US embassy cable - 05RANGOON402

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000402 
 
SIPDIS 
 
STATE FOR EAP/BCLTV, EB 
COMMERCE FOR ITA JEAN KELLY 
TREASURY FOR OASIA, EOTF/FC PAUL DERGARABEDIAN 
USPACOM FOR FPA 
 
E.O. 12958: DECL: 04/03/2015 
TAGS: EFIN, PGOV, SNAR, BM, Economy 
SUBJECT: BURMA: GOB SHUTS MONEY LAUNDERING BANKS 
 
REF: A. RANGOON 138 AND PREVIOUS 
     B. RANGOON 58 AND PREVIOUS 
     C. 04 RANGOON 631 AND PREVIOUS 
 
Classified By: COM CARMEN MARTINEZ FOR REASONS 1.4 (B,D) 
 
1. (C) Summary: After an opaque 16-month investigation, the 
GOB revoked the banking licenses of Asia Wealth Bank and 
Myanmar Mayflower Bank.  The two banks had clear ties to 
narco-traffickers and money laundering; however, the GOB has 
made no public statement that the banks were closed for 
either of these reasons.  In the short run government 
officials will take over the two banks to repay depositors 
and pull in whatever outstanding loans they can.  In the 
longer term, the decision to liquidate rather than reform two 
of Burma's largest private banks could have a lingering 
economic impact.  End summary. 
 
The Axe Falls 
 
2. (C) On April 1, the GOB announced publicly that it had 
pulled the banking licenses of Asia Wealth Bank (AWB) and 
Myanmar Mayflower Bank (MMB) effective March 31.  The 
announcement stated simply that "these two banks are found 
not complying with" banking laws.  Despite evidence that both 
banks were tied to narco-traffickers and money laundering, 
the announcement did not claim that either bank had fallen 
afoul of the 2002 money laundering statute or the 1993 
counternarcotics law.  The GOB statement asserted that 
depositors could get all of their funds back beginning April 
4, and that outstanding borrowers would have to settle their 
loans immediately or face "action under existing laws."  This 
threat could be tricky to carry out, as some top cronies have 
significant unpaid loans due to AWB, according to a top AWB 
official.  The number one crony, and SPDC arms procurer, Tay 
Za reportedly owes AWB 60 million kyat ($65,000). 
 
3. (C) The motivations for the GOB's decision are not 
entirely clear.  The GOB has been investigating the two banks 
for money laundering since November 2003, but that process 
has been completely opaque (ref C).  According to one senior 
law enforcement source, the decision to close down the banks 
was based on the desire, in the wake of the January 
indictments of eight United Wa State Army (UWSA) leaders (ref 
A), to cut off easy access of narcotics trafficking 
organizations -- particularly the UWSA -- to the formal 
financial system.  In his assessment, the decision was more a 
counternarcotics effort than an inaugural use of Burma's 
money laundering law.  On the other hand, another GOB source 
told us recently that the Home Affairs Ministry, wherein 
resides the newly formed Financial Intelligence Unit, was 
under pressure from senior SPDC leadership to issue its 
judgment on AWB and MMB before the next meeting of the 
anti-money laundering Financial Action Task Force (FATF) in 
May.  Burma remains on FATF's list of non-cooperative 
countries and territories. 
 
4. (C) In the short term, the banks will come under GOB 
control.  According to a senior Central Bank of Myanmar (CBM) 
source, a CBM official will take over as administrator of AWB 
while a senior officer at the state-owned Myanmar Economic 
Bank will be the administrator for Mayflower.  The source 
told us the CBM will ensure the banks have adequate liquidity 
(an estimated 20 billion to 30 billion kyat, or $20 million 
to $30 million) to pay back all depositors in due course. 
The administrators have been tasked with publishing a 
schedule for repayment of each account holder.  AWB's and 
MMB's hard assets, both had many branches around the country, 
will be sold to pay off outstanding CBM debts (both from the 
2003 crisis and this latest, and last, bailout). 
 
Comment: Good First Step 
 
5. (C) Whatever the real motivation behind the banks' 
shuttering, from a money laundering standpoint the GOB's 
action, belated as it was, is a positive step.  However, the 
decision to liquidate the banks -- rather than punish 
individuals and rehabilitate the institutions -- could have a 
negative long-term impact on the private banking system and 
the economy.  As noted in ref B, AWB and Mayflower were two 
of the three largest banks prior to the February 2003 crash. 
The third bank, Yoma, is still in limbo, inactive but extant, 
awaiting GOB decision on its future.  The remaining private 
banks are too small to make an economic impact and, 
restricted by tight new GOB banking rules, have little room 
to grow.  End comment. 
Martinez