OFAC License for "New Investment" in Burma Brings New Challenges
On July 11, 2012, the Office of Foreign Assets Control (OFAC) issued General License No. 17 (GL-17), a much anticipated general license authorizing new investment in Burma. The prohibition on new investments has been the cornerstone of the U.S. sanctions on Burma since 1997. While the European Union lifted its Burma sanctions completely, the United States government has taken a much more conservative path, maintaining many of the sanctions' restrictions and imposing new and significant reporting obligations to enable it to monitor closely the return of U.S. investors to Burma.
Among the sanctions that remain fully in effect is the ban on the importation into the United States of products of Burma. For U.S. manufacturing companies considering investment in Burma, this restriction will currently limit their ability to bring Burmese products into the U.S. market. Similarly, U.S. investment in oil or natural gas production in resource rich Burma must be undertaken with an eye toward sales in non-U.S. markets unless the import ban is lifted. Even imports related to product development-core samples, for example-will require an OFAC license to address the basic prohibition on imports.
A particular challenge presented by GL-17 is the monitoring of the value of the new investment. While all new investments are authorized by the license, there is a significant and burdensome reporting obligation that comes into effect once the value of the new investment reaches $500,000. This triggering amount is cumulative: an initial investment is added to any subsequent investment. The reporting obligation involves both an abbreviated public report and a more detailed report to the Department of State with an annual due date of April 1.
The obligation to monitor the value of the investment is complicated by the lack of clarity as to what must be counted as an investment. The Burmese Sanctions Regulations, 31 C.F.R. Part 537, include a definition of "new investment" that defined the original prohibition on investing; not surprisingly that definition was very broad in its scope. In addition to equity investment, it included entry into a contract that would develop resources in Burma, including human resources. Now that this definition must serve to define what is permitted as opposed to what is prohibited, investors must monitor carefully any activity they pursue. A sales office may seem like a minor investment but it is likely that all cost associated with the office including employee salaries and benefits, must be treated as part of the new investment in determining whether the reporting limit has been reached.
Companies seeking to do business in Burma may wish to seek further guidance from the U.S. Government to understand how to value these investments. If an investor secures a line of credit to support its investment is this considered part of the investment or is it only when the credit is drawn on that it must be counted? If inventory or equipment is exported to Burma is this part of the new investment tally? Companies have opportunities to seek guidance directly or by participating in industry groups.
In the absence of clarifying guidance, U.S. companies anxious to re-enter Burma should be prepared to keep close tabs on their investment in anticipation of the extensive disclosure that that investment may trigger.