On 17 May 2021, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued an additional round of sanctions pursuant to Executive Order 14014 “Blocking Property with Respect to the Situation in Burma” (“EO 14014”). It designates and adds the State Administrative Council (SAC), four individual members of the SAC, seven SAC-appointed ministers, the SAC-appointed governor of the Central Bank of Myanmar (CBM), the SAC-appointed chairman of the Union Election Commission and three other individuals who are the children of existing members of the SAC to the Specially Designated Nationals (SDN) list.
This client alert discusses some of the legal implications of the latest round of measures and their impact on businesses’ day-to-day operations in the country, including their dealings with ministries or government agencies that are headed by an SDN.
The sanctions imposed by the US and several other countries to-date target designated individuals and entities and do not specifically prohibit dealings with Myanmar or the Government of Myanmar in general, neither do they restrict investments or the export of financial services to Myanmar.
In particular, the latest sanctions imposed on 17 May 2021 do not prohibit day-to-day interactions with a ministry or government agency that is run by a designated individual on the SDN list. Businesses that qualify as “US Persons” or who wish to involve “US Persons” in transactions should nonetheless exercise prudence and ensure they do not enter into any contracts that are signed by the SDN or engage in direct negotiations with the SDN, and should be alert to any approvals or awards that require sign-off by an SDN official. Each business operator will have a different risk profile depending on its industry, engagement with relevant authorities and specific operations in the country. We recommend that concerned businesses should seek legal advice in respect of their compliance with the sanctions.
As the situation in Myanmar continues to evolve, it is important for businesses which are operating, or intend to invest, in Myanmar to monitor developments and assess how such changes could impact their existing compliance guidelines.
At the outset, it is important to highlight that “US Persons” are generally prohibited from engaging in transactions involving both listed SDNs and any entities 50% or more owned by these SDNs (even if not themselves listed). Transactions involving property of an SDN that comes within the United States or within the possession of control of a US Person must be blocked. This includes, e.g., contracts, funds, etc.. The term “US Persons” includes (i) entities organised under US laws and their non-US branches, (ii) individuals or entities in the United States, and (iii) US citizens or permanent resident aliens (“Green Card” holders) wherever located or employed.
Non-US persons should be mindful that they can be directly liable for causing violations by US Persons involving these SDNs (for example, by involving US banks or US dollars in a transaction with an SDN). Non-US persons also face the “secondary sanctions” risk of designation as an SDN themselves if found to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, another SDN.
Generally, unless authorised by a general or specific licence issued by OFAC or otherwise exempted, all transactions by US Persons which involve any property of SDNs are prohibited. The prohibitions would include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any SDN or the receipt of any contribution or provision of funds, goods, or services from such SDN.
We do not view OFAC’s recent designation of the SAC as an SDN as automatically tainting all dealings with the overall Government of Myanmar. Under EO 14014, ‘‘Government of Myanmar’’ is defined to mean the Government of Myanmar, any political subdivision, agency, or instrumentality thereof, including the CBM, and any person owned or controlled by, or acting for or on behalf of, the Government of Myanmar. In announcing the 17 May sanctions, OFAC expressly provided that the SAC is designated for being “a political subdivision, agency, or instrumentality of the Government of Myanmar”. The broader Government of Myanmar has not been placed on the SDN list or been blocked (as has happened with certain other governments such as those in Cuba, Iran, North Korea, Syria, and Venezuela). As such, in the absence of specific sanctions on the Government of Myanmar, the 17 May sanctions do not restrict US Persons from making any contribution or provision of funds, goods or services to the Government of Myanmar unless it is clear that any such contribution or provision is to or for the benefit of any SDNs. This would include the fulfilment of any tax obligations by US Persons, if applicable.
Similarly, with regard to any departments/agencies run by individual SDNs, the mere fact that a department/agency is headed by an SDN individual does not taint the overall non-SDN department/agency. By and large businesses should be able to continue their day-to-day interactions with the relevant departments/agencies without being in violation of the 17 May sanctions. US Persons should, however, take the necessary precautions to ensure that they do not enter into (a) contracts that are signed by an SDN, (b) direct negotiations with the SDN, or (c) obtain an approval or licence from an SDN, which may be classified as a violation of the sanctions. Each business will have a different risk profile based on its specific operations and usual practice of engagement with officials of the department/agency.
Apart from the designation of individuals and entities on the SDN list, the US has taken other measures in response to the ongoing situation in Myanmar, including imposing additional export controls. On 17 February 2021, the US Commerce Department’s Bureau of Industry and Security (BIS) issued a notification that it will apply a presumption of denial for licence applications for the export and re-export by anyone of items subject to US jurisdiction to Myanmar’s military and security services. In addition, BIS revoked certain previously issued licences and suspended certain licence exceptions previously available to Myanmar. Subsequently, on 8 March 2021, BIS imposed new licence requirements for exports/reexports by anyone of certain items subject to US jurisdiction with knowledge that they are destined to a “military end-use” or “military end-user”, and on 9 April 2021 added to that exports/reexports of any items subject to US jurisdiction for “military intelligence” end-uses or end-users. Accordingly, the export to Myanmar of a greater swath of products will now be restricted as BIS continues to consider other ways to impose “strong export controls” on the country pursuant to EO 14014. Businesses should consider whether they would be affected by these export control measures.
In view of the latest sanctions, concerned businesses should seek legal advice in respect of their existing compliance guidelines. It also bears highlighting that several other countries including the EU, New Zealand, Canada and the UK have also imposed similar sanctions and businesses should also be mindful whether they are required to comply with any of these other sanction programmes.
- US Government Imposes Sanctions Against Burma – Sanctions & Export Controls Update
- US Government Sanctions Burmese Military Conglomerates, Issues Wind-down and Humanitarian General Licenses and Tightens Export Controls for Burma (Myanmar) – Sanctions & Export Controls Update
- US Commerce Department Extends Military-Intelligence End-Use and End-User Controls to Burma –Sanctions & Export Controls Update