An overview of U.S. MYANMAR SANCTIONS. With FAQ

Transcription

1 An overview of U.S. MYANMAR SANCTIONS With FAQ August 2016

2 Introduction Since the initial 2012 easing of U.S. sanctions on Myanmar, the country has made positive political and economic progress. Following the peaceful election in 2015, the U.S. took steps towards further easing their sanctions indicating support for sustained political reform and economic growth. While certain key restrictions remain and continue to affect commercial transactions, it is becoming increasingly easier for companies to conduct business in Myanmar. With this guide we attempt to demystify the remaining sanctions policies and explain how U.S. companies can operate in Myanmar while still observing the sanctions requirements. The historic September 2016 visit of Daw Aung San Suu Kyi to Washington to meet President Barak Obama and other government and business leaders may pave the way to further easing of restrictions. This report will be periodically updated to reflect the changing landscape. Visit www. BakerMcKenzie.com/Myanmar for our latest thinking. Who is required to comply with the U.S. sanctions? U.S. persons are directly subject to and must comply with these sanctions. U.S. persons are defined as any U.S. citizen, permanent resident (wherever located or employed), juridical person organized under the laws of the U.S. (including their foreign branches) or any person physically located in the United States, even temporarily. Non-U.S. persons are not directly subject to the prohibitions, but can still be held liable for causing a U.S. person to violate the sanctions. Prohibited Activities Ban on dealings with Myanmar Specially Designated Nationals ( SDNs ) Limited Ban on Export of Financial Services

3 Limited Ban and Reporting Requirements on Engaging In Certain New Investments Ban on certain imports of jadeite or rubies into the U.S. Ban on facilitating or causing prohibited transactions Ban on dealings with Myanmar SDNs The main focus of the remaining U.S. sanctions is on dealings with certain targeted persons or entities known as Specially Designated Nationals or SDNs. SDNs are (1) individuals or entities that are identified on the U.S. Office of Foreign Assets Control ( OFAC ) s List of Specially Designated Nationals and Blocked Persons, as well as (2) any other entities 50% or more owned by one or more listed SDNs, whether directly or indirectly, and even if not themselves listed. Virtually all direct or indirect dealings by U.S. persons with or involving Myanmar SDNs are prohibited Any property or interests in property of a Myanmar SDN must be blocked (or frozen ) if they come within the United States or the possession/control of a U.S. person (including a U.S. bank) Non-U.S. persons may be collaterally designated as SDNs if they materially support certain Myanmar SDNs No person (U.S. or non-u.s.) may export, reexport, or transfer any items (i.e., goods, software, technology) subject to U.S. jurisdiction to Myanmar SDNs. Items subject to U.S. jurisdiction include U.S.-origin items, items exported from the U.S., and non-u.s. items incorporating more than 25% controlled U.S. content by value

4 Notwithstanding these prohibitions, there are several general licenses authorizing U.S. persons to engage in certain limited transactions with Myanmar SDNs, including: A general license authorizing transactions with the following four Myanmar SDN Banks: Asia Green Development Bank, Ayeyarwady Bank, Innwa Bank, and Myawaddy Bank, subject to certain conditions A general license authorizing transactions ordinarily incident to exports of goods, technology, and non-financial services between non-sdns that may tangentially involve SDNs A general license authorizing transactions ordinarily incident to the movement of goods within Myanmar between non-sdns that may tangentially involve SDNs Limited Ban on Export of Financial Services Financial Services have a broad definition, and include, for example: funds transfers, letters of credit and other trade financing, insurance provision, investment or brokering services, banking services, and money remittance. The following remain prohibited: The provision by U.S. persons of Financial Services in connection with security services, to: the Myanmar Ministry of Defence any state or non-state armed groups any entity 50% or more owned by any of the above The provision by U.S. persons of Financial Services to a Myanmar SDN, or any entity 50% or more owned by one or more SDNs

5 Limited Ban on Engaging In or Facilitating Certain New Investments A New Investment generally refers to contracts or shares of ownership that are directly or indirectly connected with the economic development of resources located in Myanmar and includes contracts for the participation in royalties, earnings or profits from the economic development of resources located in Myanmar and contracts providing for general supervision of such development (e.g., a prime contractor). This would include, for example, mining concessions or production sharing contracts (PSCs) for the exploitation of oil reserves. Myanmar-related contracts on an arm s-length basis generally do not constitute new investments. This ban is limited to certain New Investments by U.S. persons with: the Myanmar Ministry of Defence any state or non-state armed groups any Myanmar SDN any entity 50% or more owned by any of the above Reporting requirements for New Investments Most other New Investments by U.S. persons are permitted, subject to a State Department reporting requirement: a 60-day notification if the New Investment involves the Myanma Oil and Gas Enterprise an annual reporting of New Investments exceeding USD 5,000,000

6 Ban on certain imports of jadeite or rubies into the U.S. Imports into the U.S. of jadeite or rubies mined or extracted from Myanmar or of articles of jewellery containing such items are prohibited. Ban on facilitating or causing Prohibited Transactions If an underlying transaction would be prohibited if it was entered into directly by a U.S. person, then a U.S. person is generally prohibited from helping or facilitating such a transaction. This means that U.S. persons should not approve, guarantee, finance, refer or otherwise support or be involved, even indirectly, in a Prohibited Transaction for a non-u.s. person. In addition, although not directly subject to the sanctions, non-u.s. persons may be penalized for causing a U.S. person to engage in a Prohibited Transaction. A common example is engaging in a transaction involving an SDN in U.S. dollars or using a U.S. financial institution.

7 Frequently Asked Questions What are some of the red flags I should look for when performing sanctions due diligence? Does the potential transaction involve any SDNs? Or any entities 50% or more owned by SDNs? Does the potential transaction involve any Myanmar SDN banks, i.e., Asia Green Development Bank, Ayeyarwady Bank, Innwa Bank, or Myawaddy Bank? Does the potential transaction involve the Myanmar military or any military personnel or agencies? Is there any indication of involvement of state or non-state armed groups? Does the potential transaction involve any Myanmar-origin ruby or jadeite items? Does the potential transaction involve any U.S. person (including U.S. suppliers, U.S. banks, U.S. shippers, U.S. insurers, individual U.S. persons, etc.) or transactions in U.S. dollars? How can I search the OFAC SDN list? Use the search function at sanctionssearch.ofac.treas.gov/. Remember Myanmar names can be complex, so, if possible, a date of birth should be used for reference. We would recommend conducting both a partial and full name search when using this search function.

8 I understand that a company incorporated in the U.S. or a person with U.S. citizenship is a U.S. person. Who else is considered a U.S. person? A U.S. person is defined as any U.S. citizen, permanent resident, juridical person organized under the laws of the U.S. (including their foreign branches) or any person in the U.S. Please note that a U.S. bank should be considered a U.S. person for these purposes. Individual U.S. citizens and permanent residents remain U.S. persons and individually liable even when located or employed outside the United States and even if their employer is not subject to the U.S. sanctions. Is the subsidiary or branch outside the U.S. of a company incorporated in the U.S. a U.S. person? A non-u.s. branch of a U.S. company is considered a U.S. person and fully subject to the prohibitions. However, a separately incorporated non-u.s. subsidiary of a U.S. company is not considered a U.S. person under the U.S. sanctions against Myanmar, although its U.S. parent is fully subject and may not be involved in supporting the subsidiary in any Prohibited Transactions. My company is incorporated outside the U.S., but we have a subsidiary in the U.S. Is my company governed by sanctions? No, the activities of your non-u.s. company generally would not be subject to U.S. sanctions against Myanmar, provided the U.S. subsidiary is not involved, directly or indirectly, in any of the company s Myanmarrelated transactions. Even if the U.S. subsidiary were involved, only limited categories of Myanmar-related activities would be prohibited.

9 My company is incorporated outside the U.S. but has a U.S. citizen director and officer. Is my company governed by sanctions? The activities of your non-u.s. company generally would not be subject to U.S. sanctions against Myanmar merely because you have a U.S. person director or officer. However, that individual may not be involved in, and should recuse themselves from, any transactions that involve Myanmar SDNs or are otherwise Prohibited Transactions under U.S. sanctions. Recusal is only possible where there is a non-u.s. person with existing, requisite level of authority ready to step into the shoes of the U.S. person director or officer without any action on the part of any U.S. person (e.g. no waivers and no delegations of authority by the U.S. director specifically to allow a non-u.s. alternate to approve a Prohibited Transaction.) Accordingly, recusal should be handled carefully and in accordance with pre-existing corporate policies, in order to avoid engaging in additional violations. My company is incorporated outside the U.S., but we have assets in the U.S. Is my company governed by sanctions? No, the activities of your non-u.s. company generally would not be subject to U.S. sanctions against Myanmar merely because it has assets in the United States, provided there is no U.S. involvement, directly or indirectly, in any of the company s Myanmar-related transactions. Even if there is U.S. involvement, however, only limited categories of Myanmar-related activities would be prohibited.

10 If my company is not a U.S. person and is not governed by sanctions - are there any risks in dealing with an SDN or breaching any U.S. sanctions? As a non-u.s. person, you or your company is not directly subject to the U.S. prohibitions, but you should be careful not to inadvertently cause violations by U.S. persons, e.g., do not use U.S. dollars or U.S. banks in a transaction if it involves SDNs or if the transaction would otherwise be prohibited for a U.S. person to engage in directly under U.S. sanctions. Separately, there is a risk that non-u.s. persons may be collaterally designated as SDNs if they materially support certain Myanmar SDNs; it difficult to quantify this risk, because the decision to designate SDNs is at the discretion of the U.S. Treasury Department. You should also consider whether the sanctions regimes of any other country or supra national organization (e.g. the EEC) might apply, as well as whether there are any potential reputational risks. I have heard that transactions by U.S. persons with some banks which are still SDNs are now permitted. What are those banks? There are four remaining SDN banks in Myanmar: Asia Green Development Bank; Ayeyarwady Bank (AYA Bank); Innwa Bank; and Myawaddy Bank. U.S. persons may generally engage in transactions with these four remaining SDN banks under a general license, subject to certain conditions. Can someone who is not an SDN, but has a bank account with one of the four above SDN banks, receive funds from a U.S. person or transfer funds to that U.S. person? Generally yes, provided no other SDNs are involved and the transaction does not involve previously blocked property. Direct financial transactions with the United States may continue to be subject to increased due diligence measures by U.S. banks.

11 I have heard that transactions by U.S. persons with SDN-owned ports are now permitted. Is this correct? Not entirely. Certain tangential activities involving SDNs that are ordinarily incident to exports to/from non-sdns are now permitted, which would apply to transport through SDN-owned ports. My company is a U.S. person and has been offered a commercial contract to provide the Ministry of Defence with paint on an arm s-length basis. Can my company enter into the contract? Generally yes, provided the contract is for an arm s length sale and does not involve any elements of new investment or the provision of Financial Services in connection with security services. Are there any restrictions on dealing with the Myanmar government in general? No, however caution should be exercised because some ministers or government officials might be SDNs; entering into transactions with or contracts signed by such individual SDNs may be prohibited. In addition, there remain certain restrictions on New Investments with, and the export of Financial Services to, the Myanmar Ministry of Defense. Is there any restriction on dealing with the business run by the Myanmar Military, Myanmar Economic Holdings? Yes, MEH is currently an SDN, as are any entities in which MEH has a 50% or more ownership interest, directly or indirectly.

12 If an SDN reduced its share in a company to less than 50%, can a U.S. person do business with that company? Generally yes, provided it is a bona fide share sale and not a fraudulent transaction to conceal the SDN s ownership. Caution would need to be exercised in case the SDN again increased its share in the company during the transaction to 50% or more, in which case the company would again be treated as an SDN, meaning U.S. persons would be prohibited from engaging in transactions with the SDN and would be required to block its property/interests in property. In addition, U.S. persons would need to be careful not to engage in any transactions, directly or indirectly, with the SDN shareholder even if it owns less than 50% of the company. Finally, U.S. persons should be vigilant about the company s SDN status, as companies with minority SDN shareholders are at risk of being specifically designated as SDNs. My company is a U.S. person and wishes to do business with the adult child of an SDN or a company owned by the adult child of an SDN. Can we do business? Generally yes, but due diligence should be conducted to ensure business would not be conducted indirectly with the SDN parent. In addition, caution should be exercised because the children of SDNs may be listed as SDNs in future, in which case U.S. persons would be prohibited from engaging transactions with the SDN child or its company and would be required to block any property/interests in property of the SDN child or its company.

13 Can a U.S. person stay at, eat at or have events at a hotel when: (A) The land on which the hotel is built is owned by an SDN (B) The hotel is owned by an SDN (C) The hotel is managed by an SDN (D) An SDN has contracts with the hotel owner or operator (e.g., Limousine or food supply services). Hotel stays, meals, and related activities by U.S. persons that are ordinarily incident to individual travel are generally permitted, even at SDNowned or -run hotels. (U.S. sanctions include a travel exemption allowing U.S. persons to engage in transactions even with SDNs that are ordinarily incident to individual travel, including arranging travel, accommodations and meals.) By contrast, events and conferences are generally not considered to be ordinarily incident to individual travel and can be problematic. A U.S. person generally may not book, organize or pay for an event at an SDN-owned or managed hotel. If the SDN s involvement is more tangential (e.g., it merely owns the land on which the hotel is built or has unrelated contracts with the hotel owner), then arranging an event at the hotel itself might not be prohibited as such, provided it does not involve transactions with the SDN party (e.g. as contracted caterer for your event).

14 Contact our Experts Jo Daniels Managing Partner, Yangon Tel: Fax: jo.daniels@bakermckenzie.com Alison Stafford Powell Partner, San Francisco / Palo Alto Tel: Fax: alison.stafford-powell@bakermckenzie.com Ross Taylor Partner, Yangon Tel: Fax: ross.taylor@bakermckenzie.com Read about our latest thinking on Myanmar at

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16 Baker & McKenzie has been global since inception. Being global is part of our DNA. Our difference is the way we think, work and behave we combine an instinctively global perspective with a genuinely multicultural approach, enabled by collaborative relationships and yielding practical, innovative advice. Serving our clients with more than 4,200 lawyers in more than 45 countries, we have a deep understanding of the culture of business the world over and are able to bring the talent and experience needed to navigate complexity across practices and borders with ease. Please note this overview is not intended to be comprehensive or cover every aspect of the U.S. sanctions regime in force in relation to Myanmar. Please also note that sanctions are subject to review and change. This summary should not be used as the basis for any action or inaction and must not be used as a substitute for comprehensive legal advice. August 2016 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional services organizations, reference to a partner means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an office means an office of any such law firm. This may qualify as Attorney Advertising requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.