Why Is Myanmar on the Blacklist of FATF?

An international watchdog has added Myanmar to its blacklist for terrorist funding, joining Iran and North Korea. This is another blow to the already shaky reputation of Myanmar’s military. The Group of Seven (G7) major countries established the Financial Action Task Force (FATF) in 1989 with the primary mission of combating money laundering. Since then, it has broadened its focus to include stopping the spread of WMD and money for terrorist organizations. Financially, the FATF’s recent action was a vote of no confidence in the military regime that took control in February 2021, which stoked a countrywide war and caused the country’s economy to tank. The real problems, however, existed long before the coup. As FATF president Raja Kumar put it, “This is for failing to resolve a substantial number of strategic shortcomings in its anti-money laundering and counter-terrorist financing systems.” 

Consequently, the FATF urges other nations to conduct more stringent due diligence in their dealings with Myanmar. The FATF flags countries whose AML/CFT controls are inadequate. Since Myanmar has not adequately handled the AML/CFT recommendations, the FATF declared that the nation has been classified as a high-risk jurisdiction subject to a call for action. FATF has also suggested that member nations immediately ban Myanmar and apply additional due diligence measures. However, this does not necessarily spell the end of any and all financial dealings with Myanmar. Rather, such deals will be subject to more stringent regulations and more thorough due diligence.

The blacklist; what does it mean? 

Myanmar has been added to the Financial Action Task Force’s list of high-risk nations having severe inadequacies in countering money laundering, terrorist funding, and proliferation financing (FATF). This implies that responsible authorities and financial institutions must take extra due diligence procedures to manage the increased risk associated with financial transactions involving Myanmar, such as:

  • Acquiring more identifying information from a larger variety of or more credible sources and utilizing it to inform the individual customer risk assessment doing further searches (e.g., verified unfavorable media searches) to inform the individual customer risk assessment
  • Commissioning an intelligence study on the customer or beneficial owner to better comprehend the risk that the customer or beneficial owner is engaged in criminal conduct
  • Verifying the source of cash or riches involved in the business partnership to ensure that they are not the proceeds of crime
  • Obtaining extra information from the consumer regarding the purpose and intended nature of the business connection

Leaving the FATF is not something that happens overnight

This sort of FATF action is not unprecedented, and authorities and financial institutions have already begun implementing heightened due diligence processes with regard to transactions involving Myanmar. Myanmar has past experience implementing an action plan to remove itself from FATF listings. Myanmar was on the “blacklist” (high-risk jurisdictions subject to a call for action) from June 2001 to October 2006, and again from October 2011 to February 2016, and it was on the “grey list” (jurisdictions subject to increased monitoring) from February to October 2016, and again from February 2020 to October 2022. Since 2020, the European Union has compelled European banks to do additional due diligence on transactions involving Myanmar. Furthermore, until 2016, when the nation effectively resolved AML/CFT flaws in the action plan, FATF classed Myanmar as a high-risk jurisdiction, its position improved somewhat to “jurisdiction under heightened surveillance.” Many firms that are presently functioning in Myanmar were also operating at the time when Myanmar was classed as a high-risk jurisdiction. In this sense, it is possible that this most recent declaration would not materially limit or obstruct financial transactions involving Myanmar any more than it did before. 

The impacts 

The military regime in Myanmar, which is already trying to seize control of the country’s economy in the context of worsening political conditions, would suffer a huge setback as a result of Myanmar’s inclusion on the blacklist. Corporations that do business with residents or companies of Myanmar are compelled to comply with stringent reporting requirements. As a result, Myanmar’s banks and other financial institutions are virtually cut off from the international financial system. Even if it would not completely block Myanmar off from the rest of the world, it will significantly diminish the already tiny pool of foreign corporations that see any advantage in investing in the war-torn nation.

To begin, the decision will make the distribution of foreign assistance much more difficult and place a burden on businesses that are still present in the nation and are attempting to conduct themselves in a responsible manner. At the present day, the nation has been engulfed into a civil war. The level of chaos that has permeated Burmese society has already contributed to the destabilization of the nation. At this point, the choice made by the developed world, which is also the principal supplier of assistance, is a significant setback for Myanmar. 

In the second place, the blacklisting places an additional barrier in the way of doing business with international enterprises and investors, in addition to the junta’s control of the foreign currency market and other unfriendly measures. A great number of international businesses have already left the country due of the unfriendly political climate. In the event that the FATF is administered in the correct manner, the nation will not have many development partners. Thirdly, there is a possibility that the economy of Myanmar as a whole would see a significant decline in the not-too-distant future. After contracting by roughly a fifth in 2021, the World Bank forecasts that Myanmar’s GDP will continue to contract by the same amount this year. In its report from July 2022, the bank issued a warning that a surge in inflation had caused all enterprises to experience operational difficulties. 

Fourthly, the decision has also prompted the demands of opposing organizations, who are also claiming that the economy of the nation is in jeopardy as a result of the situation. According to the National Unity Government, which is a rival body put up by parliamentarians who were formerly in power, the blacklisting further increases the regime’s international isolation. “It sends a very strong signal that Myanmar is not a reliable place to do business as long as this crisis goes on, and investors should see that nothing is functioning properly under the military regime,” said Sasa, the international cooperation minister and spokesperson for the NUG. Sasa also said “As long as this crisis goes on, Myanmar is not a reliable place to do business.” The declaration is both an unmistakable message from the anti-junta movement as well as an effective instrument for the movement’s demand and protest. 

Fifthly, the decision that was made by FATF had another facet or perspective, and that was the possibility that it was a component of larger-scale international politics. We are all aware that the relationship between China and the West has reached a stage where both sides are quickly playing all of their cards in order to maintain their supremacy over what is known as the “other world” or the developing world. The blacklist would further damage trust among investors in Asia and the West, but China may end up being an exception to the rule. In light of the increasing tension between the United States and China as well as the conflict in Ukraine, Chinese financial institutions and state-controlled investors have grown more prepared to divorce from the international financial and regulatory systems. Additional Chinese investment in Myanmar will provide Western nations an allegation weapon that is both simple and credible if they want to pursue it. Because Western business giants are having trouble in Myanmar, how has China outnumbered the west?

Finally, because sanctions imposed by individual nations, like the United States and the member states of the European Union, are already in effect, the FATF backlist now allows for directed sanctions to be imposed against the Myanmar Central Bank and other corresponding banks, thereby cutting off access to international banks and institutions. Regarding the trade sector, EU is willing to implement another line of penalties or restrictions; nonetheless, it is quite probable that the United States will go through with an approach that is far more stringent than the EU’s.

To summarize, the history of the Burmese government has always been marred by negative aspects, such as sanctions, war crimes, civil wars, ethnic cleansing, and other similar occurrences. Despite this, the people of Myanmar have always maintained the belief that their country would one day live in peace. The latest decision made by the FATF has made it quite obvious that collaboration would not be possible, and at the same time, it expresses unequivocal opposition to the junta regime that is now in power in Myanmar. In addition, this procedure will be repeated in the years to come in the event that the political landscape does not provide any favorable results. 

[Photo by Mil.ru, via Wikimedia Commons]

*S. M. Saifee Islam is a Research Analyst at the Center for Bangladesh and Global Affairs (CBGA), Dhaka, Bangladesh. The views and opinions expressed in this article are those of the author.

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