting requirements, counsel frequently mentioned related laws, such as the US Foreign Corrupt Practices Act (FCPA). IFLR sources have said that FCPA compliance is the biggest barrier to Southeast Asian deals. Myanmar is no different: Transparency International ranks the country 180 out of 183 in its Corruption Perceptions index.

EU Sanctions

In May 2012 the Counsel of the European Union suspended sanctions on Myanmar for one year to encourage the country to continue its reform process.

Paul Kreijger, head of the Dutch EU and competition practice of Linklaters, said that before suspension, the latest version of the sanctions date from 2008 and are more focused than US regulations. Although they only concern specific sectors and listed persons and entities, many of them likely overlap with those listed by the US.

He also noted that the regulation provides for a limited transitional regime regarding the prohibition on financing or otherwise cooperating with listed entities. “If an EU person is financing an entity or person that is not listed, but later becomes listed, they can continue to meet their obligations, though certain reporting requirements apply,” he added.

All sanctions have been lifted until May 2013, and there are no reporting requirements other than what is required by the EU for all transactions – a decision facilitating European investment in Myanmar.

But questions remain. If the sanctions are reinstated after investors make use of the opportunity, the regulations are uncertain. Kreijger said that he did not have an answer. “As far as the EU is concerned, it’s not possible to tell what will happen in May 2013,” he said.

US/EU comparison: different policy goals

Sources agreed that EU’s sanctions suspension is much less restrictive than the US reporting requirements. However that may be due to the US’s sanctions regime, which was stricter to start with and therefore more difficult to unravel.

Moreover the loosening of sanctions is closely related to policy goals. Aldrich explained, the US would like to keep pressure on the Government of Myanmar for further positive change whereas the Europeans seem to be looking forward to a new day of engagement.

Ultimately counsel agreed that multinational corporations should apply the same common sense standards and techniques they follow in their home countries. “This is just good business,” said Aldrich.

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