August 18, The Wall Street Journal
Myanmar’s 2011 shift to a civilian government, after decades of military dictatorship, shocked observers and paved the way for dizzying changes in the country’s economy. Companies are now eying opportunities in Myanmar, as a rapid easing in U.S. sanctions is making business in the country feasible for the first time in years. Still, while the policy shift means U.S. companies can now make new investments inside Myanmar, more than a hundred potential partners remain on the sanctions blacklist because of ties to the country’s military, complicating any deals.
For more than six years, Peter Kucik was a policy adviser as the U.S. Treasury Department’s Office of Foreign Asset Control, helping to craft regulations around Myanmar sanctions. Last March, Mr. Kucik left the government to join Inle Advisory Group, where he consults with companies probing opportunities in Myanmar. In an extended interview, Risk & Compliance Journal spoke with Mr. Kucik on the prospects and challenges of starting new business in the country.
In the Myanmar context what was your role at OFAC?
Mr. Kucik: Over the course of my tenure I saw the late 2007 to 2008 ramping up of sanctions. The role there was to help figure out how to best target areas of concerns. Of course that shifted following the reforms to figuring out how to best remove some of the restrictions while still keeping focus on areas of concern.
The most recent targeting executive order moves away from targeting those who support the government and moves towards targeting those that undermine peace and stability of Myanmar and more specifically engage in arms trade with North Korea or undermine the political processes.
What was the initial idea of targeting those with any connection back in 2007 and 2008?
Mr. Kucik: The original focus was to pressure the actual junta to reform. It did, surprising everyone. There was a shift from a military government to a civilian government. It would be unfair to describe Myanmar as a democracy, of course. But they’ve taken a few of the major steps sought by the US.
What was the thinking of the shift in U.S. sanctions?
Mr. Kucik: Earlier, all the actual sanctions authorities were aimed at the government of Myanmar. Well the government of Myanmar is still the government of Myanmar. So now you obviously don’t want to be sanctioning people for supporting a government that the United States government is actually trying to support and promote reform efforts. You need to refocus and get more directed at the remaining major concerns. You can see from recent U.S. actions what the remaining major concerns are: the arms trade with North Korea; human rights concerns; dealings with the military. Entities are still subject to sanctions over these issues in Myanmar.
There are concerns about the military’s enduring involvement in the broad economy. Initially you had just broad based concerns about the entire government and now that you don’t have a junta that overall effort is directed towards reforming. The question becomes how do you support elements of the government that are reforming and pursuing economic and political change.
What’s your view of that trajectory?
Mr. Kucik: I’m optimistic. I think there is too much at stake for all involved. When I traveled to Myanmar last year, I had meetings with private sector. Now I’ve been on the other side for six months. The desire to actually reform is sincere. There is some recognition that the country’s isolation wasn’t entirely imposed from outside. But I think the government is overwhelmed in trying to integrate into a world economy. The entire Myanmar economy is so far behind technologically. They are working incredibly hard to fix that. They are taking all kinds of technical advice but at some point it becomes overwhelming. Where do you start? Whose offer do you accept? How many overlapping offers do you accept? There’s a lot to be done. But the desire to get done what needs to be done, seems to be sincere.
Hasn’t there been a lot of steps backwards on human rights issues, including violence against ethnic minorities and the possibility that opposition leader Aung San Suu Kyi will be barred from running in the election?
Mr. Kucik: The violence and human rights violations are a major concern. The question is what is the best way to pursue that.
Is it your sense that a large percentage of the major economic players in Myanmar are still on the Specially Designated Nationals blacklist?
Mr. Kucik: Yes, there are significant cronies who have interests in the economy broadly who remain on the list. I think that the U.S. government has been comprehensive in its outreach. I think everyone has been spoken too and I think people understand what’s being sought [for companies to be de-listed.] Frankly, I think the sense I get is that there are definitely people, SDNs who are paying close attention and getting to work towards achieving what they need to [for the de-listing process.]
You are now at a company that advises businesses on entry into Burma. Given that a lot of these major players are still blacklisted, does that make the prospect of doing business fraught with the peril that you are going to in some way touch on one of these SDNs?
Mr. Kucik: The unique aspect of this sanctions program in my estimation was that it was comprehensive — effectively a binary question: anything that was Myanmar related was off the table. You couldn’t conduct dollar transactions, you couldn’t invest. Essentially as a U.S. business, there was no reason to look at it. In 2012, because of changes in the government, instead of a binary question you have a more nuanced question. I think people are still wrapping their heads around it a little.
Where does that leave companies that want to do business there?
Mr. Kucik: It’s a consideration, part of a broader consideration of whether it’s a viable prospect. You’ve seen U.S. companies are starting to enter the market. Coca-Cola Co. has investment in place, Western Union Co. has money transfer shops are all over Yangon. It can be done. It’s not a completely open market. It’s not a market you can go into without conducting significant due diligence. It’s going to be more complicated than a lot of market entries. But the U.S. government is actively encouraging U.S. business to go in.
Coca-Cola and Western Union are huge players and they have a high level of sophistication. But how viable is Myanmar for companies that are not quite as large?
Mr. Kucik: The market is changing by the minute. Five years ago there were no private banks and suddenly you have new private banks and they are popping up all the time. There is a desire for this SDN process to work. The situation is dynamic and will remain dynamic in the near future.
When you look at the SDN list in terms of who is still on, how does OFAC prioritize who gets removed from the list ? It’s clear not everyone who applies gets off the same time. For example, Thein Sein president of Myanmar was one of the first taken off the list.
Mr. Kucik: There are different considerations. Thein Sein was designated for being a senior person in the government. With government officials, there are considerations such as who are the reformists. In practical terms, considerations for members of the government wouldn’t be the paradigm for the rest of the SDNs.
The policy considerations have been taken and at this point, this is now an administrative process. It’s not necessarily first in first out, for de-listing applications. What occurs is an investigation by OFAC involves a back and forth with the applicant to ask questions and [the speed of that process has a lot to do with the time line for de-listing.]
But all the applicants have the same priority regardless of how positive the impact would be to get them off the list?
Mr. Kucik: Yes. now it’s an administrative process based on a established set of criteria and that’s how the applicants are reviewed. The only question is how long does is take.
But the policy impact is not considered in who gets de-listed first? Like if de-listing a big electric concern would help create a lot of economic movement, OFAC won’t fast track that entity in the line?
Mr. Kucik: No. No one is picking and choosing.
How much movement do you anticipate on the list in the next couple years?
Mr. Kucik Again, I’m optimistic. I think you’ll see some movement. Someone who has actually undertaken all the reforms and demonstrated the criteria comes off the list. When that happens, it reinforces that this a workable framework and shows the way. This is the first domino, potentially.
But the impetus is largely on the SDNs themselves.
Is there a risk of a big policy reversal for companies that are now dipping their toes in and getting signs from the U.S. that this is a place that’s open for business? Is there a risk that they could be exposed to a lot of risk if, for example, things go really bad in the upcoming election and sanctions get put back on?
Mr. Kucik Secretary [of State John] Kerry took that on pretty directly [earlier this month.] He said there is no inclination to reimpose sanctions right now. No reason for that to be in the front of the discussion. The focus now is on continuing to support reform through engagement. I think the sense is the participation of U.S. business only supports all of U.S. government’s [goals]. U.S. business is the world’s gold standard and I think the more U.S. business gets integrated, not only is it good for U.S. companies, it’s helping to change the standards on the ground.
