United States: New OFAC Licenses Ease Certain US Economic Sanctions Against Burma

Originally published on July 17, 2012

Keywords: OFAC licenses, economic sanctions, US, Burma, general licenses

On July 11, 2012, the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury issued General License Nos. 16 and 17 (General Licenses) related to US sanctions against Burma. Subject to certain limitations and requirements, the General Licenses lift the broad bans against US investments in Burma and the export of US financial services to Burma that had been in place for 15 years. OFAC simultaneously, however, tightened certain other constraints on US business dealings with Burma.

The United States first imposed sanctions against Burma in 1997, in the aftermath of the Burmese government's crack-down on the country's prodemocracy opposition.¹ In recognition of the progress on political reforms the Burmese government has made since 2011, the Obama administration has implemented several measures in 2012 to ease US economic sanctions on Burma. For example, General License No. 14- C, issued by OFAC in April 2012, allowed certain financial transactions in support of humanitarian, religious, and other not-for-profit activities in Burma.² The most recent General Licenses constitute so far the most expansive easing of US sanctions on Burma, although various restrictions remain in place.

Prior to July 11, 2012, the Burmese Sanctions Regulation (BSR) prohibited new investments in Burma by US persons, as well as the exportation of financial services to Burma from the United States or by US persons, wherever located. General License No. 16 authorizes such direct or indirect "exportation and reexportation of financial services to Burma," as the term is defined at 31 C.F.R. § 537.305. General License No. 16 replaces and supersedes General License No. 14-C and General License No. 15, which granted a limited exception for non-commercial personal remittances.³ General License No. 17 permits "new investment" in Burma, as defined at 31 C.F.R. § 537.311, which includes the development of the country's economically valuable resources.⁴

Both General Licenses specify two limitations on their application. First, the authorizations under the General Licenses, for the most part, do not apply to transactions with the following entities:

(i) the BurmeseMinistry of Defense, including the Office of Procurement; (ii) any state or nonstate armed group; or (iii) any entity in which any of the foregoing owns a 50-percent or greater interest. Second, both General Licenses leave in place the prohibitions on business transactions with any person whose property and interests in property are blocked under the BSR (i.e., listed on the Specially Designated Nationals (SDN) List), including entities in which such blocked person owns a 50-percent or greater interest.

General License No. 16 carves out a limited exception to allow for transfers of funds to or from an account of a blocked Burmese financial institution, on the condition that the account of the blocked entity must not be maintained on the books of any US financial institutions. As a result, US financial institutions are still prohibited from dealing directly with Burmese banks blocked under BSR; however, payments in US dollars may be routed through correspondent accounts of these blocked entities at non-US banks, provided that the payment concerned does not involve a debit to a blocked account.

General License No. 17 incorporates into its compliance obligations the US State Department's new Burma-specific reporting requirements. The new reporting requirements, which are set forth in Reporting Requirements on Responsible Investment in Burma (Responsible Investment in Burma), consist of two parts: the Annual Reporting Requirement and the Myanma Oil and Gas Enterprise (MOGE) Investment Notification.⁵ According to a Joint Fact Sheet issued by the Treasury and State Departments, the reporting requirements apply to any new investment in Burma, "whatever corporate form it might take."⁶ Both components of the Responsible Investment in Burma will be subject to public notice and comment.

Under the Annual Reporting Requirement, any US individual or entity that engages, pursuant to General License No. 17, in new investment in Burma that exceeds an aggregate of US$500,000 is required to file an annual report with the State Department, both in public and proprietary versions. The public version of the annual report must include the following information: (i) the name of the reporting person, (ii) an overview of the person's operations in Burma, (iii) the person's policies and procedures related to human rights, workers' rights, anti-corruption, and environmental issues, (iv) arrangements with security service providers, (v) details regarding significant property acquisitions, and (vi) any payments exceeding US$10,000 to a governmental entity in Burma. The proprietary version of the annual report must disclose the following: (i) the name and contact information of the person responsible for preparing the report, (ii) information regarding certain communications with the armed forces of Burma or any other armed groups, and (iii) risks identified in connection with the reporting person's due diligence on human rights, worker's rights, and/or environmental policies and procedures. Under theMOGE Investment Notification requirement, US individuals or entities undertaking new investment pursuant to an agreement, or pursuant to the exercise of rights under such an agreement, withMOGE must notify the State Department in writing within 60 days of the new investment.

On the same day as the issuance of the General Licenses, President Obama published an Executive Order authorizing the designation as SDNs of those individuals and entities that threaten the peace, security, or stability of Burma, that are responsible for or complicit in the commission of human rights abuses in Burma, or that conduct certain arms trade with North Korea. Simultaneously with the release of the General Licenses, two entities were added to the SDN list: the Directorate of Defense Industries (DDI) was designated pursuant to the new Executive Order for its arms dealings with North Korea, while Innwa Bank was designated pursuant to existing authorities, as an entity that is indirectly owned or controlled by the Burmese Ministry of Defense.⁷

The General Licenses substantially ease the restrictions on Burma-related business transactions. However, they are not a carte blanche for affected businesses to deal with Burmese partners. Many restrictions and prohibitions remain in place for US investments in Burma or for providing financial services to Burma. For example, all importations from Burma to the United States, with limited exceptions, are still prohibited by the BSR.⁸ The eased restrictions on US investments and on the exportation of US financial services are subject to certain limitations under the General Licenses. In addition, reporting obligations are created for certain authorized activities under General License No. 17. As a result, companies potentially subject to US sanctions must still take care in considering possible business opportunities in Burma to ensure compliance with these new requirements.

Footnotes

1 See Burmese Sanctions Regulations at 31 C.F.R. Part 537.

2 OFAC, General License Authorizing Certain Financial Transactions in Support of Humanitarian, Religious, and other Not-for-Profit Activities in Burma (April 17, 2012), available at http://www.treasury.gov/resourcecenter/sanctions/OFACEnforcement/Pages/20120417.aspx .

3 OFAC, General License No. 16 (July 11, 2012), available at http://www.treasury.gov/resourcecenter/sanctions/Programs/Documents/burmagl16.pdf .

4 OFAC, General License No. 17 (July 11, 2012), available at http://www.treasury.gov/resourcecenter/sanctions/Programs/Documents/burmagl17.pdf .

5 US Department of State, Reporting Requirements on Responsible Investment in Burma (July 11, 2012), available at http://www.humanrights.gov/wpcontent/uploads/2012/07/Burma-Responsible-Investment-Reporting-Reqs.pdf .

6 Joint Fact Sheet from US Treasury and State Departments, Administration Eases Financial and Investment Sanctions on Burma, available at http://www.treasury.gov/presscenter/press-releases/Pages/tg1633.aspx .

7 US Department of State & US Department of the Treasury, Administration Eases Financial and Investment Sanctions on Burma (July 11, 2012), available at http://www.humanrights.gov/2012/07/11/burmaresponsibleinvestment .

8 Also, the current Financial Crimes Enforcement Network's ("FinCEN") 311 SpecialMeasures on Burma prohibit US financial institutions from opening, maintaining, or operating correspondent or payable-through accounts with banks in Burma, subject to certain exceptions.

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