BURMESE TAKE TO THE ETHER TO AVOID SANCTIONS

UNCLAS RANGOON 000694 SIPDIS SENSITIVE STATE FOR EAP/BCLTV, EB/ESC COMMERCE FOR ITA JEAN KELLY TREASURY FOR OASIA JEFF NEIL USPACOM FOR FPA E.O. 12958: N/A TAGS: EFIN ECON PGOV BM SUBJECT: BURMESE TAKE TO THE ETHER TO AVOID SANCTIONS REF: A. RANGOON 138 ¶B. 03 RANGOON 1337 ¶1. (SBU) SUMMARY: BURMESE BUSINESSES HAVE A WELL-EARNED REPUTATION FOR CREATIVITY IN THE FACE OF OBSTACLES. MANY HAVE FOUND WAYS TO WORK AROUND LAST YEAR'S BAN ON U.S. FINANCIAL SERVICES (INCLUDING TRADE FACILITATION AND CREDIT CARD SERVICES). ONE OF THE LATEST METHODS INVOLVES LARGER COMPANIES USING OFFSHORE AFFILIATES AND THIRD-PARTY FACILITATORS TO OFFER CREDIT CARD SERVICES IN RANGOON. THOUGH WE CAN'T SAY IF THIS SCHEME LEADS TO VIOLATIONS OF U.S. SANCTIONS, IT SURELY CIRCUMVENTS THEM AND IS CONTRARY TO THE DESIRES OF THE MAJOR U.S. CREDIT CARD FIRMS WHO LAST SUMMER ANNOUNCED THEY WOULD SUSPEND THEIR BURMA OPERATIONS. END SUMMARY. ADAPT, ADOPT, AND IMPROVE ¶2. (SBU) DESPITE U.S. SANCTIONS THAT PROHIBIT U.S. PERSONS FROM PROVIDING FINANCIAL SERVICES AND THE DECISION BY MASTERCARD, VISA, AND AMERICAN EXPRESS TO SUSPEND THEIR OPERATIONS IN BURMA, MANY HOTELS, SHOPS, AND TRAVEL AGENCIES AROUND RANGOON ARE STILL ACCEPTING CREDIT CARDS. MOST ARE NOT KEEN TO DO SO, TAKING A CARD FROM A CUSTOMER ONLY IN A PINCH. HOWEVER, OTHERS ADVERTISE AGGRESSIVELY THAT "MASTERCARD AND VISA ARE ACCEPTED!" ¶3. (SBU) HOW IS THIS POSSIBLE? AS REPORTED NUMEROUS TIMES (REFTELS),BURMESE BUSINESSES HAVE BEEN EXTREMELY DEVIOUS IN FINDING WORK-AROUNDS TO MINIMIZE THE DISRUPTION OF VARIOUS SANCTIONS. AS ONE BUSINESSMAN TOLD US WHEN THE NEW U.S. SANCTIONS TOOK EFFECT IN JULY 2003, "WE'VE HAD SANCTIONS FROM OUR OWN GOVERNMENT FOR FORTY YEARS. YOURS WILL HAVE LITTLE EFFECT." SOME TRADERS, PREVENTED FROM USING U.S. DOLLAR LETTERS OF CREDIT WITH A BURMESE BANK, ARE NOW USING AN ELABORATE ACCOUNT SETTLEMENT PROCESS THAT OCCURS IN OFFSHORE BANKS (MOSTLY IN SINGAPORE). OTHERS ARE SHIFTING AS MUCH AS POSSIBLE TO BORDER TRADE AND ITS CASH-BASED TRANSACTIONS. NEARLY ALL USE AN ALREADY ACTIVE INFORMAL REMITTANCE SYSTEM (CALLED "HUNDI" OR "HAWALLAH") TO MAKE AND RECEIVE U.S. DOLLAR PAYMENTS. THE MAGIC OF MODERN TECHNOLOGY ¶4. (SBU) THE HOTELS, SHOPS, AND SERVICES THAT ARE ACCEPTING PLASTIC AGAIN IN RANGOON ARE RELYING PRIMARILY ON MERCHANT ACCOUNTS SET UP OFFSHORE OR BY INTERNET-BASED SERVICES. IN THE FORMER CASE, AN ENTITY IN RANGOON THAT HAS A CORPORATE PARENT OR SUBSIDIARY WITH A MERCHANT ACCOUNT IN A BANK OUTSIDE BURMA CAN PHONE IN NUMBERS OR DELIVER CREDIT CARD SLIPS TO THEIR AFFILIATE FOR PROCESSING. THE SETTLEMENT, AS FAR AS THE CREDIT CARD COMPANY AND U.S. FINANCIAL SYSTEM IS CONCERNED, IS BETWEEN THE MERCHANT ACCOUNT IN SINGAPORE, BANGKOK, OR HONG KONG AND THE CUSTOMER'S ACCOUNT IN NEW YORK, FRANKFURT, OR LONDON. ¶5. (SBU) IT'S NOT CLEAR EXACTLY HOW THE LATTER LOOPHOLE WORKS -- WHETHER THE BUSINESS CAN CONTRACT WITH AN ONLINE COMPANY (SUCH AS WORLDPAY) DIRECTLY OR WHETHER IT MUST DO SO UNDER THE NAME OF ITS OFFSHORE AFFILIATE. WHICHEVER THE CASE, SOME ARE USING THESE THIRD-PARTY SERVICES TO PROVIDE MERCHANT ACCOUNTS AND SETTLEMENT SERVICES. COMMENT: ILLEGAL OR INEVITABLE? ¶6. (SBU) THE QUESTION IS WHETHER THE BURMESE COMPANIES' ACTIVITIES LEAD TO VIOLATIONS OF U.S. SANCTIONS OR WHETHER THEY ARE MERELY TAKING ADVANTAGE OF A LEGAL LOOPHOLE TO CONTINUE SOME MEASURE OF BUSINESS AS USUAL. IN ANY EVENT, WE THINK IT WORTHWHILE TO INFORM THE CREDIT CARD COMPANIES THAT THEIR SERVICES ARE BEING OFFERED IN BURMA DESPITE THEIR INSTRUCTIONS TO THE CONTRARY. THEY CAN, IN TURN, INFORM THEIR MEMBER INSTITUTIONS THAT TRANSACTIONS THEY ARE FACILITATING MAY BE INDIRECTLY SENDING MONEY TO BURMA. END COMMENT. MCMULLEN