Suu Kyi’s Sanctions Dilemma

When Myanmar was under repressive military rule, political prisoner and pro-democracy dissident Aung San Suu Kyi was an outspoken proponent of the economic and financial sanctions the United States imposed against the regime’s abysmal rights record. Now, as the country moves into a new quasi-democratic era, will Suu Kyi and her National League for Democracy-led elected government lobby Washington to quickly remove its remaining sanctions?

On April 1, Suu Kyi’s confidante Htin Kyaw will assume the presidency, marking the first time in over five decades the country has been under nominal civilian rule. After failed talks with military leaders to suspend a constitutional provision, known as 59(f), that bars anyone with foreign national family members from becoming president, Suu Kyi restated her intention to “rule from above” her trusted aide. Suu Kyi’s power will be contained by the military’s control over the defense, home and border affairs ministries, and a 25 percent bloc of appointees in parliament with the numbers to block any NLD-proposed charter amendments.

How the new power-sharing arrangement between elected and military representatives is brokered and defined will likely factor into Suu Kyi’s sanctions stance. Some Myanmar watchers believe Suu Kyi will take a gradual approach to maintain bargaining power vis-à-vis the military. The military, also known as the Tatmadaw, and its associated business cronies are known to want the sanctions lifted quickly. Outgoing President Thein Sein lobbied intensely for their removal during his military-guided five-year tenure. While European countries lifted their sanctions, both in reward for political reforms and to pursue commercial opportunities, the U.S. eased trade sanctions but did not erase its rights-tied punitive measures.

The U.S. currently maintains three types of sanctions against Myanmar. The Treasury Department’s so-called Specially Designated Nationals (SDN) list bans business dealings with around 150 individuals and companies linked to the previous military regime, as well as entities that are 50 percent owned by SDNs; the 2008 JADE Act outlaws the import of Myanmar-mined jade and rubies; and military and arms sanctions restrict the export of arms to the Tatmadaw, ban business dealings with military-owned companies, and bar U.S. investment in entities with ownership or other ties to the Ministry of Defense or any other military group, including armed ethnic organizations.

Analysts anticipate the arms and gems sanctions will remain in place for the foreseeable future in light of recent reports of abuses in the jade trade and the military’s ramped up counterinsurgency campaigns. Apparent behind-the-scenes conflict between Suu Kyi and army commander Senior General Min Aung Hlaing over her post-poll bid to become president could mean she will continue to support SDN sanctions as one of the few bargaining chips – along with her NLD party’s overwhelming election win last November – she holds over the Tatmadaw. The military has already tested the U.S.’s resolve to uphold the sanctions with its controversial appointment of Myint Swe, an SDN closely linked to former dictator retired Senior General Than Shwe, as First Vice President.

In February, a U.S.-ASEAN Business Council-led consortium lobbied Congress to let the legal framework that supports the SDN list, known as the International Emergency Economic Powers Act, lapse when the annual review takes place on May 20. The outright elimination of Myanmar’s SDN list seems unlikely, however. Scot Marciel, the new incoming U.S. Ambassador to Myanmar, has said he does not foresee or recommend dramatic changes to sanctions policies while Myanmar is still in transition from military rule. The veteran envoy’s appointment was delayed for nearly two months by the Senate until the Obama administration guaranteed it would not administratively ease sanctions without first consulting Congress.

Congressional concerns stem from news reports last year that revealed Yangon’s main port was owned and operated by a subsidiary of the Asia World Group, Myanmar’s largest conglomerate and an SDN. Asia World’s chief executive, Steven Law, is the son of the deceased Lo Hsing Han, a known heroin trafficker who allegedly founded the company to launder his drug lucre. When U.S. banks reacted to the news by freezing trade payment services, threatening a de facto embargo on Myanmar’s trade, the Treasury Department issued a “general license” waiver outside of Congress that allowed U.S. banks and companies to sidestep the sanctions without risk of penalty for a six month period. 

Many Myanmar businessmen have lobbied to be removed from the SDN list, most to no avail. “There are no specific requirements for individuals to meet, so the process appears to be entirely subjective, which may prove problematic in the future,” said Larry Dohrs, chairman of the U.S. Campaign on Burma, a pro-sanctions lobby group. He notes that both outgoing President Thein Sein and Lower House Parliamentary Speaker Shwe Mann were delisted based on their perceived concrete steps towards promoting political reforms and human rights, and moving the country broadly towards democracy. “Newly elected Vice President Myint Swe’s case may prove a bit more challenging,” Dohrs predicts.

Prominent rights groups continue to lobby Washington against lifting sanctions, including any significant subtractions from the SDN list, until the country’s new post-election political dynamic is more clear. David Mathieson, senior researcher for Myanmar at U.S.-based Human Rights Watch, notes that the U.S. Treasury Department has so far dropped sanctioned individuals and entities only “infrequently,” including individuals who have engaged U.S. officials in Yangon to meet delisting requirements that have varied on a case-by-case basis. Three recently de-listees, including former junta industry minister and alleged serial rights abuser Aung Thaung, were removed only posthumously, he noted.

“The mood in Washington is to balance hope and support for a [Suu Kyi] government with continued concern over a still deplorable human rights situation, and that removing sanctions should be tied to what the new government calls for,” said Mathieson, who recently met with new U.S. ambassador Marciel in Washington. “In short, the U.S. should maintain what sanctions they have – they may need the leverage some time soon. Scrapping them [would be premature] at a time the EU and others indecently scrapped theirs too early in the reform process was rash, shortsighted, and motivated by commercial greed.”

At the same time, Suu Kyi will quickly find herself stuck between the political need to manufacture a feel-good, post-election economic boomlet and the reality that the military and its allied business cronies who dominate the country’s underdeveloped economy would disproportionately benefit from any abrupt removal of U.S. sanctions. NLD parliamentarians took a step towards challenging that domination when the lower house approved a proposal in February to scrutinize the perceived-as-hasty sale of state assets, property and projects to military-aligned individuals and businesses in the long post-election transition to NLD rule.

The notion that the NLD may challenge the legality of the military’s and its business cronies’ outsized economic holdings, including those derived from a previous opaque and unaccountable privatization of state assets in the late 2000s, will give already sanctions-hampered U.S. investors more reason for pause. Even with the easing of certain sanctions in 2012, American firms, including those that established representative offices in the country, were reluctant to engage individuals and entities that could carry substantial reputation risks if found to have hidden links to SDNs or illicit trades. Until Suu Kyi decides to forgive and forget, U.S. sanctions will likely remain in place and U.S. companies only marginally involved in the country's frontier markets.