The World Bank’s private sector lending arm the International Finance Corporation (IFC) has given the go ahead to support a multi-million dollar plan to expand a cement factory in Mandalay Region, operated by the Shwe Taung Conglomerate. The firm’s chairman, Aik Htun, had been alleged by US authorities to have had ties to the drug trade and narcotics-related money laundering. The Sino-Burmese businessman has long said these accusations are not true, a view now shared by the IFC, which claims to have thoroughly investigated the matter.
The project proposal, which also includes expanding a coal mine in Sagaing Region that supplies the factory, drew strong objections from Myanmar civil society groups who raised environmental concerns about the project that will see the IFC invest US$15 million and provide a loan of $20 million for the expansion that is expected to cost a total of $110 million.
An open letter signed by a coalition of 174 NGOs and Community Based Organizations (CBOS), most of which are based in Myanmar, also raised allegations made by US authorities more than a decade ago concerning Aik Htun’s involvement in a now defunct bank that the Bush administration had designated a financial institution “of primary money laundering concern.”
Aik Htun previously served as the second in command at the Asia Wealth Bank (AWB), which he co-founded in 1995. In less than a decade after its establishment, AWB became Myanmar’s largest private sector bank. In early 2003, a major crisis in Myanmar’s banking sector triggered a massive run on AWB and two other private banks, which ultimately led AWB to end operations.
In November 2003, several months after the crisis had put AWB in serious financial trouble, the US government announced that it was taking action against AWB and another Burmese bank, using a section of the US Patriot Act citing money-laundering concerns.
In the announcement about the decision, the US government described Aik Htun as someone who had been “specifically identified as having connections with Burma’s narcotics trade.” The announcement of the targeting of AWB also claimed that the bank, which Aik Htun was a significant shareholder of, was “affiliated with prominent organizations and figures in the drug trade, including members of the Kokang ethnic group headed by notorious drug lord Peng Chia-Sheng,” a reference to the veteran Myanmar National Democratic Alliance Army leader whose name is more commonly spelled Peng Jiasheng.
No Evidence to Support Allegations says IFC Myanmar Country Chief
The IFC said that the allegations concerning Aik Htun and his former bank that were leveled by the US treasury department and printed in the US Federal Register, the official journal of the US government, have proven to be unfounded.
“IFC conducted extensive due diligence on STG and its shareholders and found no evidence to support Mr. Aik Htun’s involvement in alleged money laundering or drug trafficking, while he was vice chairman and minority shareholder of Asia Wealth Bank,” said the IFC country chief in Myanmar Vikram Kumar in a letter written in response to the NGO coalition’s open letter to the World Bank’s chief Jim Kim, opposing the IFC’s involvement in the project.
The strongly worded letter from the NGO coalition had urged the IFC to stay away from Aik Htun. “[F]inancing this project would send the message that the IFC disregards the reputational risks associated with the borrower, and is more interested in lining its pockets and that of Myanmar’s crony elite than promoting sustainable development in accordance with its mandate,” warned the letter which was sent just before the IFC board was initially supposed to decide on the case at the end of May.
Though ultimately the IFC board chose to disregard the NGO coalition’s warnings, the letter appears to have had some impact, with the final decision on the project that had originally been scheduled for May having not have been made until two months later.
When reached for comment, Mr. Kumar emphasized that prior to the project receiving the go ahead from the IFC’s board on July 31, the IFC examined the allegations thoroughly. “[E]xtensive due diligence, including third party research and reference checks with credible market sources, makes IFC comfortable with the Sponsor’s business practices, source of wealth, and most importantly, their commitment to adhere to high standards of corporate governance, business ethics and environmental and social sustainability.”
The IFC’s confidence concerning the source of Aik Htun’s wealth stands in sharp contrast to a leaked US diplomat cable written during the military era some three years after AWB stopped operations, which suggested something quite different. “Aik Htun enjoys the regime’s confidence, and benefits handsomely from its business,” wrote a US diplomat in February 2007 shortly after meeting Aik Htun. The cable also cited a fellow businessman in Myanmar who believed that Aik Htun “could not have amassed such profits at AWB without drug money.”
Aik Htun for his part has claimed that the allegations were the result of petty jealousies. “In Myanmar at that time the government was not transparent. There were so many rumors, [there was] so much jealousy,” he told the Financial Times in 2015.
While the US government’s designation of AWB as a money-laundering concern was withdrawn by the US treasury department in 2012 because the defunct banks “no longer exist and thus pose no further threat to financial systems,” the accusations against Aik Htun, remain available to be read on US government websites. The IFC’s endorsement of Aik Htun and his firm, where his children also serve as senior executives, is a significant victory for the tycoon and represents something of an internationally recognized rehabilitation of his reputation.
The US as the largest shareholder in the World Bank has considerable influence over whom the World Bank and its various branches lend money to. It is therefore very unlikely that the IFC’s involvement in a project like the one involving Shwe Taung could have been approved without a nod from Washington, who nominated the current World Bank head, Jim Kim, who is also a member of the IFC’s board of directors.
The project also appears to have sailed through approval without reservations being raised by the present National League for Democracy (NLD) government. Daw Aung San Suu Kyi’s administration has opted to embrace the oligarchs who profited immensely from their access to Myanmar’s previous military regime, when she and many of her NLD colleagues were in detention or forced into silence. Last week, Myanmar’s Minister of Planning and Finance Kyaw Win told reporters that Daw Aung San Suu Kyi no longer wants those businessmen, many of whom earned a significant amount of notoriety for their close ties to the military regime, to be described by the media as cronies.
Project Go Ahead Despite Widespread NGO Opposition on Environmental Grounds
The coalition of NGOs also cited the use of coal at the factory and the project’s planned expansion of an existing coal mine already operated by Shwe Taung that supplies the factory as strong reasons not to go ahead with the project, in particular, because the coal mine is located in what has been classified a Critical Habitat area.
The NGO letter complained that the IFC’s support for the project violated a promise made by the World Bank that it would not support coal power in Myanmar. Kumar maintains this is inaccurate because the World Bank policy on coal only concerns power plants that contribute power to a national grid, and not something like the cement plant which only uses coal to heat the factory’s kiln.
The NGO coalition has also expressed concerns that the Environmental and Social Impact Assessment (ESIA) carried out for the project were not sufficient and did not do enough to involve potentially affected communities.
While the NGO coalition of 174 groups opposed to the project represents a broad spectrum of civil society in Myanmar ranging from ethnic land activists to former political prisoners, Kumar maintains that support for the project does exist on the ground.
“[T]here has been extensive consultation with communities, whom, in our opinion, have indicated their broad support for the project. In addition, a public forum was convened in Yangon last month with civil society to engage on their issues and concerns and IFC is satisfied that the project will adequately address these,” said Kumar.