Sanctions Issues in APAC: MEHL and MEC; DPRK Sanctions Evasion; Chinese Blocking Legislation

Myanmar 

There are two main Myanmar based companies run by the Tatmadaw: Myanmar Economic Holdings Limited, and Myanmar Economic Corporation. MEHL was founded in 1988 as the main vehicle for the Tatmadaw, whereas MEC was founded in 1997 to administer the raw material supply to the Myanmar army. Both have been sanctioned by the US and both have sprawling economic interests. 

How do we identify which companies are linked with the MEHL and MEC? With great difficulty – according to Reuters, they own more than 100 subsidiaries and dwarf any civilian company in Myanmar. MEHL was the first private company founded after the collapse of the socialist regime, which goes some way to explaining its size. No financial information on the companies are disclosed, and they bypass all formal government reporting channels. 

MEC and MEHL own two of the largest banks. Myawaddy Bank is owned by MEHL and was founded in 1993. MEC owns Inmwa bank and was founded in 1997. Avoiding economic intertwinement with the Tatmadaw is challenging given their broad financial interests in the banking system. 

Min Aung Hlaing, the de facto leader of Myanmar, has broad control over the Myanmar Economic Corporation and Myanmar Economic Holdings Limited. 

How does one avoid interaction with Myanmar state owned enterprises? As ever, diligent assessment of the ultimate beneficial owner is necessary, but likely any company with links to Myanmar has significant risk of being controlled by the Tatmadaw and their main vehicles of the MEC and MEHL. 

DPRK

North Korea has a range of initiatives to evade sanctions against its economy. Primarily, these consist of active cyber theft programs designed to steal funds electronically. Secondly, there are a range of shipping based value exchanges such as transferring oil and disabling automatic tracking systems. Third, there are a large number of North Korean workers, primarily in China and Russia, who remit funds back to their home country. 

Although sanctions are primarily targeted at denuclearisation and non-proliferation, sanctions against North Korea are extremely broad and only stop at humanitarian assistance. Dual use technologies and weapons are banned, but additionally there are caps on exports to restrict funding: North Korean labour exports, exports of electronic goods, coal, minerals and seafood. Imports are designed to target the country’s leadership: certain luxury good imports are banned. Scientific cooperation is banned to prevent development of nuclear weapons. 

Which sectors and relationships should companies be most aware of for North Korea related sanctions risk? It is more than just whatever is on a sanctions list. High risk regions for trade such as Dalian and Lianoning in China are subject to additional due diligence. Most institutions often simply avoid anything that could be subject to DPRK related risk. This is despite fines regarding North Korea being far smaller than those against Iran. 

Hong Kong and Blocking Legislation

China has taken steps to counter western sanctions and what it sees as unjustified actions against it by initiating blocking legislation and promulgating its own sanctions list (“unreliable parties list”). This is modelled on the EU Blocking legislation, which prohibits EU companies and individuals from adhering to US legislation regarding Iran, Cuba and Libya. 

People and companies in the People’s Republic of China must report to the Ministry of Commerce (“MOFCOM”) within 30 days if there is an action which would prevent them from engaging in normal economic activity. The “Working Mechanism” is that MOFCOM then issues a prohibition order which shields the PRC person from such legislation.

Further Reading

The Myanmar military conglomerates sanctioned by U.S. and Britain

An insider’s view: how banks try to avoid North Korea sanctions risks

 

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