U.S. Treasury Facilitates Trade with Burma, but Money Laundering and North Korean Risks Remain
Earlier this week, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) continued the transition of the Burmese sanctions program from comprehensive prohibitions to targeted, more limited “smart sanctions.” The revised Burmese Sanctions Regulations contain General Licenses authorizing U.S. persons to reside in Burma and incorporate a separate General License authorizing U.S. businesses to export authorized goods and technology to and from Burma through infrastructure such as ports, toll roads and airports, and pay associated fees that would otherwise be prohibited under the Burmese sanctions. OFAC made this original temporary authorization in early December 2015 after U.S. trade with Burma nearly came to a halt following the refusal of several banks to engage in trade finance involving a Rangoon port associated with Asia World Co. Ltd. The revised sanctions program further increases pressure on Asia World through the designations of six companies in which it owns a 50 percent or greater interest.
In addition to the regulatory amendments and new designations, OFAC removed seven state-owned enterprises and three state-owned banks from the list of Specially Designated Nationals (SDN List). Along with the bank de-listings, OFAC issued a General License authorizing most transactions involving the four remaining designated Burmese banks. The designation removals and General License allow U.S. financial institutions to provide Burmese banks with correspondent and payable through accounts, irrespective of the Section 311 Special Measures that remain imposed against Burma.
Required Enhanced Due Diligence Procedures to Combat Money Laundering
In May 2004, the Financial Crimes Enforcement Network (FinCEN) issued a Final Rule imposing Special Measures against Burma from its designation as a jurisdiction of primary money laundering concern under 31 U.S.C. 5318A. Although the actual prohibitions of this rule are no longer applicable, the 311 designation against Burma requires covered financial institutions that provide banking services to Burmese Banks to establish minimum enhanced due diligence procedures set forth in 31 CFR 103.176(b).
The United States is not alone in its concerns about the money laundering risks emanating from Burma. The Financial Action Task Force (FATF) identified Burma as a jurisdiction with “strategic AML/CFT [anti-money laundering/counter-terrorist financing] deficiencies” in its February 2016 compliance report. Burma’s successful implementation of reforms to address these deficiencies would likely result in removal from both the FATF and 311 designations.
Burma-North Korea Ties
Last November, OFAC designated two Burma-based North Korean governmental officials involved with weapons proliferation, including the North Korean ambassador to Burma. According to the press release for these designations, both individuals have close ties with Korea Mining Development Trading Corporation (KOMID), an entity designated by the United States and United Nations for its role in North Korean weapons development.
Burma’s governmental and commercial ties with North Korea will likely cause U.S. financial institutions to perform enhanced due diligence procedures that greatly exceed the regulatory minimum standards. U.S. banks should take extra precautions to ensure that North Korean banks do not “nest” in Burmese correspondent accounts. The enhanced due diligence procedures to mitigate this “nesting” risk require “reasonable steps to … determine whether the foreign bank for which the correspondent account is established or maintained in turn maintains correspondent accounts for other foreign banks that use the foreign correspondent account established or maintained by the covered financial institution and, if so, take reasonable steps to obtain information relevant to assess and mitigate money laundering risks associated with the foreign bank’s correspondent accounts for other foreign banks, including, as appropriate, the identity of those foreign banks.” (31 CFR 103.176(b))
 Asia Green Development Bank, Ayeyarwady Bank, Innwa Bank and Myawaddy Bank remain on the SDN List.
 U.S. financial institutions, including banks, broker dealers, futures commission merchants, and mutual funds. (31 CFR 103.175(f))