Structuring Joint Ventures In Myanmar: Threshold Considerations

With the recent opening up of the Myanmar economy, there has been a rush of activity from companies around the world to this dynamic new market. As these entities have evaluated investment opportunities in Myanmar, they have also sought to identify suitable local partners for their business ventures. The recent Foreign Investment Law contemplates that investments in certain industries can only be made in conjunction with a local Myanmar partner. In addition, many new entrants to the Myanmar market have taken a view that it is prudent to include a local partner in Myanmar ventures to ease startup and country risks associated with this frontier economy.

We set out in this client alert several key legal and commercial considerations that may be of interest to global companies and financial institutions that are preparing to establish joint ventures with a local partner in Myanmar.

KEY STRUCTURAL ISSUES

U.S. Myanmar Sanctions Considerations

The identity of the Myanmar-registered "local" partner is one to be considered seriously. While Myanmar itself has recently emerged from the shadow of a robust international sanctions regime, U.S. sanctions are still applicable to a number of Myanmar nationals and their business activities.

As originally promulgated beginning in 1997, the U.S. Myanmar sanctions generally prohibit (a) new investment in Myanmar by U.S. persons or the facilitation by U.S. persons of new investment in Myanmar by foreign persons and (b) exportation or reexportation to Myanmar of financial services from the United States or by U.S. persons. Additionally, the United States has blocked the property and interests in property of certain Myanmar individuals and entities, making it unlawful for U.S. persons to engage in any dealings with or in the property or interests in property of such individuals or entities.

In recognition of recent reforms enacted by Myanmar's government and in order to encourage further economic modernization and political reform, the U.S. in 2012 and again this year eased certain of the Myanmar sanctions. Specifically the U.S. Department of the Treasury, Office of Foreign Assets Control ("OFAC") issued exemptions to the Myanmar sanctions in the form of General Licenses Nos. 16, 17, and 19 that generally permit U.S. persons to engage in the following activities that were originally prohibited:

OFAC General License No. 16 authorizes the exportation or re-exportation of financial services to Myanmar, directly or indirectly, from the United States or by a U.S. person, but does not authorize the provision of financial services to the Myanmar Ministry of Defense or to any state or non-state armed group or to any entity in which any of the foregoing owns an interest of 50% or more. OFAC General License No. 17 authorizes new investment in Myanmar by U.S. persons, but does not authorize new investment in connection...