‘Cronies’ of Former Myanmar Regime Thrive Despite U.S. Blacklist Targeted companies such as Myanmar’s Asia World keep a tight hold on the country’s economy
The late Lo Hsing Han, left, a suspected drug lord known to U.S. officials as Myanmar’s "Godfather of Heroin," with his son Steven Law, right, in 2007 at the inauguration of Yangon's international airport.
The Wall Street Journal, August 12, 2015
YANGON, Myanmar— Steven Law is a reclusive figure with 24 known aliases. Described as the “top crony” of Myanmar’s former military regime in leaked U.S. diplomatic cables, he runs a conglomerate called Asia World Co. Ltd. that is still targeted by U.S. sanctions despite years of warming U.S.Myanmar ties. His father, a suspected drug lord, was known to U.S. officials as the “Godfather of Heroin.” So it was something of a surprise when Myanmar’s reformist government awarded Asia World one of the most coveted contracts since the onetime pariah nation began opening to the West a few years ago: a nearly $300 million upgrade of Yangon’s international airport. Myanmar’s cabinet granted Mr. Law the contract even though a consultant hired by the government gave higher marks to a consortium led by Toyota Tsusho Corp. of Japan, government officials say.
Another losing team included Boeing Co. and former U.S. Assistant Secretary of State Kurt Campbell, an architect of Washington’s policy to restore relations with Myanmar. Myanmar officials say it made sense to choose Asia World, which manages the existing airport, because it was willing to spend money on the project before a contract was signed, unlike foreign bidders. A representative of Mr. Law said it is “not the right time” for him to speak. In emailed responses, an Asia World representative said the company hasn’t received special treatment from either the military or the current government, but has simply followed the laws of the country. Asia World officials “welcome the more open economy of today” and “believe that they are fully able to compete in such an environment,” the representative added. The Wall Street Journal has found that, in the years since Washington began easing Myanmar sanctions in 2012, businesses that are still targeted by U.S. blacklists have thrived, in some instances increasing their control over parts of the economy. This wasn’t the original plan. When Washington started letting Americans invest in Myanmar after a nominally civilian government took power there in 2011, the U.S. Treasury kept restrictions on a few dozen “specially designated nationals.” Those sanctions—which prevent Americans from doing business with people like Mr. Law and his vast network of subsidiaries—were meant to cripple businessmen who U.S. officials said had profited from illicit activities or alliances with the previous regime, which was accused of human-rights violations. Many U.S. leaders thought that keeping the sanctions in place would give them more leverage if Myanmar didn’t follow through with reforms. It would also encourage more-transparent business practices and help make Myanmar more competitive for Western firms. Instead, the government has kept a lock on many industries like banking and real estate, making it hard for U.S. firms to compete and easier for firms under sanctions to survive. Meanwhile, businesses dominated by sanctioned individuals or the military have gotten a lift as more investment has flowed into the country, boosting economic growth to 8.3% last year from 5.9% in 2011. The military’s two sanctioned conglomerates, the Union of Myanmar Economic Holdings Limited, or UMEHL; and the Myanmar Economic Corporation, still control much of Myanmar’s land, factories and import licenses, and in some instances have expanded their holdings. Last year, UMEHL took full control of the country’s largest brewery, Myanmar Brewery, ultimately paying $560 million for the 55% stake belonging to Singapore’s Fraser & NeaveLtd. The military and its partners own or control
virtually all the country’s jade mines, which saw recorded sales surge more than 30% last year to $3.4 billion. UMEHL didn’t respond to requests for comment.
Other targeted companies and individuals are finding ways to thrive. Max Myanmar, a conglomerate controlled by sanctioned businessman Zaw Zaw, has rapidly expanded a bank it owns and clinched deals to build new hotels with France’s Accor Group, which isn’t subject to U.S. restrictions. In a previous interview, he said he has never done anything wrong and is looking to grow his business despite sanctions. Another blacklisted individual, Khin Shwe, is expanding an industrial zone. He also says U.S. sanctions target him unfairly, and is working through the Treasury Department’s process to get delisted. Tay Za, who joined the list after making a fortune in logging and arms sales, has seen occupancy at hotels he owns shoot up as tourist arrivals jumped to more than three million in 2014 from 792,000 in 2010. He is seen around Yangon in a Bugatti Veyron and keeps a menagerie of rare animals in his home. He has told news organizations that sanctions have hurt him and the thousands of people employed by his company. “The cronies have done better under this government because now there is investment,” said one longtime Western democracy advocate.
Myanmar Business Leaders Targeted by Sanctions Despite improving ties, Washington still maintains some sanctions in Myanmar, including rules that restrict Americans from doing business with the military or businesspeople linked to Myanmar’s former regime. Among those still targeted: Steven Law Chairman, Asia World Co. Ltd.
Described by the U.S. as a “top crony” of Myanmar’s former generals, Steven Law runs Asia World, with interests in virtually every sector in Myanmar. U.S. officials say his father, Lo Hsing Han, was a major heroin smuggler in the 1970s. More recently Asia World won the contract to expand Yangon’s International Airport. He says he was never involved in the drug trade, and never received special treatment from Myanmar’s military government.
Tay Za CEO, Htoo Group of Companies
Tay Za controls the Htoo Group, a conglomerate with interests in tourism, infrastructure and other industries. U.S. officials say he helped supply arms to Myanmar’s military. His hotels in Bagan and Inle Lake have seen rates triple as tourist arrivals spike. Washington has eased restrictions on his Asia Green Development Bank, allowing American financial institutions to do business with it. He has told news organizations that he believes sanctions have unfairly targeted him and hurt the thousands of people employed by his company. Zaw Zaw Chairman, Max Myanmar Group of Companies
His Max Myanmar group of companies is one of Myanmar’s biggest conglomerates with interests in gems, real estate, tourism and banking. U.S. officials listed Zaw Zaw on sanctions after his company helped build Naypyitaw, the national capital designed by Myanmar’s previous junta. His firm partnered with France’s Accor Hotels in 2012 to build a Novotel Hotel in Yangon and the M Gallery Hotel in Naypyitaw. He says he has never done anything wrong, and is looking to grow his business in spite of sanctions. Khin Shwe Chairman, Zaykabar Company
Khin Shwe was placed on the U.S. blacklist in 2007 for close ties with Myanmar’s military junta. His company operates golf courses, hotels and a large industrial zone outside of Yangon, which he is expanding despite an ongoing lawsuit brought by farmers who say the company grabbed land from them without adequate compensation. He says that the accusations are false, and that he is working for the betterment of the people. The Union of Myanmar Economic Holdings Military-run conglomerate
The economic arm of Myanmar’s military has interests in infrastructure, agriculture, mining, gems, and oil & gas. It controls much of the land in Myanmar's land. Last year, UMEHL took full control of Myanmar Brewery from Singapore’s Fraser & Neave after a lengthy arbitration case. The company says it views itself as a trusted partner for foreign investors, despite being controlled by military generals.
‘Wasted opportunities’ Their continuing success is disappointing, said Sean Turnell, an associate professor at Macquarie University. The government has “wasted opportunities” to make business more competitive, he said. U.S. Assistant Secretary of State for Democracy, Human Rights and Labor Tom Malinowski said the U.S. recognizes that individuals on the U.S. blacklist are “likely to remain important players” but Washington continues to put pressure on them in the hopes that they’ll become “responsible businesses.” He said the U.S. is willing to remove some individuals from the blacklist. But he believes it would be hard for many to show they’ve moved on from past bad behaviors. Soe Thane, the minister in charge of economic affairs in the office of Myanmar President Thein Sein, said Myanmar can’t afford to shut out businessmen just because they’re targeted by U.S. sanctions. Many were instrumental in building Myanmar’s infrastructure when Westerners shunned the country, he said. “We can’t kick those people away” or strip them of wealth, he said. “They are our citizens.”
Mr. Law and his Asia World conglomerate are among the most controversial, U.S. officials say. Mr. Law’s father, Lo Hsing Han, was an ethnic Kokang Chinese from the Myanmar-China border who trafficked top-grade heroin in the 1970s, according to U.S. officials, historians and Myanmar experts. They say Mr. Lo was close to Myanmar’s ruling generals, and helped them negotiate cease-fires with armed ethnic rebels who wanted more autonomy. The generals granted Mr. Lo licenses to operate key sectors of the economy as a reward, U.S. and Myanmar officials say. After setting up Asia World in 1992, Mr. Lo appointed Mr. Law to be the managing director. People close to Mr. Law, who is now 57 and has a Singaporean wife and at least one daughter, say he ran a cake bakery and traded beans before joining the family firm. The Asia World representative said Mr. Law has “no legacy” from his father, and that “no funds were ever taken or received from the father to start the Asia World business”. He believes in keeping a low profile and not flaunting his wealth, they say. Photographs show him to be slim and taller than most Myanmar men. His Yangon residence, though shielded from view by a towering gate, is on a heavily trafficked road and flanked by construction sites and crumbling condominiums. Asia World clinched major contracts, including one in 1996 to build the high-rise Traders Hotel that is one of Yangon’s most prominent. Asia World no longer has a stake in the hotel. It also helped build Naypyitaw, the junta’s new national capital, in the 2000s.
In a message on Asia World’s website, Mr. Law said the company was committed to making “a lasting contribution to the future of the country.” Other Myanmar businessmen say Mr. Law earned a reputation for getting projects done, and rejected the drugsmuggling ways of his father, who died in 2013. “You can’t choose your father,” one said. In 2008, Washington put Mr. Law and his wife, his father Mr. Lo, their company Asia World and dozens of its subsidiaries on the U.S. sanctions list specifically for providing support to Myanmar’s then-ruling junta. The sanctions were meant to cut off funding to the pariah regime and their “inner circle,” a news release from the Treasury Department at the time said, adding that Mr. Law and his father “have a history of involvement in illicit activities.” The release pointed to Mr. Lo’s involvement in the drug trade, and said Mr. Law—who it said had “joined his father’s drug empire”—was one of Myanmar’s wealthiest men.
‘Dropping the Hammer’ In a leaked diplomatic cable headlined “Dropping the Hammer on Crony Steven Law,” U.S. officials listed aliases they said Mr. Law used with business associates around the world. It also reported that the company—which is
unlisted and doesn’t disclose revenues—had built up investments totaling more than $500 million through its ties with Myanmar’s generals. Sanctioning Mr. Law would send a “strong signal of our seriousness in cutting off the regime’s financing,” it said. The introduction of a new government in 2011, when Myanmar’s senior-most generals retired, promised to make life harder for Mr. Law. Its leaders pledged to run a cleaner, more-transparent administration, and called on Western investors to bring more competition to the economy. In 2011, President Thein Sein canceled the $3.6 billion Myitsone Dam that Asia World was building with Chinese partners in northern Myanmar, citing public opposition. The government allowed Asia World to press ahead with other hydroelectric projects, including one on Myanmar’s Salween River opposed by local residents. The government also reached a deal with Asia World to build a coal-fired power plant south of Yangon that is slated to be one of the biggest in the country. Asia World was one of 12 companies the government authorized to sell insurance in 2012, the first time private companies were allowed to do so in Myanmar in five decades. Foreign firms have only been allowed to sell insurance in a special economic zone. Local business leaders say Asia World kept winning deals because of its reputation for getting things done. “Steven Law does a very good job in the infrastructure development,” said Mr. Soe Thane, the economics minister. He added that Mr. Law was also “very close” to senior officials, such as former Vice President U Tin Aung Myint Oo, who retired in 2012. Asia World has also continued to benefit from assets it acquired in dealings with the previous regime. Trade at Myanmar’s biggest port in Yangon, which Asia World built and has operated for years, has taken off since the country opened up, boosting revenues by 30% over the past three years compared with the previous three years, according to government statistics. Toll roads Asia World built during the former regime and continues to operate have seen a jump in traffic since Naypyitaw decided to allow mass-scale imports of foreign cars, which were mostly prohibited before. New opportunities have also emerged in real estate. By 2013, Asia World was building Hledan Center, a prominent eight-story office and retail complex in Yangon whose current tenants include the European Union mission.
Local residents say the land was seized a decade earlier by military officials who kicked them off the property and let it sit idle for years. It is unclear when or how Asia World acquired rights to build there. The Asia World representative said the company is “not aware” of many complaints. The company is also planning a 32-story Asia World Tower, which would be the country’s tallest building.
Airport expansion Then there is the Yangon International Airport, which an Asia World subsidiary has operated since 2007. Passenger arrivals have increased about 20% a year since 2011 and are expected to reach 4.9 million this year. Bidding for an expansion began in 2013. The Myanmar government, seeking to meet international standards in the tender process, hired the independent Japanese engineering consulting firm Nippon Koei to rank the seven bids. Asia World subsidiary Pioneer Aerodrome Services Co. Ltd. came in fourth, according to one member of the selection committee. Mr. Soe Thane said he recalled Pioneer coming in second in the rankings. Either way, he said, the final decision was a “hot potato” because of the prominence of the project. Ultimately the cabinet chose Pioneer over top-ranked Toyota Tsusho because the government decided it would take too much time for the Japanese company to start work. Toyota Tsusho, which maintains an office in Asia World’s Hledan Centre, declined to comment. Members of the American consortium, including Mr. Campbell, didn’t respond. Representatives of Nippon Koei said they were surprised by the decision to reject the first-ranked consortium. Workers are now racing to finish the project, which includes construction of a new terminal, by the end of the year. The roof and base of the new terminal are nearly finished, and cranes are seen working through the night. Pioneer recently raised passenger fees to $15 from $10 per person with the approval of the president and his cabinet. After the upgrade, the company plans to raise passenger fees to $20, said project manager Sulaiman Zainal Abidin, and is redesigning the interior now to handle 10 million passengers a year. That means revenue could someday reach $200 million annually from passengers, not including airport concessions. Asia World has missed out on some deals because of its status on the U.S. sanctions list. One due-diligence firm says a half-dozen Japanese companies that asked for research on Asia World decided not to do business with the company.
Mr. Law has sought to get himself and his companies off the U.S. blacklist, telling officials he is a self-made man who shouldn’t be punished for his father’s activities, according to people familiar with the matter. Asia World also hired Bell Pottinger, a U.K.-based public-relations firm known for work with Asma al-Assad, wife of Syria’s Basher al-Assad. Bell Pottinger executives say they amended Asia World’s Wikipedia page, removing references to drug connections and sanctions. Yet the relationship ended last year, in part because Asia World wasn’t prepared to be as transparent as the publicrelations firm hoped, a person familiar with the arrangement said. Mr. Law indicated he expected he was “never getting off the [Treasury] list,” the person said. An Asia World representative said the company uses a number of consultants on time-limited contracts and that the Bell Pottinger termination was “nothing special.” Mr. Law and his company’s close ties to the government continue. In May, Mr. Law received a presidential award honoring him for being one of Myanmar’s largest taxpayers.