Despite tremendous interest in Myanmar following the lifting of sanctions, investors still face many risks as the country is in the middle of reforms on many fronts, a partner at Baker and McKenzie has warned.
"Hopefully, Myanmar will follow its promises," Nicholas F Coward said in a briefing to clients in Thailand last Friday. Companies from the United States and Asia planning to enter Myanmar "will have to do so very carefully, with full due diligence procedure and ensure that all business plans are adhered to".
Coward joined the US-Asean Business Council delegation in its visit to Yangon last weekend to discuss opportunities in Myanmar. The council was representing more than 100 major US corporations, ranging from those that have been active in Southeast Asia for more than 100 years to newcomers looking to expand their presence in one of the world’s most dynamic markets.
According to Coward, getting information on the investment climate was the foremost objective of this visit.
The United States had imposed sanctions on American citizens, companies and subsidiaries based in Myanmar, including those incorporated in Thailand. Earlier, subsidiaries with local management could do business with Myanmar, but parent companies were barred from facilitating that. US companies are now allowed to "facilitate" their subsidiaries through financial and non-financial means.
Coward, a partner in the international commerce department in Washington DC, came to Bangkok as soon as financial transactions and investment in Myanmar were officially relaxed last Wednesday. The restrictions were relaxed as a reward for reforms in the country so far, chiefly the release of political prisoners and dialogues held to end ethnic conflicts. The US relaxed its sanctions after the EU, Canadian and Australian governments made similar announcements.
Now that the controls are lifted, American companies and their subsidiaries can now venture into previously prohibited transactions – with one clear exception, no imports to the US are allowed. It is believed that this will help ease pressure on their Asian counterparts, as companies here were also subjected to these tough rules.
According to Coward, the General Licenses No 16 and No 17 now allow US companies and individuals to engage in financial transactions and investment in Myanmar. However, even though many new types of financial transactions are allowed, some restrictions remain in place to limit human-rights violations, corruption and military control.
For instance, those buying or leasing land in Myanmar valued at more than US$500,000 (Bt15.8 million) or more than 60.5 rai in size would need to file detailed reports. These reports will have to include information on what the land will be used for, the location, a summary of legal procedures and plans for resettlement of residents; financial and material compensation; and information on voluntary resettlement.
A similar report is needed for other investments exceeding $500,000. The investors are required to ensure proper security provisions to workers and compliance with human rights regulations. They also need to identify the nature of their business, persons in Myanmar at the point of contact, the property acquisition process, possible relocation of people as well as payments to government entities and state enterprises. "It’s clear that they can’t be involved with the military, ‘blocked’ entities or government officials," Coward said.
At present, all financial transactions are allowed, including insurance and transfers. However, any payments to Myanmar’s Defence Ministry or arms groups remain prohibited. Investors are also barred from doing transactions with certain Myanmar banks. To Coward, it is still dubious as to whether a US bank can process a transaction for an individual who has an account in a prohibited Myanmar bank.
Coward also warned investors the relaxation of policies still need to be explored, especially since penalties are high. Potential civil/administrative penalties could be $250,000 per transaction, or twice the value of the transaction. Denial of export privileges is the optimum penalty, while criminal penalties could rise to $1 million and 20-year jail term.
While saying that "things taking place are more than they were originally planned", Coward expects more sanctions imposed in the mid-1980s to be removed. However, this may take time because the sanctions involve 50 laws and regulations, and some require changes in legislature. He said the requirement of the reports is to ensure that human-rights violations and corruption are minimised.
"Most US companies are now very sensitive to these issues. This is to show that it’s possible to do business without paying bribery," he said, noting that this is the most extensive reporting rule ever imposed by the US.
He said human rights violations and corruption were both important, as people suffered equally from both.