In an effort to recognize substantial political reforms in Burma, the U.S. Government has enacted measures that dramatically ease the Burmese Sanctions Regulations ("BSR") that has been in place for over 15 years. On July 11, 2012, the Treasury Department's Office of Foreign Assets Control ("OFAC") authorized new investments and the exportation of U.S. financial services into Burma for the first time since 1997 and 2003 respectively through the issuance of two new general licenses. OFAC's decision to amend the sanctions program through general licenses (which can be altered or revoked at any time), rather than modifying the BSR, places the United States in a position to revert quickly to the more comprehensive sanctions program should the political climate in Burma deteriorate. Thus, although these changes open the door to significant new business opportunities, companies should continue to ensure compliance and monitor developments.
In conjunction with these actions, OFAC added two new entities to the list of blocked parties under its Specially Designated Nationals ("SDN") list: the Directorate of Defence Industries ("DDI") and INNWA Bank. The President also issued Executive Order 13619, which maintains the Treasury Department's authority to block any new entities that threaten the peace, security, or stability of Burma. The U.S. import ban on products from Burma, as well as dual-use export controls administered by the Commerce Department's Bureau of Industry and Security ("BIS"), remain unchanged. As before, no defense articles or services subject to the International Traffic in Arms Regulations ("ITAR") can be exported or re-exported to Burma.
On the same day that OFAC released the two new general licenses, the State Department published draft reporting requirements relating to investment in Burma. As detailed below, the State Department intends to require that companies whose aggregate new investments exceed $500,000 submit annual reports every April 1st. Among the proposed requirements, the State Department is asking companies to include concise summaries of their local and global anti-corruption policies and procedures, citing to the OECD Guidelines for Multinational Enterprises section on Combating Bribery, Bribe Solicitation and Extortion and the OECD Good Practices Guidance on Internal Controls, Ethics, and Compliance as sources of best practices standards. The State Department is also asking companies to disclose annual payments exceeding $10,000 to government entities. While the precise contents of the annual reports are subject to change when the requirements are finalized, the requirement to report has already been put into place through OFAC General License No. 17.
Below are summaries of key points relating to the two OFAC general licenses and the proposed reporting requirements from the State Department.
General License No. 16:
- The new general license supersedes General License No. 14-C and General License No. 15.
- Authorizations – The general license authorizes the exportation and re-exportation of "financial services" to Burma, except when involving the provision of "security services" to the Burmese Ministry of Defense ("BMD"), any state or non-state armed group, or any entity in which the BMD or an armed group has a 50% or greater ownership interest.
- Definitions – The term "security services" is not defined in the general license. Therefore, it is not clear when exports or re-exports to these groups may be limited. The definition of "financial services" remains the same as it was under the BSR and includes, direct or indirect: transfers of funds to Burma; provision of insurance services, investment or brokerage services, banking services, money remittance services; loans, guarantees, letters of credit or other extensions of credit; or the service of selling or redeeming traveler's checks, money orders and stored value.
- Blocked Parties – Generally, this license does not authorize the provision of financial services to any blocked party on the SDN list. However, it allows for the transfer of funds to and from an account of a financial institution that is blocked under the Burma sanctions program, so long as the account is not on the books of a U.S. financial institution. For example, while a U.S. person may not transact with a blocked Burmese bank directly, it may transact with a bank located in a third country that maintains a correspondent account with a Burmese bank. The general license does not authorize any debit to a blocked account.
General License No. 17:
- Authorizations – This general license authorizes "new investment" in Burma by U.S. persons, except pursuant to agreements entered into with the BMD, state or non-state armed groups, entities owned (50% or more) by the forgoing groups, or any party on the SDN list.
- Definitions – The definition of "new investment" remains the same as it was under the BSR and generally includes activities involving the economic development of resources. New investments do not include the sale of goods, services, or technology in many cases where there is no development of resources.
- Reporting Requirement – The general license requires exporters and re-exporters to adhere to the State Department's reporting requirements.
Proposed Reporting Requirements:
- Investments with MOGE – New investments pursuant to any agreements with the Myanma Oil and Gas Enterprise ("MOGE") must be disclosed to the State Department within 60 days.
- Investments of more than $500,000 – New investments of more than $500,000 in the aggregate must be disclosed in an annual report submitted every April 1st to the State Department, including one public version and one non-public version.
- Annual Report Contents – Key elements of the required annual report currently include the following:
- An overview of operations in Burma;
- Copies of or a concise summary of both local and global anti-corruption policies and procedures or a statement that the company has no such policies or procedures;
- Information regarding aggregate annual payments exceeding $10,000 to Burmese government entities, including state-owned enterprises;
- Due diligence measures and policies and procedures on human rights, worker rights, and environmental compliance;
- Risk mitigation measures implemented to address risks identified through due diligence (non-public report);
- Arrangements with security providers;
- Information about property acquisition; and
- Communications with Burmese military (non-public report).
As companies begin considering new business opportunities in Burma, they should perform careful due diligence in compliance with U.S. export and sanctions controls (including SDN screening, review for red flags, and product control checks), as well as the State Department's new reporting requirements. Any new contracts entered into should allow for cancellation without penalty in situations where the United States amends or revokes the general licenses.
Potential FCPA Implications and Opportunity to Comment
On July 13, 2012, the U.S. Department of Justice ("DOJ") posted an alert about the sanctions developments, indicating its commitment to enforcing the Foreign Corrupt Practice Act ("FCPA") in Burma. However, there has been no indication from OFAC or the State Department that they intend to share information from the annual reports with the DOJ. Given the unprecedented inclusion of anti-corruption disclosure requirements regarding payments to government entities and internal controls, the developments in this sanctions program will likely have important implications for the compliance community.
The State Department has announced in a joint press release with OFAC that it intends to issue a public notice in the coming days regarding the reporting requirements. The notice will likely announce a 60-day period for public comment. Miller & Chevalier is closely following developments and will publish additional updates as they become available.
Companies are well advised to seek counsel upon publication of the Federal Register notice and raise any concerns with the State Department. One important question is the extent to which OFAC and the State Department will collaborate with the DOJ to pursue investigations into companies that appear to have inadequate anti-corruption policies and procedures or questionable payments to Burmese government entities.
For more information, please contact:
John Davis, email@example.com, 202-626-5913
James Tillen, firstname.lastname@example.org, 202-626-6068
Annie Wartanian Reisinger