Myanmar

Myanmar Corruption Report

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Snapshot

myanmar_250x167.pngCorruption is endemic in Myanmar, presenting companies with high risks. Many businesspeople rate corruption, a weak rule of law and complex and opaque licensing systems as serious barriers to investment and trade in Myanmar. The country suffers from high levels of corruption across all sectors. In November 2015, Myanmar held its first national election, ending 50 years of military rule. Aung San Suu Kyi's National League for Democracy (NLD) won a landslide victory, which is widely interpreted as a step towards an opening up of the previously isolated country. While the government is increasingly addressing corruption issues, these remain deeply rooted and pervasive in the public and private sectors. The Anti-Corruption Law criminalises active and passive bribery in the public sector, abuse of office and attempted corruption. Facilitation payments are not specifically addressed in the law, but should be considered illegal. Gifts are illegal in principle, but there are a number of specific exceptions. The maximum punishment for corruption is fifteen years' imprisonment and a fine.

Last updated: September 2017
GAN Integrity

Judicial System

Companies face a high risk of corruption and political interference in Myanmar's judicial sector. Businesses report very low trust in the independence of the judiciary (GCR 2015-2016). Bribes and irregular payments in exchange for favorable judicial decisions are very common (GCR 2015-2016). Two out of five citizens believe most or all judges are corrupt (GCB 2017). Nevertheless, only a fraction of firms identifies the court system as a major constraint (ES 2016). Institutional corruption is pervasive in the judiciary and there is an appearance of de facto military and government control over the judiciary (HRR 2016). The Supreme Court has taken the first steps in trying to assert its independence during the constitutional review process (BTI 2016). However, challenges remain immense; there is a lack of resources and inadequate legal education (BTI 2016). The judicial committee in Myanmar's parliament received over 10,000 complaints about problems in the legal sector, primarily alleging corruption (BTI 2016). Enforcing a contract in Myanmar takes almost twice as long as the regional average (DB 2017).

Companies perceive the judiciary to be inefficient when it comes to settling disputes and challenging government regulations (GCR 2015-2016). Myanmar incorporated the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards into its domestic legal framework in 2016; allowing companies to seek arbitration in a third country (ICS 2017). There is no solid track record of enforcing foreign awards in Myanmar (ICS 2017). Myanmar is not a state party to the International Centre for the Settlement of Investment Disputes (ICSID).

Police

The security apparatus in Myanmar presents high corruption risks. Nearly half of citizens believe most or all police officers are corrupt (GCB 2017). The government does not effectively maintain control over the country's security forces and police forces act with impunity (HRR 2016). Business executives do not feel they can rely on the police (GCR 2015-2016). The legal mechanisms that exist to investigate corruption are rarely used and ineffective (HRR 2016). About one in seven firms indicate they experience losses due to theft and vandalism (ES 2016). The police frequently require victims to pay substantial bribes to initiate criminal investigations and the police routinely extorts civilians (HRR 2016). Outside of conflict areas, security forces generally respect the rule of law and a number of organizations have signalled a decrease in the pervasive and threatening influence security forces exert on the population under the new government (HRR 2016). 
 

Public Services

There is a very high risk of corruption when dealing with public services in Myanmar. More than a third of businesses expect to give gifts to get an operating license, nearly half expect to give gifts to get a construction permit, and more than a third expect the same when applying for an electrical connection (ES 2016). About one in seven businesses indicate they expect to give gifts "to get things done" (ES 2016). Corruption risks are also high in the process of seeking investment permits (ICS 2017). Around one in five citizens consider most or all government officials corrupt (GCB 2017). Connections to top bureaucrats and bribery are more important than personal skills in the selection process for the civil service (BTI 2016).

Business report a heavy burden of government regulations (GCR 2015-2016). There is a lack of regulatory and legal transparency; in the past, all regulations were subject to change without advance or written notice (ICS 2017). Presently, ministries have started to consult the public before issuing new regulations (ICS 2017). The recently passed Myanmar Investment Law which went into effect in April 2017 is intended to simplify regulations (ICS 2017). Starting a business takes more steps and the costs are significantly higher than the regional average, but the required time is significantly shorter (DB 2017).

Land Administration

There is a high risk of corruption in Myanmar's land administration. Nearly half of firms indicate they expect to give gifts to obtain a construction permit (ES 2016). Foreign investors can enter into long-term leases with private land lords or relevant government agencies (ICS 2017). Businesses, however, report insufficient confidence in the government's ability to protect property rights in the country (GCR 2015-2016). Investors should be careful when investing in large-scale land projects; property rights of large plots are commonly disputed because ownership rights are often not well-established following half a century of widespread military expropriations and land grabs (ICS 2017). Foreign firms often face complaints from communities about inadequate consultation and compensation (ICS 2017). The government announced a new National Land Use Policy in 2016 which includes provisions for, among others, improving public access to information about land use management and developing independent dispute resolution mechanisms (ICS 2017). Myanmar has not incorporated the principle of non-discrimination into its investment framework; there is no specific legislation that protects against expropriation without compensation (ICS 2017). Myanmar's new Investment Law prohibits nationalization and states that approved foreign investments will not be terminated during the term of the investment (ICS 2017).

Registering property in Myanmar takes slightly longer than elsewhere in the region (DB 2017).

Tax Administration

Companies face a high risk of corruption in the tax administration in Myanmar. Irregular payments in connection with tax payments are commonly exchanged (GCR 2015-2016). One in five companies indicate they expect to give gifts in meetings with tax officials (ES 2016). Roughly a third of citizens believe most or all tax officials are corrupt (GCB 2017).

Businesses make significantly more payments and spend significantly more time on paying their taxes compared to other places in the region (DB 2017).

Customs Administration

There is a high risk of corruption at the border of Myanmar when importing and exporting goods (GETR 2014)Irregular payments when importing and exporting are commonplace (GCR 2015-2016)A quarter of firms indicate they expect to give gifts in order to get an import license (ES 2016). Bribing customs officials in order to avoid paying customs duties and avoiding regulations is also common (ISDP 2015). Import and export licenses are awarded on a case-by-case basis, leaving discretionary space to public officials (BTI 2016). Companies cite burdensome import procedures, tariffs, and corruption at the border as the most problematic factors for importing (GETR 2014). Trade misinvoicing is ranked as the predominant channel through which illicit funds are transferred to and from Myanmar; trade misinvoicing makes up 89.2% of total illicit inflows and 59.6% of total illicit outflows (GF Integrity 2015). Import under-invoicing was identified as the main type of trade misinvoicing. The total of potential tax revenues lost to deliberate trade misinvoicing over the period 1960-2013, is estimated to be between USD 2.9 and USD 3.6 billion (GF Integrity 2015). 

Trading across borders became more difficult in Myanmar in 2017, due to a high number of delays and cost increases for processing of incoming cargo at the port of Yangon (DB 2017). The time required to comply with customs regulations is significantly higher than elsewhere in the region, while the costs are largely in line with regional averages (DB 2017).

Public Procurement

There is a moderately high risk of corruption in public procurement in Myanmar. Bribes and irregular payments are often exchanged in the process of awarding public contracts and licenses (GCR 2015-2016). Public funds are frequently diverted, and favoritism often influences the decisions of government officials (GCR 2015-2016). In Myanmar, open tendering is not the default method of procurement (The World Bank 2017). Procurement material such as laws and regulations, notices of calls for tender, tender documents, and award notices are not publicly accessible online. There are a few sectors where foreign firms are ineligible to submit bids such as the defense sector (The World Bank 2017).

The government has started to privatize a number of state-owned enterprises (SOEs), because SOEs prove to be costly for the government (ICS 2017). While traditionally SOEs held a large part of the economy, the government has started encouraging more private sector development (ICS 2017). The 1989 law on SOEs gives them exclusive right to carry out economic activities in a number of sectors including banking, teak extraction, and oil and gas, but in practice private sector development is possible, often in the form of a joint venture (ICS 2017). In a process of increased privatization, problems of cronyism and nepotism are highlighted in the awarding of contracts, and the process lacks transparency (FP, Oct. 2015).

Natural Resources

There is a high risk of encountering corruption in Myanmar's natural resources sector. The Natural Resource Governance Institute indicates that Myanmar has an environment that enables corruption, complicated by poor licensing procedures, low regulatory quality, and little accountability (NRGI 2017). Companies should note that Myanmar's natural resource industries are commonly controlled by state-owned enterprises, but in practice private investment is possible (ICS 2017). An investigation into allegations that almost USD 100 million in levies from the jade trade was misappropriated under previous governments is underway (FT, Jun. 2016). The jade trade in Myanmar is characterized by low levels of transparency and high levels of corruption (FT, Jun. 2016). Myanmar's internal conflict is also said to have been fuelled by jade mining (NRGI 2017). Myanmar is an Extractive Industry Transparency Initiative candidate country (EITI 2017). Myanmar has disclosed some of the legal ownership of the oil, gas, and mining companies operating in the country (EITI 2017). EITI estimates that up to eighty percent of gemstone production goes undeclared and bypasses the formal system (EITI 2017). 

The Myanma Timber Enterprise (MTE), a state-owned enterprise, has been widely accused of engaging in corrupt practices and failing to live up to international standards in the sector (Frontier Myanmar, Mar. 2017). Europe's Environmental Investigation Agency (EIA) has warned that MTE's use of subcontractors comes with high risks of corruption and bribery in the allocation of harvesting rights due to a lack of transparency in the required procedures (Myanmar Times, Aug. 2017). Because of the lack of transparency, Denmark has placed an injunction on all Danish companies preventing them from selling teak imported from Myanmar on European markets (Mongabay, Mar. 2017). There exists a large-scale illicit timber trade between China and Myanmar worth hundreds of millions of dollars every year (EIA & EU 2015).

Legislation

Myanmar has a legal anti-corruption framework in place, however - and in spite of renewed efforts to curb corruption - enforcement remains inadequate (BTI 2016). The Penal Code and the Anti-Corruption Law cover most forms of bribery in the public sector, including active and passive briberyextortion, attempted corruption and abuse of office (Conventus Law 2016). Penalties for these offenses include imprisonment of up to 15 years for public officials and a fine, imprisonment of up to ten years and a fine for "authorized persons", and imprisonment of up to seven years and a fine for others (Conventus Law 2016). The Law requires all officials in the executive, judicial and legislative branches of the government to declare their assets, allowing penalties for those who do not comply. Facilitation payments are not explicitly excluded, so they may be considered bribes (Conventus Law 2016). Guidelines issued in 2016 stipulate that public officials may accept gifts with a value of up to MMK 25,000 (approximately USD 25), gifts that are given because of a "personal relationship" (an undefined term), or gifts with a value of up to MMK 100,000 given on religious holidays (Conventus Law 2016). The Anti-Corruption Law gives a mandate to Myanmar's Anti-Corruption Commission to address graft and bribery. Nonetheless, the Anti-Corruption Commission is primarily staffed by former military officers and members of the ruling party, raising concerns about its impartiality (BTI 2016). There is no separate definition of private corruption in Myanmar's laws, but the definition of bribery contained in the Anti-Corruption Law could be read to include certain high level managers at state-owned enterprises and public-private partnerships; there is no practical evidence of this interpretation as of yet (Conventus Law 2016). Whistleblowers should be protected under the Anti-Corruption Law, but this is untested in practice (HSF 2015). There is no comprehensive public procurement legal framework; most of the regulations are contained in various directives; more information from the World Bank is available here. The latest guidance for government organizations stipulates that all projects with a value over MMK 10 million are subject to procurement rules.

Companies should note that due to the recent change in governments and low levels of legal certainty, laws may not always be interpreted by the government and the courts in a consistent manner (Conventus Law 2016). Myanmar has ratified the United Nations Conventions against Corruption but has not signed the OECD Anti-Bribery Convention

Civil Society

Press freedoms have significantly improved since the country began its transition from military rule to a democracy, but the government still maintains tight control over the media sector through the use of defamation and other laws against critics (FotP 2017). The government has increasingly started restricting the freedom of speech online by prosecuting those who allegedly insulted or defamed the military (FotP 2017). The police continues to monitor politicians, journalists, writers, and diplomats (HRR 2016). The press in Myanmar is considered 'not free' (FotP 2017).

Freedom of assembly is restricted in Myanmar, but the government has recently taken steps to ease restrictions (HRR 2016). Civil society groups have increasingly been able to operate openly and freely discuss human rights and political issues (HRR 2016). Freedom house classified Myanmar as "partly free" for the first time in 2017 (FotP 2017). Civil society organizations (CSOs) have started being able to influence policy-making processes, criticize the government, and advocate for political parties in the last five years (BTI 2016). CSOs still face a lack of transparency from government ministries and local authorities are less likely to cooperate with CSOs (BTI 2016).

Sources

Topics: East Asia & The Pacific