Many Myanmar Mining Firms Fail to Name Politically Connected Owners: Global Witness

By Nan Lwin 22 July 2020

YANGON—At least 10 companies in Myanmar have failed to identify “politically exposed persons”—those with links to high-ranking present or former military officials and ethnic armed groups—among their owners, according to a new Global Witness report. The rights NGO based its findings on an analysis of the first batch of beneficial ownership information disclosures submitted by companies in the country’s troubled extractives sector.

In Myanmar, a lack of transparency in the extraction of natural resources in resource-rich ethnic regions helps perpetuate and finance violent conflict in these areas. The country’s extractive sector, which includes jade mining, is controversial and often deadly. A prominent example is the jade mines in Hpakant, Kachin State—mostly run by military-owned companies, companies owned by armed groups, and cronies of the authorities. Recently, a landslide in Hpakant killed at least 172 prospectors, injured more than 50, and left more than two dozen people missing. Companies with opaque ownership have long played a major role in the jade mines of Kachin, where jade projects help drive the state’s ongoing armed conflict.

The Myanmar Extractive Industries Transparency Initiative (MEITI)’s Beneficial Ownership Task force defines politically exposed persons (PEPs) as “individuals who are or were entrusted with prominent public functions, either domestically or internationally.” PEPs pose a higher risk of corruption as they can abuse their positions to hide financial flows or curry political favor due to their influence and positions.

The term “beneficial owner” refers to those individuals or groups who enjoy the ultimate profits or benefits from owning a company, and who have a degree of control over it, though the company may legally be registered in another name.

In collaboration with MEITI, the Myanmar government published the first batch of information on the beneficial ownership of extractives-sector corporations registered in Myanmar in December last year. Effective Jan. 1, 2020, the government investment agency, the Directorate of Investment and Company Administration (DICA), introduced mandatory disclosure of beneficial ownership of companies to encourage transparency and prevent corruption, tax evasion and conflicts of interest.

In its report titled “Out of the Shadows” launched on Wednesday, Global Witness said that of 162 companies included in the first batch of beneficial ownership information disclosures, only eight declared that they had at least one beneficial owner who qualifies as a PEP.

The report said it had identified at least 10 additional companies whose beneficial owners have or had close ties to high-ranking present or former military (or Tatmadaw) officials, or leaders of ethnic armed groups, and should accordingly qualify as PEPs.

The prevalence of politically connected business tycoons in Myanmar’s economy, particularly in its extractive sectors, makes the existence of so few PEPs at such companies highly unlikely. In Myanmar, having political connections is perceived to be the norm in some industries, Global Witness said.

“This is a non-exhaustive list and likely to be the tip of the iceberg given previous reports on the extent of military and ethnic armed group interests in the mining sector,” the report said.

It said Myanmar military-owned Myanma Economic Holdings Public Company Limited (MEHL)’s disclosure appears to be incomplete and inaccurate, lacking any PEP declaration and potentially omitting beneficial ownership information.

MEHL declared three beneficial owners, each of whom apparently control 33 percent of direct voting rights in the company: Lieutenant General Hsan Oo, the Myanmar military’s adjutant general (MEHL chairman); Major General Khin Maung Than, director for military procurement (MEHL managing director); and Brigadier General Kyaw Myo Win (retired) (MEHL director).

However, the report said “none of the three beneficial owners are listed as PEPs, despite clearly qualifying due to their status as current and former high-ranking military officials.”

“While it is openly acknowledged that MEHL is controlled by current and former military personnel, the company’s failure to correctly declare the PEP status of these individuals, and other concerns about its submission … threaten to undermine the credibility of the register,” Global Witness said.

Moreover, it said MEHL’s declaration identifies MEHL itself as the legal owner, controlling a 100-percent stake. This means MEHL is essentially declaring that the company owns itself, and sheds no light on its beneficial ownership structure, the report said.

“Given that MEHL maintains ownership and controlling interests in some of the largest businesses in the country, such as Myanmar Brewery and Myawaddy Bank, it is vital to know who actually owns this company,” the report said.

The report alleges that Htoo International Industry Group of Companies Ltd, Kyaing International Gems Co. Ltd, Nilar Yoma Gems Co. Ltd, and Kyaw Naing & Brothers Gems Co. Ltd also failed to identify their beneficial owners as PEPs. The report found that their beneficial owners were either close associates of the former military junta or had close connections with the relatives of current powerful figures in the Myanmar military.

Global Witness said U Tay Za, founder of Htoo International Industry Group, failed to identify any of its beneficial owners as PEPs, despite the fact that his company reportedly grew into one of the country’s largest conglomerates through his close relationship with the head of the military junta, former Senior General Than Shwe.

According to the report, Kyaing International Gems Co. failed to correctly identify as a PEP one of its beneficial owners, Kyaing San Shwe, the son of Snr-Gen Than Shwe.

“As an immediate family member of a former head of state, Kyaing San Shwe clearly meets the MEITI definition of a PEP,” Global Witness said.

The human rights NGO said Nilar Yoma Gems Co. should have listed U Aung Ko Win, a prominent tycoon, as a PEP in its beneficial ownership disclosure information, alleging that he is a close associate of former Myanmar military Eastern Command chief General Maung Aye.

The report said the disclosure submitted by the Kyaw Naing & Brothers Gems Co. was also incomplete, as it failed to name U Sai Chin among its beneficial owners. Global Witness alleged that U Sai Chin previously had connections to two important military figures and should also have been listed as a PEP.

The Beneficial Ownership Task Force’s definition of a PEP includes members of ethnic armed groups. It includes ethnic armed group leaders, whether they are signatories of the Nationwide Ceasefire Agreement or not, and all executive committee members and military officers of the rank of lieutenant colonel or higher.

Global Witness pointed out that companies named in the current batch of disclosures did not disclose any links with ethnic armed groups, thereby breaching the October 2019 Presidential Notification. It said transparency in relation to the business interests of ethnic armed groups is a critical requirement for untangling Myanmar’s economy—and especially its mining industry—from protracted conflict.

Many ethnic armed groups and Tatmadaw-aligned militias are involved in the extractive industries, further fueling conflict, it said.

Global Witness said Ayar Yadanar Company Ltd, Ayeyar Yadanar Gems & Jewellery Company Ltd, Yar Za Hta Ne Gems Company Ltd, Wai Aung Gabar Gems Company Ltd and Kachin National Developments and Progress (Gems) Company Ltd should each have declared at least one of their beneficial owners as a PEP by virtue of their alleged connections to figures in the leadership of ethnic armed groups including the United Wa State Army (UWSA) and the Kachin Defense Army (KDA), a military-controlled militia based in northern Shan State.

The report said that of the 162 companies in the extractives sector, 24 (15 percent) never submitted disclosures, while 17 (10 percent) submitted their filings late. Many filings contained incomplete beneficial ownership information.

It said three companies failed to list qualifying legal owners as beneficial owners: Sai Laung Hein Mining Company Ltd, Shwe Gaung Gaung Gems Company Ltd and Myanmar Andaman Pearl Company.

Additionally, five listed corporate owners without providing information on who their beneficial owners were: Myanmar Imperial Jade, Myanmar Wanbao Mining Copper Ltd, Myanmar Yang Tse Copper Ltd, UNOCAL Myanmar Offshore Company Ltd (Yangon Brach) and Nippon Oil Exploration (Myanmar) Ltd (Yangon Branch). The second and third companies listed above are the Chinese companies behind the controversial Letpadaung copper mine in Upper Myanmar.

It also found that three additional companies owned by foreign state-owned enterprises filed inadequate information: Cornerstone Resources (Myanmar) Ltd, PC Myanmar (Hong Kong) Ltd (Yangon Branch) and Petronas Carigali Myanmar Inc. (branch office).

In all, 11 of the 162 companies (7 percent) submitted filings that were incomplete, according to Global Witness.

The report also revealed that there is no public archive of historical beneficial ownership filings. Historical data is imperative to allow investigations into connections between companies and individuals, and is a critical feature of any effective beneficial ownership register.

“High-quality and publicly accessible data on who controls the country’s extractive sector is crucial for local businesses and international investors to understand who they are doing business with. It also helps Myanmar’s civil society organizations, media, and citizens to interrogate who is really profiting from some of the country’s most lucrative companies and to hold the powerful to account,” said Paul Donowitz, Myanmar campaign leader at Global Witness.

Global Witness suggested Myanmar’s beneficial ownership disclosure requirements need to be backed by effective penalties. Ultimately, a beneficial ownership register is only useful if the data it contains is accurate, it said.

It also said that if companies have no incentive to fill out their ownership information properly, then DICA will continue to receive incomplete and inaccurate data. The Beneficial Ownership Task Force, DICA and other relevant authorities must clarify what the consequences are for companies that fail to file accurate beneficial ownership information, Global Witness said.

It recommended that entities failing to do so receive some form of sanction. Companies operating in the extractives sector, for example, could be barred from receiving or bidding for permits, it said.

“To ensure data accuracy, there must be incentives for compliance and clear consequences for companies that fail to file accurate beneficial ownership information,” Donowitz said.

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