Shedding Some Light on the Blacklist

By Simon Lewis 28 March 2014

RANGOON — Although most economic sanctions applied by the United States against Burma have been suspended, a number of businesspeople and companies with ties to the former military regime, or to arms or drug trafficking, remain sanctioned.

The Specially Designated Nationals and Blocked Persons (SDN) list held by the US Treasury Department’s Office of Foreign Assets Control (OFAC) keeps a record of who is still blacklisted. Some Burmese government officials have been removed from the list since US-Burma relations improved under the government of President Thein Sein, but many so-called cronies who worked closely with the military government during years of isolation remain listed.

Companies with operations in America that want to work in Burma must therefore be cautious about linking up with the wrong people, or face prosecution in the United States.

Eric Rose is lead director of Herzfeld Rubin Meyer and Rose, an American law firm with an office in Rangoon that provides advice both to US firms working in the country and to locals dealing with the implications of the SDN list.

Rose answered The Irrawaddy’s questions by email, covering in his responses US companies’ duties in relation to the SDN list, a recent case where an exception was required to deal with Air Bagan owner Tay Za, and efforts by Burmese to have themselves taken off the list.

Eric Rose, lead director of Herzfeld Rubin Meyer and Rose.
Eric Rose, lead director of Herzfeld Rubin Meyer and Rose.

Question: Have there been any recent changes to the way the SDN list is being enforced, in general and specifically relating to Burma in light of the suspension of other sanctions?

Answer: As you know, the US sanctions have been partially suspended, but they remain in effect against most SDN-listed parties. One major exception is the issuance a year ago of OFAC Burma License 19, which allows financial transactions with four SDN-listed banks. Nevertheless, there have been indications that, for the first time, OFAC will consider favorably the receipt of applications for de-listing from a number of Myanmar SDNs, and several have already applied. There has been only one private Myanmar SDN de-listed (other than government officials), and the list was enlarged with several names last year. Issues concerning deals with North Korea have been at the core of the new listings.

Q: How much due diligence relating to the SDN list are US companies required to conduct ahead of entering with a local partner in Burma? If a link to a named individual or company comes to light later, what must the company do?

A: Any investor in Myanmar has to understand the market it enters and wisely choose whom to do business with. As Myanmar is considered a ‘frontier’ market, the foreign investor has to take the time to learn the market, investigate opportunities and be present in Myanmar when the right time comes. Due diligence is an essential aspect of this long-term effort, which should not cease once a party has conducted the preliminary investigation. Doing due diligence under these circumstances is an art form, not a mechanical exercise. An American individual or company which suddenly finds out that, despite his/its best due diligence efforts, he/it has failed to uncover relevant information has several ways to deal with the issue, in particular in light of the audit, compliance and reporting requirements it has to comply with.

Q: How can US companies apply to OFAC for an exception to deal with an SDN-listed party?

A:We have extensive experience in dealing with such filings for an OFAC license. For example, Air Bagan is an SDN-listed company. US citizens and businesses are prohibited from dealing with both SDNs, as well as with any entities 50 percent or more owned by an SDN. Last year, we secured in record time (five weeks) a license from OFAC in order to defend the rights of two passengers who were grievously injured in the crash at Heho airport…. Subsequently, Air Bagan’s lawyers asked us to also secure an OFAC license for them, which we did in three weeks. The process requires a lot of interaction with the US Treasury Department and the State Department, and a specialized knowledge of how to handle such license applications.

Q: How does OFAC treat US companies that negotiate with listed individuals who may be still on—but expected shortly to be removed from—the SDN list?

A: This is like saying that someone can be half-pregnant. Not possible, right? Consequently, a US party should refrain from having any private contact with a SDN-listed party without an OFAC license. The penalties can be enormous: US$250,000 or more for an administrative sanction, and, upon conviction, over $1,000,000 in criminal penalties, plus imprisonment up to 20 years, or both, for those engaging in intentional violations of the Burmese Sanctions Regulations or Executive Orders concerning Myanmar.

Q: How do listed individuals get off the list? Can good deeds—like setting up a charitable foundation, for example, as some cronies have done—go some way to changing the US Treasury’s view?

A: OFAC will look, first and foremost, at whether the SDN-listed party has ceased the behavior which caused it to be SDN-listed in the first place. Additional remedial steps, such as corporate reorganization, resignation of certain tainted persons from positions in the SDN-listed party, sales of assets, and other such steps will be very helpful in aiding the chances of success of the de-listing application. Charity work, or helping opposition parties and former political prisoners are helpful, but not relevant.