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Myanmar Crisis

US sanctions on Myanmar: 5 things to know

Military-linked enterprises bear brunt, but other businesses risk public wrath

Myanmar junta leader Min Aung Hlaing, left, is among the first current and former generals sanctioned by the U.S. under a new executive order by President Joe Biden. (Photos by Reuters)   © Reuters

YANGON -- U.S. President Joe Biden has announced his administration's strongest actions to date in response to the Myanmar coup that ousted the elected government of de facto leader Aung San Suu Kyi.

Biden's executive order was quickly followed by the first sanctions, a Treasury Department move to freeze the assets of a list of coup leaders and related figures. Here are five things to know about that U.S. response and its likely effect.

What steps has the U.S. taken, and how do the new sanctions differ from previous ones?

Biden's Feb. 11 order authorizes immediate sanctions on military leaders who directed the coup, their business interests and close family members, as well as officials connected with the junta.

In addition, Biden said, the U.S. government would impose "strong export controls" and freeze U.S. assets that benefit the military regime while maintaining support for health care, civil society groups and other areas that directly benefit ordinary people. Steps are also being taken to block access by the military regime to $1 billion of government funds held in the U.S.

In line with the president's order, the Treasury Department has "designated 10 current and former military officials responsible for the February 1, 2021 coup or associated with the Burmese military regime," subjecting them to asset freezes.

Rather than broad sanctions, the new measures are targeted, focusing on the Specially Designated Nationals, a blacklist of foreign nationals and entities prohibited from entering or dealing with the U.S.

These sanctions do not appear to be a wholesale reimposition of the old Myanmar sanctions program and are not comprehensive countrywide sanctions, like those that target the Crimea region, Cuba, Iran, North Korea and Syria, according to Alexander Dmitrenko, Tokyo-based head of Asia Sanctions at law firm Freshfields Bruckhaus Deringer.

Demonstrators rally outside the Central Bank of Myanmar during a protest against the military coup on Feb. 11.   © Reuters

Who or what is affected?

The sanctions appear likely to add military generals, their families, companies, and those involved in human rights abuses and media suppression, as well as some officials of the new junta to the SDN list.

The 10 people named by the Treasury Department include junta chief Min Aung Hlaing -- who was already on the U.S. blacklist -- as well as some ministers in the new military regime.

Three corporations were also designated for being entities "owned or controlled by, or that have acted or purported to act for or on behalf of, directly or indirectly, the military or security forces of Burma:" Myanmar Ruby Enterprise, Myanmar Imperial Jade Co., and Cancri (Gems and Jewellery) Co.

The executive order will also affect many entities and people doing business with SDN-listed individuals and entities, noted Dmitrenko.

How will the sanctions work?

The order authorizes freezing all U.S.-located or U.S.-held property and interests of those sanctioned. This means that the sanctioned people and entities will not be able to access those properties under what is essentially a ban on all U.S. dealings with the sanctioned persons. Blocked property, including bank funds, are off-limits for use until authorized by the U.S. Office of Foreign Assets Control.

New export controls, meanwhile, will most likely see Myanmar nationals and entities added to the U.S. government's Entity List or "Denied Persons List." The U.S. Commerce Department's Bureau of Industry and Security administers these export controls, contained in the Export Administration Regulations.

Essentially, said Dmitrenko, targeted persons or entities are cut off from U.S. goods, software and technology, including non-U.S. ones containing any significant amount of American content. This can in effect block the targets ability to procure supplies in a wide range of industries, including telecoms, aerospace and semiconductors.

What are the entities with links to the military and why are they important to the Myanmar economy?

Myanmar's military is active in many parts of the economy via its two conglomerates, Myanma Economic Holdings (MEHL) and Myanma Economic Corporation (MEC).

Within days of the coup, two major investors said they were ending business partnerships with links to the military. Japan's Kirin Holdings has joint ventures with MEH producing one of the leading local brands Myanmar Beer, while Singapore tycoon Lim Kaling is part owner of a joint venture with military-linked Virginia Tobacco Co., the country's top cigarette maker.

Meanwhile, protesters across the country have joined an online movement to boycott products associated with the military, including Myanmar Beer and Mytel, a telecom joint venture between Myanmar and Vietnamese military companies. Some branches of supermarket chain CityMart cleared away stocks of Myanmar Beer, too.

But pressure to cut ties with companies associated with the military is not new. An earlier wave came after a United Nations fact-finding mission issued a report about the military's business links in 2019. The report documented the nature of the two military conglomerates and identified about 60 foreign companies involved in the military's business network. After the report, such multinationals as Esprit and Western Union cut ties with army-linked entities.

Since the start of Myanmar's economic reforms and liberalization in 2011, it has been possible for foreign investors to avoid military-owned companies in most sectors of the economy where they are active, such as banking, cement and telecommunications, according to the Pwint Thit Sa 2020 report published by the independent Myanmar Center for Responsible Business and consulting firm Yever.

Japan's Kirin has brewery joint ventures in Myanmar with a military-linked company.   © Reuters

What risks do the sanctions pose to business, both foreign and domestic?

"For non-U.S. companies and people, doing business in or with Myanmar -- while still feasible -- would have to be carefully assessed to avoid inadvertent violations of sanctions, which may trigger unfortunate consequences likely outweighing any benefit of continued business in breach of sanctions," Dmitrenko told Nikkei Asia. Other legal experts echoed this view.

Another consideration relates to the financial industry, particularly companies those with strong U.S. ties. They will need to ensure strict compliance with U.S. sanctions, "thus impacting payments, financing and other transactions related to Myanmar," Dmitrenko noted.

Some experts also argue that the sanctions by the U.S. and others could further push Myanmar in Beijing's orbit with its backdoor open to China. It is widely known that much of the gems produced in Myanmar are exported to China.

What risks do non-military-owned companies in Myanmar face?

Popular resistance since the coup has been aimed at military-owned companies. But as emotions among tens of thousands of protesters run high, business owners who rush to embrace the military regime could find themselves caught up in boycott campaigns supported by the public and civil society groups. Big corporate groups with consumer-facing business, such as restaurants, hotels and consumer goods makers, would be more vulnerable to these pressures.

Some Myanmar activists, such as Justice for Myanmar, have denounced businesses that appear to be "early adopters'" of the coup or are pressuring their employees from joining the civil disobedience movement.

Under the previous military regime, bans on visas to Western nations were extended to include prominent businessmen believed to depend on patronage from the military. The restriction affected their ability to strike international business partnerships. This practice may be resurrected, and lists may include those who appear willing to do the military regime's bidding.

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