Caterpillar's relationship with jade frontman for U.S.-sanctioned drug lord under scrutiny
U.S. industry lobbying to roll back sanctions on Myanmar (Burma) before critical reforms in the country have kicked in risks undoing its fragile progress towards democracy, prosperity and peace, Global Witness said today. The warning comes as President Obama prepares to welcome fellow Nobel Laureate Aung San Suu Kyi to the United States for the first time since her party’s landslide election victory.
Global Witness investigations have revealed Myanmar’s vast, murky jade industry to be of particular concern. Treated as a war chest for generals during the darkest days of military rule, the trade has long been a target of U.S. sanctions. Worth up to $31 billion in 2014 alone – a figure equivalent to 48% of GDP – it remains firmly in the grip of military elites, U.S.-sanctioned drug lords and crony companies, while local people see almost no benefit. Jade was kept largely off-limits from the former government’s reform efforts, and the industry now stands as one of the key obstacles to progress under the new civilian-led government.
The murkiness of the jade trade also poses risks to U.S. companies looking to engage in Myanmar, as machine giant Caterpillar Inc. has discovered. Global Witness investigations have uncovered a web of jade companies controlled by drug lord Wei Hsueh Kang– a figure so notorious the U.S. has put a $2 million bounty on his head and targeted him with narcotics sanctions and indictments. The public face of this company network, a Myanmar business manager, enjoys a cozy relationship with Caterpillar, and is linked to a tractor company which describes itself as "Myanmar’s premier Caterpillar dealership" (see here for a diagram of these connections as of December 2015). Caterpillar Inc. has been a vocal proponent of lifting general sanctions on Myanmar, now reportedly up for discussion during the historic meeting of U.S. and Burmese leaders.
“For decades the United States has led the charge against Myanmar’s brutal military junta”, said Juman Kubba, Global Witness’ Senior Analyst. “American politicians repeatedly put aside party differences to back the fight for peaceful democracy, and today a civilian-led government holds the reins. This is an historic legacy - but we cannot let so much great work come undone at the final hurdle. Sanctions provide an essential tool for reformers against the powerful elites which still threaten the country’s future, they must not be eased until they’ve served that purpose.”
Global Witness research has shown how Myanmar’s jade mines have been enriching those with most to lose from real change. The insatiable exploitation has triggered a spate of landslides which claimed at least 150 deaths last year alone, and waves of local protests over the abuses and destruction caused by jade companies. The industry is also fuelling one of the country’s most intractable conflicts in Kachin State, where jade is mined, with the struggle for control of this lucrative resource and local grievances representing serious obstacles to peace.
In its first months, Myanmar’s new civilian led government has taken important action on jade. It has called a halt to new permits and permit extensions until a reformed legal framework is in place, environmental concerns are being reviewed, and a more inclusive peace process has been initiated. These are important initial steps, but there is a long way to go. Sanctions remain a crucial tool to support the clear out of a powerful and entrenched elite, and turn jade into an industry which benefits Myanmar’s people.
There are, however, growing concerns that industry pressure could lead to President Obama announcing a premature lifting of remaining U.S. sanctions on Myanmar, which could seriously undermine efforts to reform this major industry. The Caterpillar connection to a figure identified as a front man for a sanctions-listed drug lord reflects the risks that international investors face in Myanmar. It illustrates why using sanctions to increase transparency and tackle corruption is key to improving the business environment and serving Myanmar’s long term interest.
“Once sanctions are lifted, there is no going back,” says Kubba. “Myanmar stands at a crucial juncture, and the United States must not falter in its commitment to supporting the democracy, peace and prosperity which Myanmar’s people have worked so hard for. President Obama is setting his legacy for Myanmar – let it be a positive one.”
Caterpillar Inc. has stated that, in line with its Code of Conduct, it carries out “robust screening procedures to ensure that its transactions do not violate relevant US export control laws”, and that their due diligence into the individual and companies identified by Global Witness does not demonstrate that they feature on U.S. sanctions lists or are owned or controlled by “a sanctioned party”. Global Witness research indicates, however, that Wei Hsueh Kang and his associates have used an array of corporate vehicles and straw men precisely in order to avoid U.S. sanctions and indictments. As such, there is a very good reason why the ‘public faces’ of their jade ventures do not appear on current U.S. sanctions lists and it is necessary to dig deeper.
Caterpillar Inc. is not the first U.S. company to find uncomfortable links to Myanmar’s jade trade arising from the opaque business environment and due diligence failures. Last year, Global Witness alerted Coca Cola to the fact that its only local director also had a stake in a jade company, which was a long-term partner of an army company sanctions-listed by the U.S. The drinks giant has, however, taken a responsive approach to revelations over its local partner, facilitating direct inquiries, carrying out further discussions, and reporting publicly on its relationships and activities in Myanmar.
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Notes to editor:
1) Drug lord Wei Hsueh Kang is Southeast Asia’s most notorious narcotics trafficker, the architect of the methamphetamine epidemic which has ripped through the region, and a long-time associate of the United Wa State Army, an ethnic armed group described by the U.S. Justice Department as a “powerful criminal syndicate and worldwide narcotics trafficking organization”. The U.S. has targeted Wei Hsueh Kang and his associates with sanctions and indictments, seeking judgment in the amount of $103 million and forfeiture of assets, including businesses in Myanmar.
Following the U.S. clampdown, Global Witness investigations indicate that the companies backed by Wei Hsueh Kang and his associates morphed into a new set of corporate vehicles, fronted by individuals who do not feature on U.S. sanctions lists. Global Witness has tracked five jade ventures which appear to be ultimately controlled by Wei Hsueh Kang. Official and industry sources identify one figure, Zaw Bo Khant, as the managing director of the ‘central hub’ of these companies, and the person responsible for their mining operations in Myanmar’s jade area, and as such the ‘public face’ of Wei Hsueh Kang’s jade ventures.
Caterpillar Inc. does not invest directly in Myanmar, but sells its equipment through an independent dealership. A company called Myan Shwe Pyi Tractors describes itself as “authorized Caterpillar dealership in Myanmar”, and uses the branding MSP CAT. Zaw Bo Khant was the director of an associated company, Myan Shwe Pyi Mining in 2015, but since the publication of Global Witness’ reports on the jade industry, his wife has taken his place. The director of Myan Shwe Pyi Tractors is the second director of Myan Shwe Pyi Mining.
Jade front man Zaw Bo Khant has also been hosted at Caterpillar sites in Australia, France, Germany, Spain and the UK. Caterpillar Inc. has confirmed that “Zaw Bo Khant has visited various Caterpillar facilities”, but states that the company is “not aware of any business courtesy provided by or on behalf of Caterpillar Inc. to Zaw Bo Khant that falls outside of our Code or our internal policies”.
For further details of Wei Hsueh Kang’s activities in the jade industry, see Global Witness report Lords of Jade which can be downloaded here. A chart setting out these links as at December 2015 is set out below, and a copy can be provided for publication.
2) Through the presidencies of Bill Clinton and George W. Bush, the United States used sanctions to undermine the military junta’s stranglehold on Myanmar. A U.S. ban on jade and ruby imports from Myanmar was first introduced through the Tom Lantos Block Burmese Jade (Junta’s Anti-Democratic Efforts) Act of 2008. Since 2011, Myanmar has undergone a process of democratic reform, and the majority of sanctions have been eased or lifted completely. The U.S. has maintained a limited number of restrictions, notably a trade ban on jade and rubies, and specific listings against key military junta figures and associates. In addition, U.S. has a separate set of set of sanctions under the Foreign Narcotics Kingpin Designation Act, which applies to significant global drug traffickers, and covers Wei Hsueh Kang.
3) Jade: Myanmar’s “Big State Secret” examined the workings and control structures of the country’s secretive jade business.
The report’s key findings are:
a. The jade business is worth far more than previously thought; possibly as much as US$31 billion in 2014. Chinese government trade data for 2014 indicates that the category of gemstone imports from Myanmar that covers – and overwhelmingly comprises – jade was worth US$12.3 billion. However, this represents less than a third of Myanmar’s officially declared jade production by weight, even though China is where almost all Myanmar’s jade ends up.
b. Using Myanmar government production and sales data, and an estimate of the proportions of high, medium and low-grade jade as shares of production developed by Proximity Designs and the Harvard Ash Center, we undertook a new and in-depth analysis of the value of the jade business. Our estimates put the value of Myanmar’s official jade production in 2014 alone as high as US$31 billion. An alternative methodology, which uses an average price per kilogram of jade derived from the Chinese import data yields a figure of US$38 billion. Our intention, in publishing some specific figures, based on the incomplete data available, is not so much to have the last word on the value of Myanmar’s jade business as to trigger a debate and encourage the full disclosure of the information the public needs to make more definitive assessments on an ongoing basis.
c. The jade business is dominated by a rogues’ gallery of military hardliners, army companies, ‘crony’ tycoons and drug lords. These include the families of former dictator Than Shwe, a serving minister, two deputy ministers and a former ruling party general secretary. Other key players include infamous military conglomerate Myanma Economic Holdings Limited and a previously obscure but very powerful group of companies known as Ever Winner, which has close connections with Myanmar’s largest bank: KBZ.
d. The report argues that, in its current state, the jade business offers a giant slush fund to some of the most dangerous opponents of democracy and peace in Myanmar today. Meanwhile, local people are getting next to no benefits. This gross injustice is contributing to the armed conflict in Kachin State between the state military (the Tatmadaw) and the Kachin Independence Army/Kachin Independence Organisation.
Jade: Myanmar's "Big State Secret"Jade: Myanmar’s “Big State Secret” can be downloaded here. A blog setting out developments in the conflict since the new government came to power Jade is fuelling escalating conflict in Myanmar - so upcoming peace negotiations must focus on natural resourcesis available here.
Further details of the first steps Aung San Suu Kyi’s
government has taken to tackle the jade industry are set out here.