HomeMMBIZ NewsCurbing Money Laundering: Acid Test for Myanmar’s Financial Reforms

Curbing Money Laundering: Acid Test for Myanmar’s Financial Reforms

Last year Myanmar was urged under international pressure to make progress with anti-money laundering efforts. In June, the Financial Action Task Force (FATF), a watchdog group that monitors international money laundering, terrorist financing and other related threats to the integrity of the international financial, announced Myanmar has still not made sufficient progress in preventing financial crimes due to the lack of improvement of its anti-money laundering regime and lack of progress in implementing its action plan.

Therefore, Myanmar remains on the list as one of the countries listed with strategic deficiencies in anti-money laundering and terrorist financing on par with Indonesia, Ecuador and Algeria. Due to the absence of a viable banking system, many Myanmar citizens – particularly emigrants remitting money from other ASEAN countries to their family in Myanmar – have relied on informal money transfer mechanisms, such as the “hundi system” in India. However, underground banking systems have their disadvantages, including the lack of enforcement. Informal money transfer systems remain a vital lifeline for rural families who live far from any bank and depend on money sent back from family abroad.

In addition to legislative reform, there is also need for more awareness of possible laundering among officials and workers at financial institutions and a firmer grasp of how to recognise the signs of possible financial crimes. Without new reforms Myanmar could be vulnerable to money laundering and become a safe haven for illicit transactions and other financial crimes.

On March 14, a new law entered into force in order to counter money laundering. However, Myanmar still faces numerous challenges in curbing financial crimes. The 2002 anti-laundering law contained loopholes and was not in line with international standards. But even with the new law the money laundering monitoring system, Myanmar continues to demonstrate weakness and there remains numerous ways to circumvent the law. The new anti-laundering legislation provides for penalties of three to seven years imprisonment and a fine of K500 million ($500,000) for money laundering convictions. It is also the latest in a series of financial reforms that aim to make Myanmar a more reputable investment destination.

Butnew anti-laundering measures aside, some of Myanmar’s other projected reforms could have the unfortunate consequences of attracting would-be money launderers. For example, casinos have long been a feature of some of Myanmar’s ethnic militia-controlled borderlands close to Thailand and China. Gambling dens function as a revenue source for groups that have fought against the military on and off for the last seven decades even though they remain banned in areas under government control. If regulations are to change to allow the legal opening of casinos and gambling stations, they must be in alignment with the FATF.

Further, new regulations are essential to protect Myanmar’s economic reform process and the country’s acceptance in the international finance sector. Currently, the Asia Green Development Bank (AGD) case is a litmus test for Myanmar’s banking and monetary system. The case caused controversy when it became public due to numerous statements in the media stating contradicting amounts of actual money invested and shares sold. Allegedly, up to 60 percent of AGD Bank changed hands from prominent entrepreneur U Tay Za and his Htoo Group of Companies, severing direct ownership ties with the bank. However, AGD confirmed only 15 percent of their shares have been purchased. U Tay Za, the founder of AGD – one of the largest privately-owned banks in Myanmar – agreed on the transfer of shares of the bank to one of the late General Ne Win’s grandsons.  After the secret multi-million dollar purchase of AGD Bank, U Tay Za and the Htoo Group of Companies are no longer on the shareholders list.

By suddenly pouring in more than $4 billion (due to the controversy the total share purchase of 15 percent is said to be $150 million only), which Ne Win’s grandson claims is a friendly interest-free loan from state-owned Chinese investment firm China National Corporation for Overseas Economic Cooperation (CCOEC) , into Myanmar they caught the attention of the Monetary Investigation Department, now investigating this case. However, we must wait for the investigation to wrap up to determine whether the share transfer was in compliance with the laws or was indeed a case of money laundering.

A proper and thorough investigation can showcase the growing strength of Myanmar’s banking and monetary system to the public and the global community.

It can be said that with the enforcement of the new anti-money laundering law, Myanmar is showing its willingness to follow up on its reform scheme and to provide a stable basis for economic and legislative reform to strengthen its position as a destination for investment that adheres to international standards.

Strohal Legal Group (SLG) is a law firm offering highly personalised services specialising in international and cross border business. SLG enjoys is also well-established across Europe, Southeast Asia and the Middle East. In Myanmar, SLG provides services under the name U Min Sein& Strohal Associates Law Firm.

The views and opinions expressed here are the authors’ own and do not reflect Myanmar Business Today’s editorial opinion.

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