No Clean Bill of Health Yet for Burma’s Anti-Money Laundering Drive

By Simon Roughneen 14 February 2014

RANGOON — Burma looks set to get a new law to counter money laundering soon, but the country still faces numerous challenges in curbing financial crimes.

On Thursday the Upper House passed the Anti-Money Laundering Bill, which will next go to the Union Parliament, where Burma’s Lower House and Upper House sit in joint session. Once the bill clears the Upper House it will go to President Thein Sein for sign-off.

The bill suggests punishments of up to 10 years in jail and a 500 million kyats fine (US$500,000) for money laundering convictions, and is the latest in a series of financial reforms that aim to make Burma a more reputable investment destination.

Thurein Aung, a senior investigator at Burma’s Financial Intelligence Unit (FIU), part of the Ministry of Home Affairs, which led the anti-money laundering bill’s drafting, described the passing of the measure as significant.

“It is very important for Myanmar,” he told The Irrawaddy. “The old anti-laundering law [from 2002] contained a lot of loopholes and was not up to international standards.”

However, insiders say that as Burma’s financial system integrates more with the outside world, institutions such as banks and governments will need to be more cognizant of possible laundering from abroad.

“The money laundering monitoring system in Myanmar [Burma] is very weak, there are many ways to launder money in Myanmar,” said Soe Thein, executive director of the share management department at Asia Green Development Bank (AGD), when asked by The Irrawaddy whether he thought the anti-laundering bill would prove effective once passed into law.

“It is about enforcement as much as having a law,” he added, discussing the challenges of curbing money laundering. AGD Bank is owned by Tay Za, a Burmese entrepreneur who was close to the country’s former military junta and remains under US sanctions.

As well as legislative reform, there is a need for more awareness of possible laundering among officials and workers at financial institutions, and a firmer grasp of how to recognize the signs of possible financial crime.

“There is knowledge within directorates of government departments and upper levels banks, but it doesn’t always filter down,” said Sett Hlaing, legal counsel to the Kanbawza Group, the parent company of one of Burma’s main banks, KBZ, and a participant in a British Embassy-backed anti-money laundering training event in Rangoon.

Matthew Hedges, chargé d’affaires at the British Embassy in Rangoon, warned in a press release that Burma could be vulnerable to money laundering and other financial crimes.

“The UK is committed to preventing this—committed to working with you to ensure that the right systems are in place to protect your economic reform process,” Hedges said.

The training, which covered countering terror financing as well as anti-money laundering, was given to an audience of police, government officials and bank representatives by GovRisk, a London-based training and consultancy company, and followed a similar event held in the capital Naypyidaw.

But new anti-laundering measures aside, some of Burma’s other projected reforms could, in turn, attract would-be money launderers. A tourism blueprint drawn up last year by the Burma government and the Asian Development Bank (ADB) moots legalizing casinos—a possible pull for tourists akin to gambling draws such as Macau and Singapore—and part of government hopes to attract 7 million tourists annually by 2020.

“Casinos get special and high attention in any risk analysis,” said Gert Demmink, a former head of supervision at the Netherlands Central Bank and now managing partner at Philip Sidney, a firm based in the Netherlands which advises businesses on legal compliance.

Casinos have long been a feature of some of Burma’s ethnic militia-controlled borderlands close to Thailand and China, with the gambling dens functioning as a revenue source for groups that have fought the Burma Army off and on for up to seven decades, but they remain banned in areas under government control.

“If you are going to have casinos, you better make sure you are in line with FATF regulation first,” Demmink told an audience of businesspeople, bankers, lawyers and government officials in Rangoon on Friday, referring to the Financial Action Task Force.

The FATF is an intergovernmental body set up in 1989 that aims to “promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.”

There are other potential loopholes to implementing an effective anti-money laundering regimen in Burma. In the absence of a viable banking system, many Burmese—particularly emigrants remitting money from Thailand or Malaysia to family in Burma— have relied on informal money transfer mechanisms, such as the hundi system.

“I cannot say specifically whether it is a money laundering issue, but there should be licensing, oversight and supervision where money transfers are concerned,” Demmink told The Irrawaddy.

“Anything unlicensed or unregulated is a threat,” he cautioned, when asked about the hundi system.

Underground banking systems have their disadvantages, including lack of enforcement, said Thurein Aung of Burma’s FIU, discussing hundi. “For villagers and people in the countryside, how can they conduct with the formal banking system?” he added, saying that for Burmese, informal money transfer systems, such as the hundi, remain a vital lifeline for rural families who live far from any bank and depend on money sent back from family abroad.

There seems to have been international pressure on Burma during recent months to make progress with anti-money laundering efforts, and both Thein Sein and Parliament Speaker Shwe Mann have discussed the need to pass legislation.

An October 2013 FATF statement listed Burma as one of 11 countries with “deficiencies that pose a risk to the international financial system,” though it commended the country for improving its Anti-Money laundering (AML) and Combatting the Financing of Terrorism (CFT) procedures. The worst rankings were reserved for Iran and North Korea, countries described as causing “ongoing and substantial money laundering and terrorist financing (ML/TF) risks.”

Burma is not one of the 34 FATF member states, but is part of the Asia/Pacific Group on Money Laundering (APG), a FATF associate member. In November 2013 a joint visit to Burma by the APG and the International Monetary Fund (IMF) recommended the swift enactment of a new anti-money laundering law, which the APG said “would address many concerns expressed by the APG and the FATF in the context of the pace of Myanmar’s AML/CFT reforms.”

An official at the Attorney General’s Office, who spoke on condition of anonymity, said that getting the anti-money laundering bill passed into law was important given a Feb. 10-14 meeting of the FATF and whispers of possible sanctions by the task force against Burma if the country did not improve its anti-money laundering regime.

“It is not in law yet, but it was timely that the Upper House passed the bill this week,” the official told The Irrawaddy.