International Financial Watchdog Adds Myanmar to Blacklist

ASEAN Rhythm | Economy | Southeast Asia

The Financial Action Task Force said the move was the result of the country’s persistent failures to combat money laundering and terrorist financing.

An international watchdog has added Myanmar to its blacklist for money laundering and terrorist financing, along with North Korea and Iran, dealing a heavy economic blow to the country’s military government.

in a saturday statement, the Paris-based Financial Action Task Force (FATF) announced that it had added Myanmar to its category of “high-risk jurisdictions subject to a call to action,” commonly known as its blacklist. He cited the fact that the country did not make enough progress in the fight against money laundering and the financing of terrorism.

FATF, a Paris-based intergovernmental body established by the G-7 nations in 1989, describes himself as a “global money laundering and terrorist financing watchdog,” helping to coordinate international efforts “to prevent organized crime, corruption, and terrorism.” This is the first time the group has added Myanmar to its “calls to action” list, which will create cumbersome compliance reporting for any company or financial institution operating in Myanmar.

While the FATF move is a financial vote of no confidence in the military junta that took power in February 2021, inflaming a national conflict and sinking the country’s economy, the core issues predate the coup. As FATF President T. Raja Kumar told Bloomberg, the flaws “were first identified in a report in September 2018; more than four years later, many of those problems persist.” He added: “I urge the Myanmar authorities to quickly complete their specific action plan to address the identified strategic shortcomings in the country.”

The blacklisting of Myanmar represents a severe blow to the military junta, which is already struggling to gain control of the country’s economy in a deteriorating political environment. In effect, it places Myanmar banks and financial institutions outside the mainstream of the international financial system, and forces companies that deal with Myanmar citizens or companies to comply with onerous reporting requirements. While it will not totally isolate Myanmar from the outside world, it will drastically reduce the already small group of foreign entities that see any benefit in investing in the conflict-torn country.

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At the same time, the FATF policy towards Myanmar contained an important exception for humanitarian assistance, something that does not exist in the case of Iran or North Korea. “By applying enhanced due diligence measures, countries must ensure that the flows of funds for humanitarian assistance, legitimate non-profit organizations [non-profit organization] activity and remittances are not interrupted,” he says.

The resulting compromise, which Gwen Robinson, Managing Editor of Nikkei Asia, described as “blacklist-lite”, it is probably a way to address concerns, issued in the last few weeks, that a FATF blacklist would affect ordinary people more severely than the ruling class of generals and crony tycoons. Non-governmental organizations are also concerned that blacklisting will complicate their ability to operate within the country.

While the exception seems fair in practice, it is far from obvious that it is easy for governments to separate economic interactions for humanitarian purposes from those that could potentially strengthen the military junta. As a result, the exception, if it has any impact, may end up enhancing the strongest economic impacts on the coup government.

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