Revealed: the international banks providing finance to the Myanmar military
February 15, 2021
As Myanmar’s military junta steps up repression against its own people, the generals need to be prevented from gaining access to the country’s foreign assets and using the international banking system to maintain their violent rule.
The international community must take the following action immediately:
• Locate and freeze Myanmar’s billions of dollars in foreign reserves so they cannot be embezzled by the generals or siphoned off to bankroll their brutal regime;
• Suspend all business with military-controlled banks in Myanmar. This also means ensuring these banks cannot continue to use the SWIFT communication network;
• Suspend all non-humanitarian support to state economic agencies and state banks in Myanmar, including the central bank, which are now under military control;
• Impose immediate targeted sanctions on military-owned businesses, including banks fully and partially owned by the state.
International transactions by other banks in Myanmar, including privately-owned and foreign banks, need to be closely and continuously monitored to ensure that they are not being used by the military junta to move funds in and out of the country.
Freezing Myanmar’s foreign reserves
Myanmar’s official foreign reserves represent a deep pool of public money which is at risk of being drained by the military regime. The International Monetary Fund (IMF) has said that there was US$6.7 billion in reserves, as of September 2020.
The US government has said it will freeze US$1 billion in Myanmar government funds in the US to stop the generals accessing them. This leaves approximately US$5.7 billion unaccounted for.
Other governments musty swiftly do the same and make sure that all of Myanmar’s foreign assets are inaccessible to the military regime. They are the property of the people of Myanmar, not the corrupt and illegitimate military generals.
Some of Myanmar’s foreign reserves are likely to be kept on deposit with the Federal Reserve Bank of New York, which is commonly used for this purpose by other countries.
Justice For Myanmar has received credible intelligence that some funds are kept on deposit with commercial banks in Singapore. But we have not been able to independently verify this information.
Central Bank of Myanmar
The central bank, which manages Myanmar’s foreign reserves, is independent by law. But the military demonstrated its political power over the institution by replacing its governor the day after the coup.
It has been reported that one of the three deputy governors of the central bank, Bo Bo Nge, was arrested by the military during the coup and was still being detained more than a week later. Like many other civilian leaders, his whereabout is unknown.
According to Assistance Association for Political Prisoners (AAPP), as of Feb 15 more than 400 have been detained in relation to the coup and 360 remain detained. This number is on a sharp rise as the junta carries out nightly arrests of peaceful protesters and civil servants who joined the civil disobedience movement.
Grand corruption risk
As the peaceful demonstrations continues to grow stronger by the day, there is an imminent danger that the junta could use the bank’s authority to draw down these funds and spend them, without any accountability, to prolong its rule.
Given the military’s history of corruption, there is also a serious risk of public funds being diverted into the private bank accounts of generals and their cronies.
To prevent Myanmar’s reserves from being looted, foreign banks must freeze the accounts in which these funds are held and prevent the money from being accessed, except for humanitarian spending which can be scrutinised by the international community.
This also means ensuring that foreign banks holding Myanmar’s reserves do not automatically process requests from Myanmar for funds to be transferred.
International donors should freeze any transfers of aid or other financial support to Myanmar, other than for essential and humanitarian purposes. The IMF made a US$350 million emergency loan to Myanmar in January 2021, only days before the coup, and there is little prospect of the IMF getting the money back. No more unrestricted international funds should flow into Myanmar as long as the military regime is in power.
Cutting off the junta’s access to international banking
The military junta in Myanmar can access the international financial system through:
• Banks which are controlled by the state;
• Banks which are controlled by the military itself; or
• Banks which are controlled by businesspeople allied to the generals who were described as “cronies” in a report published in September 2019 by the UN Independent International Fact-Finding Mission on Myanmar on the military’s economic interests.
Access could permit the junta to move public funds in and out of the country and carry out “off-the-books” foreign deals such as buying weapons and facilitate asset theft.
Therefore, access to banks needs to be limited to essential and humanitarian transactions only.
This means imposing targeted sanctions on the four state-owned banks in Myanmar, the two commercial banks in which the government has a stake and two banks which are controlled by military holding companies.
The four state-owned banks in Myanmar are:
• Myanma Foreign Trade Bank (MFTB)
• Myanma Investment and Commercial Bank
• Myanma Economic Bank (MEB)
• Myanma Agricultural and Development Bank
MEB in particular has a history of very large and opaque transactions with public funds. Before reforms were undertaken in 2019, revenues from other state companies used to pile up in so-called “other accounts” at MEB rather than going into the national budget. In 2017 there was reportedly more than US$9 billion in these accounts.
Justice For Myanmar understands that much of this money was lent out to crony companies linked to the military which have not paid the loans back, though it is not possible to confirm this from MEB’s accounts which are not published.
State banks hold about 30 per cent of all the assets in Myanmar’s banking system, according to the central bank.
Connections need to be suspended between them and the foreign banks they use to access the international financial system.
Myanma Foreign Trade Bank reportedly has fifty or so correspondent banks around the world, including in the United States, United Kingdom and other European countries as well as in Asia. MEB’s Facebook page lists 16 correspondent banks in Singapore, Thailand, China, Japan, Malaysia, Bangladesh and India.
The government has a stake in two private-sector banks: it owns 9.8 per cent of Myanmar Citizens Bank, which is listed on the Yangon stock exchange and does publish accounts, and a stake in Myanmar Construction, Infrastructure and Housing Development (CHID) Bank.
The government’s stake is in these banks is now under the control of the military.
Myanmar Citizens Bank reportedly has correspondent banking relationships with banks in Germany, Singapore, Thailand and Malaysia.
The military owns two other private-sector banks: Myawaddy Bank and Innwa Bank.
Myawaddy Bank is the sixth biggest domestic bank in Myanmar, measured by assets. Innwa Bank is much smaller, according to central bank figures.
Foreign bank complicity
If foreign banks continue to do business with these banks under military-control, they will be complicit in propping up the military regime and the crimes the military is continuing to commit against the people of Myanmar, which include war crimes and crimes against humanity perpetrated against ethnic people.
These banks must also be prevented from using the SWIFT system, which banks use all over the world to communicate transactions to each other.
Private companies which support the operations of these banks should also suspend their dealings with them immediately. For example the Indian technology company Infosys which provides software services to Myawaddy Bank. Swiss fintech company Temenos provides core banking software to Myanmar Construction, Infrastructure and Housing Development Bank and Myanmar Citizens Bank.
Credit cards and remittances
Credit card and remittance contracts with military-owned banks legitimise the military regime and may support military regime leaders and their enablers to move money around the world with ease. These must be immediately terminated.
For instance, Mastercard has a contract with Myanmar Citizens Bank. Japan Credit Bureau has contracts with Myawaddy Bank and Myanmar Citizens Bank. MoneyGram has a contract with Myanmar Citizens Bank.
There also needs to be close scrutiny of transactions via privately-owned and foreign banks in Myanmar because if military-controlled banks can no longer access the international financial system, they may route transactions indirectly through other banks.
There are 27 privately-owned domestic banks in Myanmar, according to the central bank, which account for two-thirds of the assets in the banking system. Some are known to be owned by so-called crony companies with close ties to the military.
An example is the largest private bank, Kanbawza (KBZ) Bank. According to the UN Fact-Finding Mission, the bank is part of a conglomerate which has partnered with the military in jade and ruby mining and donated nearly US$2.5 million to the military to be spent in Arakan State in support of the military’s campaign of genocide against the Rohingya people in 2017.
Some 17 foreign banks have branches in Myanmar and another 45 have representative offices. These banks are mostly from Asian countries, notably Japan, China, South Korea, Taiwan and Singapore, while Australia’s ANZ also has a branch in Myanmar.
The four biggest by assets are Mizuho and Sumitomo Mitsui of Japan, ICBC of China and OCBC of Singapore. These four have more assets in Myanmar than all the other foreign banks put together, and these assets are large. The Yangon branch of Singapore’s Overseas Chinese Banking Corporation had total assets of US$645 million in September 2020, according to its published accounts.
Not all the business done by foreign banks in Myanmar are connected to the state, the military or its cronies. For example, banks also legitimately service foreign corporations which have invested in the country and domestic businesses. Nonetheless, the junta will have a strong incentive to seek access to the international financial system by any possible route. Therefore, all cross-border banking needs to be closely scrutinised and, if necessary, blocked.
Suspending support to the Myanmar military’s financial system
Technical support or aid to government ministries and military-controlled banks in Myanmar, whether from donor agencies or private companies, must also be suspended for as long as the junta clings onto power.
Such support may not make a difference in the short term to the junta’s ability to do business abroad. But if companies continue, it would be effectively treating Myanmar’s generals as a legitimate partner in the international financial system.
This includes, for example, the provision of technical support and training to the Myanmar central bank and commercial banks by Japan’s NTT, backed by the Japan International Cooperation Agency (JICA). This should be put on hold until power is transferred to a democratic government.
The World Bank should also put on hold its ongoing project to improve public financial management in Myanmar, whose components include working with Myanma Economic Bank to improve its handling of state accounts.
As the people of Myanmar resist the brutal and illegitimate military regime, the international community must take urgent action to send a clear message that it stands with the people and this brutal coup is unacceptable
The Myanmar military and the security forces under their control have been using violence and intimidation against peaceful protesters, including firing rubber bullets and using automatic weapons. A young woman was shot and died on February 13 and others have been severely wounded.
The civil disobedience movement has spread despite the violence and communities have come together to protect themselves from the police, in countless acts of solidarity.
The people of Myanmar are demanding federal democracy, peace, accountability and protection of human rights. If the generals have unrestricted access to Myanmar’s remaining foreign reserves, and the global financial system, they will have ample resources to sustain their brutal repression against the civil disobedience movement and entrench the military junta.
Now is the time for the international community to support the people of Myanmar by freezing foreign reserves, targeted sanctions and an end to business with military-owned businesses.