How Myanmar can curb illicit financial flows

(MENAFN- Asia Times) Myanmar is developing at a pace unprecedented in the nation's 49 years since independence.

Downtown Yangon juxtaposes ancient pagodas with ultra-modern skyscrapers, the new capital Nay Pyi Daw is populated with five-star hotels, and young people—just like their Western counterparts—spend countless hours on Facebook with their smartphones. The government has made similar strides, adapting to international norms and standards at a speed few could have predicted.

Geographically located in a focal point of illicit trade, Myanmar seeks to abide by several domestic, regional, and global trade control regimes to support nonproliferation. Despite many agreements, implementation remains a critical challenge, and Myanmar's financial system continues to be highly vulnerable to abuse by illicit actors. Recent nonproliferation discussions expressed that Myanmar is aware of existing deficiencies and is eager to coordinate with the United States to advance regulatory controls. The United States should answer this call.

With coordination and cooperation with the United States and international organizations, risks can be mitigated, and Myanmar can bolster its anti-money laundering (AML) and counter-terrorist financing (CFT) credentials.

The financing of proliferation is an adjunct to WMD proliferation, and identifying the deficiencies in Myanmar's financial system in regards to AML and CFT will benefit both Myanmar and the global effort to disrupt proliferation trade networks. Myanmar has demonstrated its commitment to this effort in several ways. Domestically, Myanmar drafted the Control of Money Laundering Law (CMLL) in 2002 and established the Myanmar Financial Intelligence Unit (MFIU) in 2004. Regionally, it has signed the ASEAN Convention on Counter-Terrorism (ACCT) in 2007, and ratified the ASEAN Treaty on Mutual Legal Assistance in Criminal Matters in 2009. And in a show that Myanmar stands ready to cooperate with the international community and join its efforts to fight against terrorism, the country is cooperating with the Office of the United Nations Counter-Terrorism Committee Executive Directorate (CTED) in pursuant to UNSC resolutions related to AML and CFT.

Additionally, Myanmar joined the Asia Pacific Group on Money Laundering (APG) in 2006, a regional organization committed to the implementation and enforcement of internationally accepted AML and CFT standards as set out by the Paris-based Financial Action Task Force (FATF).

These positive steps are a far cry from Myanmar's previous FATF label as a 'non-cooperative country and territory' (NCCT) in 2001 and the related action by the US Department of the Treasury to designate the country to be of 'primary money laundering concern' in 2003 under Section 311 of the USA PATRIOT Act.

But Myanmar's demonstrated commitment is only as strong as its ability to implement and enforce, and financial regulations and oversight are critically deficient in several areas. Financial intelligence units (FIUs) play a key role in a countries AML and CFT efforts, serving as the national center for receipt and analysis of suspicious transaction reports (STRs) and other relevant information.

An FIU should operate autonomously and have timely access to entities reporting STRs and financial, administrative, and law enforcement information. Myanmar's FIU currently operates as a financial sector body under the Ministry of Home Affairs and under the direct supervision of the Chairman of the Central Control Board (CCB), but has no separate budget from the CCB and its independence is hampered by the CCB's operational role in STR processing. Myanmar's FIU is further weakened by inadequate laws to criminalize terrorist financing, and despite more than 1000 STR submissions since 2004, there have been none received in relation to terrorism financing, as of the most recent APG Mutual Evaluation Report on Myanmar.

While the reporting of suspicious transaction reports is pivotal to countering proliferation financing, weak regulation and limited coordination between agencies and authorities has allowed many sectors to remain outside of STR reporting and supervision. Although 1993 Myanmar Hotel and Tourism Law prohibits gambling in hotels, the government recognizes that several illegal gaming and casino operations exist near the Myanmar-Thai border, a hotspot for illicit activity. These casinos do not submit STRs and their transactions are ultimately unregulated by the broader Central Control Board. Also, the more than 300 non-profit organizations (NPOs) that operate in Myanmar have not been reviewed to assess vulnerabilities to proliferation financing and are not mandated to make their records available to authorities, including financial reports/balance sheets.

Most challenging is the vast bulk of financial transactions that take place outside of the formal financial sector. A combination of distrust of Myanmar banks, limitations on opening foreign currency accounts, lack of foreign correspondent banking, government control of foreign exchanges and wire transfers, and the dominant role of the state in banking encourages the use of informal systems to move money and products in and out of the country.

As a result, cash couriers and Hundi (informal brokers) are estimated to be used by 85 percent of the population instead of formal and regulated banking institutions. Because these informal systems fall outside of all the AML/CFT regulations put in place and do not report to Myanmar's financial intelligence unit, they provide a viable method for illicit actors to launder money and finance proliferation.

The challenges are great, and vulnerabilities in Myanmar's financial system require experienced consultation. Myanmar would benefit from training workshops with US governmental and non-governmental institutions that teach regulatory enforcement methods to related departments, as well as instructing all levels of banking employees how to spot suspicious transactions.

The US Treasury's Financial Crimes Enforcement Network (FinCEN) could also consult Myanmar's FIU on the tools needed to adequately work with reporting institutions and related law enforcement. Coordination between intelligence agencies would also better equip both countries in identifying individuals and entities suspected of proliferation and abuse of the financial sector, allowing agencies and financial institutions to target assets and block transactions. And to address the vast informal sector, the US Embassy in Yangon could host international fintech firms to teach local banks the new tools available for reaching the rural and unbanked in cost-effective ways while abiding by AML/CFT standards and regulations.

Tightening Myanmar's financial system to prevent abuse by illicit actors will be of benefit to not just Myanmar, but both the region and the global financial system. This effort should take greater priority in the new and fast-deepening US-Myanmar relationship. The United States will also need to understand that trade regimes and enforcement mechanisms do not take place overnight, and careful guidance and patience will be key to any progress. As one senior military official and government advisor put it, 'In America, you have spent over 200 years to get to where you are. This is the very beginning stage of our transition.'

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