Myanmar struggles to deal with money laundering and related crime

14 September 2019
Myanmar struggles to deal with money laundering and related crime

It is probably not well-known that a substantial portion of the proceeds of major crime on a world level are on public display. Buildings with fancy names, fast cars, businesses, lavish lifestyles, and even crop plantations may be a façade covering a shady world.

One country that is struggling to deal effectively with decades-old criminal enterprises is Myanmar.

Every country has its problems with trying to crack down on money laundering but in Myanmar’s case, the illegal rot runs deep due to a massive illegal drugs trade, criminal enterprises tied up with ethnic armed groups, terrorist elements, and allegations that members of the Military and government are involved.

DECADES OF ENTRENCHMENT

This corruption has a long history, its main roots in the decades-long ethnic conflicts and the successive military regimes that have held power in Myanmar from General Ne Win’s 1962 coup up until a change of guard in 2011 and beyond. 

Although the ensuing Thein Sein regime promised change, with the National League for Democracy-led government picking up the anti-crime crusade mantle, the reality is that effectively tackling money laundering and related crime is a tough nut for the authorities to crack.

It is no secret that the core problem lies in Myanmar’s illegal drug production and trafficking with the equivalent of billions of dollars being fed into the economy under a variety of guises.

GOVERNMENT ACTION

The Myanmar government is seeking to tackle the problems of money laundering and drug trafficking using a number of measures from increased policing and the confiscating and burning of drugs to tackling the problem of corrupt officials. 

Only this month, Myanmar President Win Myint called on the Central Committee for Drug Abuse Control (CCDAC) headed by its Chairman Lt-Gen Kyaw Swe, the Union Minister for Home Affairs, to step up momentum in its fight against drugs, according to local media reports.

Speaking at a meeting with the CCDAC at the Presidential Palace in Nay Pyi Taw, the President said controlling the spread of illegal drug use was a national duty that the government is undertaking in line with UN conventions.

President Win Myint called on the government’s anti-drug body to speed up its work, both in terms of cracking down on the trade and also raising drug awareness. He instructed them to carefully carry out awareness-raising campaigns on the dangers of narcotic drugs and provide rehabilitation and treatment to people abusing drugs.
 
The President called it a national duty and said officials must adhere to existing laws, bylaws, regulations and police ethics when handling drug issues, the collection of evidence and ensure swift management in line with court orders.
 
He suggested a holistic approach where those caught up in drug abuse could be provided with therapy and in the right circumstances alternative farming and livestock rearing livelihood options.
 
The President regularly reiterates his concern. In a speech on June 26 at a meeting to mark the 32nd International Day Against Drug Abuse and Illicit Trafficking held at the Myanmar International Convention Centre 2 in Nay Pyi Taw, he said illicit drugs can break down health and social fabric, damage the economy of the people and be linked to terrorist activities, money laundering, illicit financial flows, bribery and corruption and transnational crimes in the country. 
 
This is nothing new. Profits generated from illicit drugs trade can also breed armed insurgencies, something remarked on way back by Kuomintang warlord General Tuan Shi-wen. Drugs have been intertwined with Myanmar’s ethnic armed struggles. 
 
The late Shan nationalist Khun Thawdar in the early 1970s said that opium is a “necessary evil” and that Shan revolutionary groups had to undergo a “pact with the devil” to fund their struggle, the consequences still felt today.
 
This poses serious problems. At the annual drug-burning event, President Win Myint said the government is focused on an all-out effort to eradicate the drug menace through effective cooperation and collaboration among government agencies and a call to the public to join hands and work together as a national duty and obligation of every citizen.
 
In the government’s carrot-and-stick approach to drugs, he called for awareness campaigns for students and youth, community-based initiatives, and counselling and therapy. He stressed the need to zero in on drug producers and crime syndicates, corrupt and lazy officials, and called on society to play its part.
 
As he noted, “There will be no excuse on drugs matters”.

TACKLING MONEY LAUNDERING

When it comes to money laundering in Myanmar, it is clear where the main problem lies.

Speaking on June 27, in the wake of the drug-burning ceremony, Maung Maung Kyaw, director-general of the Ministry of Home Affairs’ Bureau of Special Investigation told the media that 90 per cent of money laundering cases his bureau investigates are tied to drugs.

The bureau leads international money-laundering investigations in partnership with the Central Bank of Myanmar, the Income and Revenue Department, the Department of Agricultural Land Management and Statistics, the Customs Department, the Financial Investigation Police Force, the Anti-Narcotic Task Force and the Anti-Human Trafficking Police Force, and they partner on information sharing with their counterparts in Thailand.

Government sources said illegal drugs confiscated within the 2018-2019 and burned in public view in Yangon, Mandalay and Taunggyi totalled an estimated value of about US$301 million.

This year, 32 types of drugs – made possible through the drug precursors illegally flowing over the border from China - worth millions of dollars including heroin, methamphetamine, ice and pseudoephedrine went up in smoke. 

RESEARCHING MONEY LAUNDERING

Typically, the money made from drug trafficking and other crime in Myanmar needs to be hidden – even if in plain sight. 

A recent report by the Asia-Pacific Group on Money Laundering (APG), “Anti-money laundering and counter-terrorist financing measures - Myanmar, Third Round Mutual Evaluation Report,” states that Myanmar is exposed to a large number of significant money laundering threats that are difficult to tackle. 

As the report says, higher risk predicate offences include drug production and trafficking, environmental crimes including illegal resource extraction including jade, wildlife smuggling and illegal logging, human trafficking, corruption and bribery. 

There are complex contextual issues that increase Myanmar’s risk profile, including significant areas of the country controlled by “non-state actors” and characterised by very serious threats from transnational profit-driven crime trends and related money laundering.

While most relevant authorities demonstrate a reasonable understanding of counter-terrorist financing risks, they do not demonstrate a credible understanding of Myanmar’s much more serious money laundering, according to the report.  
 
“Myanmar does not pursue international cooperation as a priority or in a way that that is in keeping with its risk profile. There is no clear commitment or practice to pursue MLA (money laundering activities). Myanmar makes some use of cooperation, especially with China and Thailand along shared borders, but this is fundamentally lacking when considering Myanmar's overall risk profile,” according to the report.

The Myanmar authorities are adamant that action is being taken to crack down on money laundering. On June 28 in Nay Pyi Taw, Central Team Joint Secretary Police Brigadier General Kyaw Win Thein said his team was closely watching and monitoring money laundering and terrorism funding in the country in order to prevent potential terrorist attacks.

He added that they had been closely monitoring and watching terrorism funding for over three years to check illegal drug trafficking within Arakan or Rakhine State. 

Rakhine State faces problems from the Arakan Army insurgency, and earlier the Arakan Rohingya Salvation Army that attacked border posts in 2017, the Military response sparking an exodus of Muslim Rohingya to Bangladesh. 

SERIOUS FACTOR

One major problem is how to rein in Ethnic Armed Organizations (EAOs) that operate independently from the central government's sway and of course, the multitude of militias and Border Guard Force (BGF) units that are intertwined with the Tatmadaw or Military and have been part and parcel of the illicit economy, directly or indirectly, sometimes taking directives from above and at times out of sheer personal greed and individual necessity. 

In addition, questions hang over how to deal with Chinese money and influence as can be seen in the Chinese-backed Casinos, Chinese money, Chinese payment apps and so forth. 

To fully understand the challenges facing the Myanmar authorities in specifically tackling money laundering, it is important to examine the elephant in the room – Northern Shan State as a “drugs economy” or “narco-state”. 

The problem is deeply ingrained. The drug trade was brought in by the Kuomintang (KMT) when in 1949, its remnants of the nationalist Chinese Kuomintang Army fled China in the face of Communist victory and invaded Shan State establishing a series of base areas in eastern Shan State along the border with Thailand.

From those early days, the shape of drug production and trafficking have changed from raw opium to heroin, methamphetamine, ecstasy and now to high grade refined crystal ice. But the mainstay of reliance on the drug trade to finance insurgency as a main source of revenue remains intact and undisturbed, so also the maintenance and control of the individual EAO’s territories.

Drug production and profits are now so vast that they dwarf the formal sector of Shan State and are at the centre of its political economy. Experts estimate that the total value of the drug trade at over US$ 40 billion per year which is increasing rapidly.

ACTORS AND TRADITION

According to a recent International Crisis Group report titled “Fire and Ice: Conflict and Drugs in Myanmar’s Shan State,” those involved in this political economy drug trade are a “chain of actors from the Tatmadaw, to larger militia units involved in the production, to smaller militias subcontracted to provide localised security and the armed organisations that levy taxes on the trade all benefit and receive due compensation.” 

In other words, a multiplicity of armed actors are involved.

In spite of this northern Shan State is being spared from bloodshed that blighted the Colombian city of Medellin during the heyday of cartel activity in the 1990s or, until recently, Ciudad Juarez, on the Mexico-U.S. border or other Mexican cities, stemming directly from rivalry in the drug trade, although it has a fair share of inter-ethnic armed conflicts which are not directly related to it.

“The answer lies in the fact that the intersection of armed conflict and the illicit economy in northern Shan has for decades operated as an economic-commercial world of interdependent, entrepreneurial patron-client clusters, that is geared toward avoiding fighting as much as practicable around economic ventures such as drugs,” according to the ICG report.

The drug trade in northern Shan State is seen by one experienced observer as “a cooperative system. There is no single controller. It is different from when it was under the control of Lo Hsing Han or Khun Sa”.

Now it is increasingly becoming professionalized, dominated by transnational criminal syndicates operating at huge scale. And they need to stash away or use their ill-gotten wealth.

PART OF THE LOCAL ECONOMY

In principle, laundering profits from illicit drugs trade is not much of a problem in Myanmar.

According to the ICG report, while estimation of the size of the illicit trade is difficult, well-informed locals suggest that it is the major contributor to the area’s GDP, and that occasional local crackdowns on such trade immediately dampen economic activity as a whole. Moreover, it said, the meth trade may generate significant indirect economic activity in Shan State and beyond, with large sums thought to be laundered via the Yangon and Mandalay land and property markets, which are a major driver of growth and jobs in the Myanmar economy – although the sector has slowed in recent years.

Seen from this perspective it is quite evident that the EAOs mostly invest their gains in either Panghsang the Wa capital or Mongla the National Democratic Alliance Army (NDAA) headquarters bustling with casinos, mineral extractions, banana and rubber tree plantations, real estate development and infrastructure undertakings, where Chinese entrepreneurs also have stakes in the businesses. Besides, although the United Wa State Army (UWSA) was known to invest quite massively within Myanmar until 2009 when government pressed for all EAOs to convert into the BGF scheme and come under its military, which most rejected, it is now said to invest mostly in Chinese banks, with Mongla also following suit.

The profits from the drug trade may remain largely within the country for reinvestment although the sizeable amount in billions of dollars would be stashed in regional financial centres through laundering in casinos within the region. 

For example, the UWSA money laundering activities which are supposed to be done at Kings Romans Casino is the case in point. The U.S. Treasury Department has slapped sanctions on this gambling empire in the Lao jungle, which it said was involved in drug, human and wildlife trafficking and child prostitution.

The place is run by Hong Kong-based Kings Romans International (HK) Co. Ltd. on a 102-sq-km (39-sq-mile) special economic zone that occupies seven kms of prime Mekong riverbank overlooking Myanmar and Thailand. The casino is part of the Bokea Special Economic Zone (SEZ) in northern Laos where the Chinese are investing a lot of money for tax-free development. Projects in the SEZ are granted a 99-year lease, at the end of which all properties are to be ceded to the Laotian government, according to Reuters. The company allows visitors to openly buy endangered species products, including tigers and bears smuggled in from Asia and Africa, according to the British-based Environmental Investigation Agency.

Mongla is also well known for casinos of which two casinos, the Diamond International and the Venetian Casino, are the main attractions, while a hundred or so smaller casinos attend to customers coming from China and to a lesser extent from Thailand and elsewhere from Southeast Asia. The casinos were shut down in 2005 because the Chinese government complained. The closure lasted for about a year. 

One system that helps with money laundering is the “hundi” informal money exchange system that remains popular in Myanmar and with Myanmar expatriates. 

The word “hundi” itself is derived from a Sanskrit word meaning “bill of exchange” and the system fills the gaps that modern banks haven’t yet covered.

However, some critics also relate hundi to terrorism financing, more questionably after a surge in terrorist attacks around the world over the last two decades. Some argue that hundi provides anonymity that makes the money transfer system “susceptible to abuse by criminals trying to hide drug money and other illicit funds,” according to an article titled “Consequences of hundi” in The Himalayan Times 25 December 2017 issue.

GUN RUNNING

While the major source of the EAOs' armaments comes from China, with Thailand and Cambodia weapon dealers involving to a lesser extent, no one doubts or questions that drug money is the main source of revenue for the export, import and even manufacturing of war armaments that have become a part of the vicious circle of the armed conflict raging in Myanmar.

The Chinese arming of the Communist Party Burma (CPB) in the mid-1960s to mid-1980s, even after its disintegration continues, albeit in a different way. While the arming of CBP was free of charge delivery for its ideological comrades-in-arms, the ethnic armies born out of CPB such Kokang or the Myanmar National Democratic Alliance Army (MNDAA), UWSA and NDAA were of give-and-take nature with the Chinese business organizations mostly based in Yunnan province of China adjacent to Myanmar.

Apart from just being a reseller of arms, the UWSA began to manufacture its own weapons and ammunition, and it also sold them to various EAOs and to the Indian insurgents like the National Socialist Council of Nagaland (NSCN) and its allies. The National Democratic Army - Kachin (NDA-K), known as Kachin special region 1, which has now become BGF, was also identified by Indian media sources as an exporter of its weapons, which were made in its factory copied from Chinese models. The Kachin Independence Army (KIA) also has arms factories which sell to various EAOs and probably also to Indian insurgents.

The range of war weapons produced by the UWSA includes replicas of the Chinese-designed M–22 assault rifle, and the Chinese M–23 light machine gun, as well as 7.62 mm ammunition that is used by both weapons. Chinese technicians are invited to provide advanced training in the production of artillery and other weapons. Informed sources say the Wa now produce 122-mm howitzers in their own factories.

The Wa weapon factories are said to have been operational since September 2006. However, Burma expert Bertil Lintner said that in 2010 the Chinese asked the UWSA to close down the factory in Kunma not far from Panghsang as it was becoming an embarrassment. But it is not clear if the UWSA has moved its factories across the border in a joint-venture with Chinese manufacturers on Chinese soil or have located to a new hidden location within its jurisdiction.

The KIA also produced a range of weapons including Type 81 variants dubbed the M23, sniper rifles, grenades and ammunition. The factories were run by Chinese specialists but taken over by the Kachin in 2015. It has certainly armed the Ta’ang National Liberation Army (TNLA) in the initial revamping of its forces and as is usual with the EAOs, selling weapons to other outfits cannot be ruled out. 
 
And with combined EAOs fielding some 70,000 troops, weapon demands are high and gun-running is no doubt a lucrative industry. No wonder that the UWSA, KIA and even NDAK are deeply involved in this business. Now, even the TNLA and MNDAA are also said to be planning to set up arms factories with the proceeds of some US$73 million that the MNDAA and TNLA gained from raiding the casino run by the Pansay militia in Kokang's Laukai in March 2017. 

UWSA MILITARY MIGHT

Recently some eyebrows were raised over a display in Wa state over an overt display of firepower.

On April 17, UWSA celebrated the 30th anniversary of its establishment which also coincided with 30 years of a ceasefire with the government.

In its show of military might, some 7,600 soldiers, including women soldiers, sniper troops, with modern weapons, took part in the anniversary parade. Its air defence artillery, including surface-to-air missiles and drones, were displayed with pomp and splendour, heavily photographed by media invited to the event.

Its arsenal includes more modern Chinese infantry weapons such as the QBZ-95 assault rifle only adopted in bulk by the People’s Liberation Army in the early 2000s. Moreover, it has also installed an air defence system, which incorporates radar stations and MANPADS (man-portable air-defence systems) and anti-tank missiles.

The UWSA, with its estimated 40,000 fighters, is one of the largest non-state armed forces in the world, comparable to the armed forces of some countries. 

The Tatmadaw was so upset with the Wa show of force, Brigadier General Zaw Min Tun of the Tatmadaw True News agency made the remark that the 30th anniversary of peace celebration had the appearance of a rival military and shouldn’t have been carried out, speaking at a press conference in Nay Pyi Taw on June 3. 

“It was carried out not only like a rival to the Tatmadaw but also to the government,” Major General Soe Naing Oo added.

The Myanmar military exercised the utmost tolerance in allowing the display by the United Wa State Army (UWSA) as it wants peace, he said. 

TENTACLES REACH FAR
 
Given such links between the drug trade, money laundering and gun running the political economy involves not only Shan State but also the whole of Myanmar and regional capitals are also drawn into illegal narcotics export markets.

As mentioned earlier, Myanmar faces an uphill battle in getting rid of the drug menace and the money laundering that comes with it. Exacerbating the situation further is the domestic weapon selling, export and war weapon proliferation.

Myanmar Financial Intelligence Unit (MFIU) serves as the central agency to receive, request and analyse the reports submitted relating to money laundering, financing of terrorism, or any predicate offences. Its objectives are stated as money laundering, predicate offences related to money laundering and to prevent subsequent offences. Moreover, it aims are to prevent proliferation, financing of weapons of mass destruction, and the freezing of assets.

The question to be asked is how are the Myanmar authorities going to discharge such duties with respect to the Kachin, UWSA and Mongla areas, which are run independently without Myanmar government's interference as separate political units.

Further, the EAOs mostly invest their ill-gotten gains in either Panghsang, the Wa capital, or Mongla the NDAA headquarters, bustling with casinos, mineral extraction, banana and rubber tree plantations, real estate development and infrastructure undertakings, where Chinese entrepreneurs have large stakes in the businesses. 

Besides, although UWSA was known to invest quite massively within Myanmar until 2009 when government pressed for all EAOs to convert to its BGF scheme, which was not successful, it is now said to invest mostly in China, with Mongla also following suit.

Illegal trade and money laundering have infused the Myanmar-China border region to provide “development” and turning impoverished areas into modernity. The two gleaming Myanmar-China border towns of Panghsang or Pangkham, the Wa capital, and Mongla capital of MNDAA are testimony that the Wa-Mongla axis is bearing fruit. These towns now have 24-hour electricity, paved roads, and modern buildings, as well as red-light districts, all popping up within 30 years of the ceasefire agreement with the Myanmar government. 

The challenge for the Myanmar authorities is how to untangle the drug trade, gun running and money laundering that are deeply embedded in regions of the country where they have little or no control.  

If there is a way forward on this score then a comprehensive political settlement for the region is a must. 

Few are holding their breath. 

Contributor: Sai Wansai, Mizzima

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