YANGON, Myanmar (AP) - If you're American and want to do business in Myanmar, there's a list of people and companies you have to steer clear of by law. But it leaves off a former minister's son U.S. officials suspected of brokering arms deals with North Korea, and high-rolling relatives of the man who led the repressive military government for 19 years.
The Obama administration didn't add anyone to the U.S. government's Myanmar sanctions list over 3½ years, despite recommendations from the U.S. Embassy in Yangon to blacklist hundreds of top officials and their business cronies, as well as military and private companies, according to an Associated Press examination of hundreds of pages of government documents, and more than a dozen interviews with officials and business leaders in Myanmar and Washington.
The reason: Washington was seeking to win the confidence of Myanmar's top leadership and encourage them to stick to the path of democratic reform.
The result: The list is full of gaps.
The administration has said it wants U.S. companies to set a "gold standard" for investment and foster a fairer, more transparent way of doing business in Myanmar. But the last powerful tool it has to punish the bad guys and encourage the good ones has fallen way out of date, even though legislation instructs the government to keep the list current. That risks reinforcing a corrupt economic system that has concentrated wealth in the hands of politically-connected businessmen.
Human rights activists accuse the Obama administration of moving too fast to reward the reformist government of Thein Sein, who on Monday will become the first president of Myanmar to visit the White House in 47 years - a trip during which he'll also woo U.S. business leaders.
The U.S. has suspended broad restrictions on investment and trade with Myanmar. It still forbids imports of ruby and jade from Myanmar and doing business with military-owned companies. But the restriction with the greatest impact for investors is against dealings with individuals and companies on the Treasury Department's Specially Designated Nationals list, which identifies those linked to sanctioned governments, terrorists and drug traffickers.
The European Union lifted its sanctions last month, although like the U.S., it retains an arms embargo. That leaves America's sanctions list as the most important international restriction on doing business in Myanmar. While not binding elsewhere, the list affects government and business thinking as far afield as Singapore and London.
Decades of quiet deal-making have nurtured a small business elite that has profited, sometimes brutally and most often dishonestly, from relationships with Myanmar's military leaders and a flood of Chinese money.
With little information available about who owns what in Myanmar, it can be difficult to determine whom a potential business partner is affiliated with. Americans who violate the sanctions could face fines or prison time, though a letter of warning is more likely for those who acted in good faith.
"The list in no way lists all the individuals who would be objectionable to doing business with. And there are individuals on there for purely political and unvalidated reasons," said Rachel Calvert at the consulting company IHS, who helps advise U.S. companies on investing in Myanmar.
U.S. companies, for example, are still free to invest with the wife, eight children and grandson of former military leader Than Shwe - all of whom were sanctioned by the European Union in the past.
They also can team up with the sons of a former minister of industry, Aung Thaung, who was a hard-line leader of a pro-military organization accused of conducting a 2003 attack on a convoy carrying opposition leader Aung San Suu Kyi, killing a number of her supporters. Aung Thaung is now a top figure in the ruling party.
The sons, Pyi Aung and Nay Aung, amassed tens of millions of dollars running Myanmar's second-largest timber company, exporting rice and winning contracts to explore for oil and gas, according to a Sept. 19, 2008, cable from the U.S. Embassy in Yangon recommending their addition to the sanctions list. It also said they were often seen driving around in Hummers.
The cable, and others cited in this story, were obtained and released by WikiLeaks.
Nay Aung was also suspected of brokering arms deals with North Korea and China, according to a July 2, 2009, cable, while Pyi Aung married the daughter of the former military government's second-in-command, Maung Aye. They were sanctioned by both the EU and Australia.
In the 2008 JADE Act, which remains in force, the U.S. Congress ordered the government to sanction the top generals, their immediate family members, officials implicated in human rights abuses and crony businessmen. It also required the president to update the list as new information became available.
But an AP review of Treasury Department online reports found that a small amendment to an existing entry was the only change from the time Obama took office in 2009 until July 2012, when the administration suspended its broader sanctions on financial services and investment and made two additions to the list. It has added only a few more names since then.
"The engagement undertaking took quite a lot of political and diplomatic weight," a senior U.S. government official said, speaking on condition of anonymity under ground rules set by his department as a condition for discussing policy choices. "We were keen to make sure that it was viewed by the Burmese as genuine and as an opportunity. Although we enforced our existing sanctions, I think there was a period when we were less than fully aggressive on pursuing new designations or new sanctions tools."
On July 16, 2009, the U.S. Embassy said in a cable that it had sent over 400 names for sanction and warned that "many of the real perpetrators of human rights abuses or those who provide significant support to the regime are not yet targeted." It added that failure to designate relatives of leaders of the military junta was "an open invitation for sanctions evasion."
Also missing: 33 of the then 38 subsidiaries of Union of Myanmar Economic Holdings, or UMEHL - one of Myanmar's two military-owned conglomerates. The U.S. Embassy said in a Feb. 6, 2009, cable that all the subsidiaries should be included, as well as its board of directors, managing directors and general managers. While UMEHL itself is blacklisted, there is little public information about its assets, making it tricky for investors to identify its affiliates.
In an example of the inconsistencies, UMEHL's $1 billion joint venture in a copper mine in northwestern Myanmar with Wanbao, a subsidiary of Chinese arms manufacturer Norinco, is not on the list, although its previous owner, a now-defunct venture between the government and Canada's Ivanhoe Mines, is. The project made headlines last November when police injured scores in a crackdown on Buddhist monks and others protesting the mine.
When the Obama administration began dialogue with Myanmar's then ruling generals, it resisted pressure from activists who were urging Washington to expand the list to bring it more in line with much longer ones compiled by the European Union and Australia. The U.S. list includes just 39 individuals and 65 companies, after stripping out aliases and duplicate entries.
Australia's sanctions list named 392 individuals, before it was repealed in June 2012. The EU listed 656 individuals and companies, plus another 1,207 companies in the timber, metals and gem industries, money-makers for the military that were banned to European investors. The EU suspended its restrictions a year ago, then lifted them entirely last month.
Tom Malinowski, Washington director for Human Rights Watch, commended the U.S. list as useful but said it "is only as good as the commitment to keep it up to date." He said it includes many of the right people, but since there have been only minor adjustments to the list during the Obama administration, it doesn't reflect changes in the military, still implicated in serious and ongoing rights abuses.
The Myanmar government's failure to stop army violence against ethnic minorities and bloody communal unrest between Buddhists and Muslims has done little to slow the dramatic improvement in U.S.-Myanmar ties.
U.S. officials, who declined to comment on specific cases, concede the sanctions list is not comprehensive. But they say that additions and subtractions from the list remain under active consideration, both to punish those who obstruct reform and reward those who promote it. "It's a punitive tool but the policy objective is to encourage behavior change," the senior government official said.
To date, the only names taken off the list have been President Thein Sein and parliament speaker Thura Shwe Mann, former junta members now seen as leading reformers, in September 2012; and a Singapore-based associate of sanctioned crony Tay Za, who petitioned for removal..
Some argue that Myanmar's crony businessmen, particularly those sympathetic to reform, should be forgiven because they are among the few with the acumen and resources to rebuild the economy. Being on the list makes it harder for them to access capital. The sanctions also prohibit U.S. companies from working with Myanmar's biggest economic players, putting them at a competitive disadvantage.
The Singapore Stock Exchange recently rejected an attempt by Zaw Zaw, the blacklisted chairman of the Max Myanmar Group, to list one of his subsidiaries. The group is one of Myanmar's largest conglomerates, with interests ranging from construction and hotels to gas stations and cement. The exchange's top concern was Zaw Zaw's presence on the U.S. sanctions list and the "lack of clarity" as to why he was placed there, according to a filing with the exchange by the company that would have been his partner in the deal. Zaw Zaw is widely regarded as the cleanest of the cronies. Australian economist Sean Turnell, who follows Myanmar closely, calls him a "pragmatic reform advocate."
The failure to update the list was underscored in February, when Assistant Secretary of State Jose Fernandez shared the stage and a firm handshake with Win Aung, who is blacklisted, at a Yangon event organized by the U.S. Chamber of Commerce. Turnell has described Win Aung, head of Myanmar's main business association, as an "active reformer."
Then there are the Cabinet ministers who lost their portfolios years ago but are still listed as holding them - a shortcoming that a senior Treasury official attributed to the fact that it requires a rigorous administrative process to update a filing.
The official, who requested anonymity under ground rules set by Treasury as a condition for speaking about policy, said his department's resources are more usefully devoted to pursuing new listings or responding to petitions for delisting. He said individuals are free to write to Treasury or retain a lawyer to challenge their designation, although few from Myanmar have done so.
If they don't, the black mark of being on the sanctions list could stick with them - even beyond the grave. Among those from Myanmar on the list for his involvement in illegal narcotics is the once notorious Khun Sa, who headed a guerrilla army that the U.S. once described as the world's largest producer of heroin.
He died in 2007.
Pennington reported from Washington.