Company linked to Myanmar Military lands MMK 378.9 million Government Contract Financed by IMF

With reporting and photography from Aung Naing Soe.

When the International Monetary Fund provided US$ 356.5 million to Myanmar for COVID-19 relief in June, it pointed to a series of safeguards against corruption to which the Myanmar government had committed itself. Authorities in Naypyidaw pledged to disclose the beneficial owners of companies receiving government contracts through the grant.

Five months in, the funds are flowing, but full transparency has not followed. The ownership of companies receiving millions of dollars in pandemic relief funds remains a mystery. Disclosures to combat conflicts of interest are missing from the IMF documentation, allowing companies with links to the military, ethnic armed organisations or government officials to cash in on government contracts, according to research by Global Ground Media.

In one instance, for example, Global Ground Media found money going to a company with indirect links to the military. Myanmar Consultancy Company Limited landed a governmental contract on 25 August 2020 of 378.9 million Myanmar kyat (US$ 288,000) for delivering rapid COVID-19 tests and specimen vials, as noted on the website of the Ministry of Planning, Finance and Industry.

According to the United Nations’ Independent International Fact-Finding Mission on Myanmar, International Gateways Group of Company Limited (IGG), which donated MMK 633.8 million to the military for “national defence [sic] and security duties” as well as “border fencing” in Rakhine state, “[i]ncludes […] Myanmar Consultancy Company”. The September 2017 donation came two weeks after a military crackdown that led to 730,000 Rohingya fleeing to Bangladesh.

Transparency commitments

At the time of the funding request to the IMF, Soe Win Kyaw, Union Minister of Planning, Finance, and Industry and Kyaw Maung, Governor of the Central Bank of Myanmar, signed a Letter of Intent, pledging that Myanmar was “committed to ensuring that crisis resources are used transparently and effectively”.

They promised Myanmar would publish procurement contracts of more than MMK 100 million (about US$ 76,500) on the website of the Ministry of Planning, Finance, and Industry (MOPFI). The reports are would to include “the names of the companies awarded and their beneficial owners, the specific nature of the goods or services procured, price per unit, and the overall contract amount”.

The first of such procurement reports was published on 9 October 2020. A total of 119 companies are listed for receiving large procurement contracts from 3 February until 25 September 2020.

Despite the commitment by the Union Minister and Central Bank Governor, the overwhelming majority of companies are not listed with all their beneficial owners. For around 30 companies the name of one person is shared. For around 90 companies, no related person is shared at all.

Global Ground Media found additional beneficial owners not listed by MOPFI by running the companies through the corporate registry of the Directorate of Investment and Company Administration (DICA).

DICA publicly shares the names of directors and alternative directors in the online corporate registry. The names of major shareholders can be accessed for a fee, but people related to parent companies are not available. Likely, there are significantly more beneficial owners of the awarded companies currently unknown to the public.

Only listing one or no beneficial owners at all violates the transparency measures promised by the Myanmar government and opens the door to conflicts of interest and mismanagement when awarding government contract with IMF funding, experts and transparency advocates said.

Shanaka J. Peiris, Mission Chief for Myanmar at the IMF stated, “[t]he authorities committed to publishing names of beneficial owners of awarded companies and is [sic] expected to follow the national directive defining beneficial ownership from the Directorate of Investment and Company Administration.”

Keel Dietz, Policy Advisor at Global Witness, also maintained the disclosures were important for demonstrating the international aid was being spent as promised, and not disappearing into the pockets of a powerful few. “MOPFI should be required to publish the names of all of the beneficial owners of companies awarded large COVID-19 procurement contracts – partial reporting is insufficient”. Dietz added that “[c]omplete beneficial information is essential to ensure that the people of Myanmar receive the urgently needed support to address the COVID-19 pandemic.”

Emilia Berazategui, Interim Head of Policy and Advocacy at Transparency International, stated that not just the names of beneficial owners should be released but also identifiable information like passport numbers and dates of birth.

Price and quality issues

In addition to uncertainties about the recipients of IMF funding, in other procurement contracts the prices of the procured protective equipment and the quality of products raises questions. There are no provisions detailing the bidding process for government contracts or quality and price controls announced by IMF.

In July, the Myanmar government ordered personal protective equipment (PPE) from Creative Myanmar Technologies Company Limited, Myanmar Trillion Group Trading Company Limited, and A-G-T Company Limited. The price per item of a “Mask Normal” is listed as MMK 200, face shield MMK 1,000 and gloves at MMK 300.

In August, Global Ground Media requested a quotation from another company for similar products. The quotation showed significantly lower costs with a 3-ply surgical mask for MMK 55, face shield for MMK 700 and gloves for MMK 60 per piece. MOPFI paid 42 percent more for face shields, 263 percent more for masks and a 400 percent increase for gloves.

In February and March, MOPFI twice ordered “Surgical Mask (2-PLY)” at Radiance Company Limited. The 2-ply masks offer significantly less protection against viruses and bacteria than 3-ply masks, research by Duke University shows. It is not known if these masks were purchased by the Myanmar government to be distributed among medical professionals.

There are no quality or price provisions in the IMF documentation. The Myanmar government did commit to the IMF it would publish “reports of ex post [sic] validation of delivery related to [the procurement contracts of more than MMK 100 million].”

It did not disclose how or when authorities would validate the delivery of the purchased protective equipment, ventilators and medicine To date, no validation report has been published on the website of MOPFI. MOPFI did not respond to repeated requests for comment.

Paper tiger?

In April, Human Rights Watch, Global Witness and Transparency International requested “urgent action” from the IMF to make sure COVID-19 funds are used for their intended purposes. The IMF Managing Director, Kristalina Georgieva, said at that time that transparency and accountability remained vital during these challenging times.

The IMF transferred funding for COVID-19 relief to the Myanmar government in full upon approval by the IMF board in June, attaching no conditions to the loan. Though Peiris notes that the IMF “will look at the overall track record of policy implementation relative to the commitments made in the [Letter of Intent] including governance and anti-corruption measures,” the IMF did not attach any penalties to a failure to adhere to promised transparency measures.

At the very least, said Dietz, the IMF should review the procurement reports from MOPFI and share their assessment publicly. “Without some form of external transparency, we doubt that these procurement reports will drive better behavior [sic].”

Berazategui also states the IMF should share its review of Myanmar’s transparency measures publicly, specifically at the upcoming annual meeting in April 2021. More importantly, she notes that while committing to transparency measures should be a requirement for all countries accessing loans, their implementation should also be taken into account in negotiations for future programs.

Peiris said that, “IMF staff generally reviews the implementation by authorities of their commitments on transparency as provided under their letter of intent.” He added that publishing information on beneficial ownership is aimed at increasing transparency, and could assist in identifying links between the companies and Politically Exposed Persons.

Even if the promised procurement reports would include all beneficial owners, Global Witness questions their effectiveness. “What is the purpose of these reports and of disclosing beneficial owners? Will MOPFI turn down contracts with companies who have beneficial owners linked to armed groups, the military, or a ministry? It’s important that this is not just a “form-filling” exercise, and that disclosure is treated seriously as a meaningful part of the bidding process,” Dietz said.

Berazategui says that since April, the IMF’s provisions to promote transparency and fight corruption have improved, but there is room for growth, particularly on conflicts of interest.

Currently, the IMF funding disbursement does not address conflict-of-interest provisions for companies with links to so-called Politically Exposed Persons like government officials, military personnel or ethnic armed organisations, and their family members or close associates.

Myanmar consistently scores at the bottom of corruption and anti-money laundering indexes. On a scale of 0 to 100, with 100 being the highest score, Myanmar only collected 29 points on the Corruption Perceptions Index by Transparency International. And in 2017, 32 percent of respondents in Myanmar told researchers from the Global Corruption Barometer that they had paid a bribe in the previous year.

In February, the Financial Action Task Force (FATF), a global organization charged with combating money laundering, placed Myanmar under “increased monitoring” for its failure to implement an anti-money laundering and terrorism financing action plan.

FATF also warned countries in general to remain vigilant during the pandemic. “Criminals continue to exploit the pandemic, with mounting cases across the globe of counterfeiting of medical goods, investment fraud, adapted cyber-crime scams and exploitation of economic stimulus measures put in place by governments,” FATF stated.

Myanmar Consultancy Company

Company extracts of the Directorate of Investment and Company Administration (DICA) show that the Myanmar Consultancy Company Limited (MCC) and IGG, identified by the Independent International Fact-Finding Mission on Myanmar (the Mission) as donating substantial amounts of money to the military on several occasions, and were registered at the same address at Kyeik Wine Pagoda Road, no. 19, in Yangon until 3 November 2020.

In addition to sharing an address, IGG and MCC also shared officers until two weeks after the findings of the Mission were published. Naing Htut Aung, Wai Wai Yin, Aung Myo Win and Kyin Win were directors at both companies until 18 August 2019. Naing Htut Aung and Wai Wai Yin still lead IGG today. Aung Myo Win and Kyin Win head MCC since 5 November 2019. MCC did not respond to a repeated request for comment.

IGG is also “identified as a [Myanmar Economic Holdings Limited] “partner” company on the official website of Senior General Commander-in-Chief Min Aung Hlaing”, the Mission states in its September 2019 report. The Mission also notes in their report, that IGG donated additional funds to the military on 27 March 2019 for Armed Forces Day.

Myanmar Economic Holdings Limited (MEHL) is a state-owned conglomerate with activities in “nearly every sector of the economy, from “beer and tobacco, to mining, banking and garment manufacturing”. In leaked diplomatic cables publicly available on WikiLeaks, MEHL is described by a U.S. diplomat as “one of the most powerful and corrupt” organisations in Myanmar.

The UN report identified Min Aung Haing and Vice Senior General Deputy Commander-in-Chief Soe Win as Chairman and Vice-Chairman of the “MEHL Patron Group”. Both Min Aung Hlaing and Soe Win are under U.S. sanctions for “serious human rights abuse[s]” by the Myanmar army.

In September, Amnesty International published a report stating that MEHL was directly funding units accused of genocide and crimes against humanity.

Hazy company structures

Determining company ownership is not straightforward in Myanmar. Since January, all companies in Myanmar are required to hold and share information about beneficial owners with DICA and tax authorities, but there is confusion over the definition of beneficial ownership.

In its beneficial ownership toolkit, the Organization for Economic Cooperation and Development (OECD) defines a beneficial owner as “the individual or individuals who effectively owns or controls a legal vehicle”. Beneficial owners can include the ultimate owner of a parent company, whose identity may not be immediately known when looking at  corporate registries. It can also include the owners, boards of directors and major shareholders of subsidiary and parent companies, but the specific definition differs by country or region.

In Myanmar, the office of the president and DICA hold a different definition than the central bank. Presidential Notification 104/2019 and DICA Directive 17/2019 apply a threshold of ownership at 5 percent of shares, while Directive 18/2019 by the Central Bank of Myanmar sets the threshold at 20 percent.

Peiris states that the IMF expects the Myanmar government to follow the DICA definition of beneficial ownership and to share the names of anyone owning 5 percent of shares of awarded companies.

Even though the DICA directive applies to “all legal person [sic] or legal arrangement” and came into power in January 2020, DICA has only made relevant forms available to companies in the extractive industries.

Regular company registration forms only require sharing information on the ultimate holding company, but not other parent companies or the beneficial owners associated with those companies. In a 2019 survey from the Myanmar Centre for Responsible Business (MCRB), only 19 out of 248 companies said they disclosed beneficial ownership.

In addition to issues defining beneficial ownership in Myanmar and a lack of enforcement of disclosing information, there are also questions about the accuracy of shared information by corporations or updating of corporate information. MCRB notes in the preliminary results of their 2020 research that 94% of surveyed companies disclose information on their website that is inconsistent with information in the corporate registry of DICA.

All of this creates difficulties in determining who benefits from international funding. According to the IMF’s legal department, “a lack of information about the real person who ultimately owns, controls, or benefits from these structures—the so-called beneficial owner—can be used to mask questionable dealings”.

This is especially true during a crisis when the need for immediate action can lead to a lack of accountability or transparency.