Guest Column

World Bank Arm Considering Support for Businessman Linked to Blacklisted Bank

By Seamus Martov 19 May 2017

The International Finance Corporation (IFC), the private-sector lending arm of the World Bank, is considering providing funding for a cement factory project in Mandalay Division’s Thazi District led by a division of the Shwe Taung Group, a conglomerate whose majority stake is held by the family of the company’s chairman, Aik Htun.

The US government previously alleged that Aik Htun had “connections with the narcotics trade” while running a now-defunct bank more than a decade ago that was also alleged to be involved in money laundering. These accusations were dismissed by the Sino-Burmese entrepreneur as falsehoods driven by petty jealousy.

The IFC posted details of its proposed involvement in the cement project last month on its website in line with the Washington-based group’s disclosure policy. The IFC plans to invest up to US$15 million in the project and provide a loan of up to US$20 million; the project’s total cost is estimated to be US$110 million.

According to details disclosed by the IFC, the project—if it goes ahead—will involve the expansion of an existing cement factory run by Shwe Taung Cement in Pyi Nyaung Village. In addition to expanding the factory’s cement production capacity, it will also involve the construction of a Waste Heat Recovery System (WHRS) and an “improvement in emission control systems.” The IFC will be playing a key role in supporting the project. In addition to providing the aforementioned funding, the IFC says it is also looking to “mobilize up to US$20 million through syndication of Parallel Loans and up to US$20 million investment in common equity from IFC AMC Emerging Asia Fund (EAF).”

The Shwe Taung Cement group also operates an open pit coal mine in Sagaing Division that exclusively supplies the factory. According to the IFC’s outline of the project review, mining operations at this site will more than double from current levels of 60,000 tons of coal mined per year to an estimated 150,000 tons of coal per year. The IFC summary of the project acknowledged that a visit to the coal mining site by the IFC team in September 2016 during the project review process was not possible due “to access constraints” associated with the rainy season. The mine is some 4.6 km west of the Maharmyaing Wildlife Sanctuary, described by the IFC as an important bird area.

A native of Shan State, Aik Htun was a co-founder of the Asia Wealth Bank, of which he served as vice chairman. The bank was targeted for sanctions in Nov. 2003 by the Bush Administration who labeled it a “Financial Institutions of Primary Money Laundering Concern” using a provision granted under the 2001 Patriot Act. A summary in the US Federal Register accompanying the announcement of the proposed action against the bank described Aik Htun as having been “specifically identified as having connections with Burma’s narcotics trade.” The announcement also claimed that the bank 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.” The latter is a reference to former the Burmese Communist Party rebel commander and long-time leader of the MNDAA Peng Jiasheng, who at the time was on good terms with the Burmese military regime.

A follow-up announcement issued in March 2004 announcing that the sanctions had been put into effect, declared that both the Asian Wealth Bank and Myanmar Mayflower Bank, another Burmese bank targeted by the US Treasury Department, were being used by their owners to launder the proceeds of drug trafficking. “Individuals owning and controlling both banks are linked to drug trafficking and money laundering, including using the banks for such purposes.”

In less than a decade since its founding in 1995, AWB had become Burma’s largest bank. A financial crisis in the country’s banking industry that culminated in a massive run on the bank in early 2003 untimely led to the demise of AWB, which eventually had its license withdrawn by government authorities in 2005. A move that the State Department described as being done in response to information passed on by the US Drug Enforcement Agency (DEA) and the Australian Federal Police (AFP).

According to a New York Times article from 2015, “After the United States imposed sanctions on Asia Wealth Bank and the Burmese authorities withdrew its license, Mr. Aik Htun changed the name of his corporate holdings, which were part of the same group as Asia Wealth Bank, to the Shwe Taung Group.”

Despite the obvious commercial setback associated with the fall out from AWB, Aik Htun’s other business interests in construction and real estate, including such high-profile projects as the building and operating of several malls including Rangoon’s Junction Square, appeared to do very well in the years that followed the bank’s demise.

A US diplomatic cable disclosed by Wikileaks, penned following a meeting between the businessman and diplomats in 2007 when Burma was still ruled by a military regime noted that “Aik Htun enjoys the regime’s confidence, and benefits handsomely from its business.” The cable went on to note Aik Htun’s annoyance at being subject to US restrictions on visa issuance before adding that “he seeks every opportunity to profess his innocence to Embassy employees.”

Aik Htun has also on at least one occasion publicly denied the claims about him and his now defunct bank, chalking up the allegations to rumor mongering by those envious of his success. “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 Nov. 2015.

Although he was previously on the European Union sanctions list, Aik Htun was noticeably absent from the US government’s Specially Designated Nationals (SDN) list, which was expanded to include the names of prominent Burmese businessman in 2008, several years after his bank had already become defunct. An attempt by the Washington-based campaign group US Campaign for Burma to have Aik Htun and his son, Aung Zaw Naing, who serves as CEO for the Shwe Taung Group, added to the SDN list in 2011 was unsuccessful.

Aik Htun has claimed to have come from modest origins and through hard work has become the successful businessman that he is today, a narrative that has been called into question by some, including Australian economist Sean Turnell in his book on Burma’s banking crisis Fiery Dragons. According to Turnell, “Aik Htun maintained an elaborately constructed public image that belied the stories of his links to narcotics, and in numerous public appearances and press profiles, he affected a ‘rags to riches’ story that chronicled his rise from being the son of a small farmer from Mong Kung in Shan State. The narrative even included the vignette that he “walked two miles to school each day, after which he completed his chores on the farm.”

While it remains to be seen if the IFC’s board of directors will give the green light to Shwe Taung’s cement project at their meeting next month, the IFC’s involvement with Shwe Taung, is in many ways a test case for possible future involvement with other firms and individuals who were previously targeted by the US government for alleged connections to previous military regime and the drug trade, such as Asia World.

The IFC, whose primary focus is giving financial assistance and other support to businesses that invest in developing countries was, along with its parent the World Bank, largely absent from Burma until the lifting of most sanctions in 2012. Since the sanctions were lifted, the IFC has become involved in a number of Burmese projects including backing the expansion of Rangoon’s Shangri La hotel and a high-end apartment complex also operated by Shangri La, a firm controlled by Malaysian billionaire Robert Kuok.

The IFC is also currently assisting Burma’s government to

carry out a Strategic Environmental Assessment for the Hydropower Sector, an effort criticized by environmentalists in Kachin State opposed to further dam projects.

The IFC has also come under heavy criticism for its connection to a controversial coal mining project in Tenasserim Division, near the Thai border, that is run by a Thai mining firm whose bank shareholders the IFC has equity investments in.