US Government to Sanction Military-Linked Myanmar Conglomerates: Report

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US Government to Sanction Military-Linked Myanmar Conglomerates: Report

MEC and MEHL control a vast network of companies that channel profits into the Tatmadaw’s coffers.

US Government to Sanction Military-Linked Myanmar Conglomerates: Report

A street scene in Yangon, Myanmar.

Credit: Flickr/Asian Development Bank

The United States is reportedly set to impose sanctions on two large conglomerates linked to the Myanmar military, the latest retaliation by the Biden administration for the military’s seizure of power last month.

Reuters, citing “two sources familiar with the matter,” said that the move to blacklist Myanmar Economic Corporation (MEC) and Myanmar Economic Holdings Ltd (MEHL) could come as early as Thursday. The move would prevent the two firms and their many subsidiaries from making any transactions with U.S. persons or having any contact with the U.S. banking system, and would freeze any assets that they have in the U.S.

The move comes nearly two months after the military seized power, detaining State Counselor Aung San Suu Kyi and abrogating her National League for Democracy party’s massive victory at elections last November. The coup touched off widespread protests and work stoppages, prompting intensifying crackdowns by the security forces that have killed at least 275 people.

The imposition of U.S. sanctions on MEC and MEHL, which were previously placed on a Commerce Department trade blacklist, is the most direct attempt to target the financial wellsprings of Myanmar’s military. MEC and MEHL function as slush funds for the Tatmadaw, as Myanmar’s armed forces are known, controlling a vast network of companies involved in nearly every sector of the country’s economy.

Some kind of measure targeting the two conglomerates has thus been anticipated since coup. On February 10, President Joe Biden hinted at the possibility of sanctions against MEC and MEHL when he signed an executive order enabling the U.S. government to target the military’s “business interests.”

Since then, the U.S. government has announced several rounds of targeted sanctions on Myanmar’s junta, including on its acting president, other high-ranking military officers, and two children of Myanmar’s military leader Sen. Gen. Min Aung Hlaing. (Min Aung Hlaing himself was added to the sanctions list in 2019, for his role in the ethnic cleansing of the Rohingya Muslims in western Myanmar.)

Earlier this week, the U.S. Treasury Department added to the growing list of targets the head of the Myanmar police force, and the Tatmadaw’s 33rd and 77th Light Infantry Divisions, which have been deployed against mostly unarmed protesters in recent weeks.

Aside from three military-linked gemstone companies, however, the U.S. government had until now not targeted the military’s extensive web of business interests. Hoping to starve the besieged junta of revenue, activists and protesters have since the coup been demanding targeted action on the two military holding companies, which, lying at the center of that web, help funnel profits into the military’s coffers.

According to an August 2019 report by a United Nations Fact-Finding Mission, MEC and MEHL own at least 120 subsidiaries and have close ties to at least 27 more companies. These link it to a wide range of business activities including banking and insurance, tourism, jade and ruby mining, timber, construction, and the production of palm oil, sugar, soap, cement, beer, cigarettes, drinking water, coal, and gas. The two conglomerates also control extensive real estate holdings.

MEC and MEHL have also established joint venture partnerships with a range of local and foreign businesses including South Korea’s steel firm POSCO and the China Wanbao Mining Co., which is developing a controversial copper mine in central Myanmar. In response to growing pressure over the coup, the Japanese beer giant Kirin ended its joint venture with MEHL a week after the coup.

In September, the rights group Amnesty International published a report on MEHL, based on leaked shareholder records, alleging that the company’s profits – and by extension, those of its foreign partners – were directly financing the military, including regiments and units that are accused of genocide and other crimes against humanity. In 2008, a U.S. diplomat described the firm as “one of the most powerful and corrupt organizations” in the country.

Alongside the increased imposition of sanctions on Myanmar’s junta by Western nations, the likely U.S. sanctions on the two military-linked holding companies sends the message that the Biden administration is set to take a strong line toward the junta.

The exact impact is difficult to anticipate. The blacklisting will no doubt create headaches for any foreign firm that continues to do business with MEC or MEHL, but will likely act as a strong deterrent only for those nations and companies least likely to do business with the two conglomerates in the first place.

With companies from China, Russia, and other Southeast Asian nations almost certain to continue dealing with junta-linked entities, the sanctions will probably fall short of dealing a death blow to the military’s finances. This has led some activists to call for governments to go further and target the oil and gas projects that are a major source of revenue for Myanmar’s government.

Given the centrality of MEC and MEHL to Myanmar’s economy, even a modest downturn in their business could well have collateral impacts on the economy as a whole. However, the two-month-long crisis has already brought the economy to the brink of collapse, a reality that probably made the U.S. decision to impose sanctions more straightforward than it might otherwise have been.

Whatever the exact impact of the accumulating Western sanctions, they all serve as an indication of the direction in which Myanmar is heading: toward an all-or-nothing struggle between the junta and its various opponents, both at home and abroad, to determine the course of the country’s future.