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Cablegate: Burmese Take to the Ether to Avoid Sanctions

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS RANGOON 000694

SIPDIS

SENSITIVE

STATE FOR EAP/BCLTV, EB/ESC
COMMERCE FOR ITA JEAN KELLY
TREASURY FOR OASIA JEFF NEIL
USPACOM FOR FPA

E.O. 12958: N/A
TAGS: EFIN ECON PGOV BM
SUBJECT: BURMESE TAKE TO THE ETHER TO AVOID SANCTIONS

REF: A. RANGOON 138
B. 03 RANGOON 1337

1. (SBU) SUMMARY: BURMESE BUSINESSES HAVE A WELL-EARNED
REPUTATION FOR CREATIVITY IN THE FACE OF OBSTACLES. MANY
HAVE FOUND WAYS TO WORK AROUND LAST YEAR'S BAN ON U.S.
FINANCIAL SERVICES (INCLUDING TRADE FACILITATION AND CREDIT
CARD SERVICES). ONE OF THE LATEST METHODS INVOLVES LARGER
COMPANIES USING OFFSHORE AFFILIATES AND THIRD-PARTY
FACILITATORS TO OFFER CREDIT CARD SERVICES IN RANGOON.
THOUGH WE CAN'T SAY IF THIS SCHEME LEADS TO VIOLATIONS OF
U.S. SANCTIONS, IT SURELY CIRCUMVENTS THEM AND IS CONTRARY TO
THE DESIRES OF THE MAJOR U.S. CREDIT CARD FIRMS WHO LAST
SUMMER ANNOUNCED THEY WOULD SUSPEND THEIR BURMA OPERATIONS.
END SUMMARY.

ADAPT, ADOPT, AND IMPROVE

2. (SBU) DESPITE U.S. SANCTIONS THAT PROHIBIT U.S. PERSONS
FROM PROVIDING FINANCIAL SERVICES AND THE DECISION BY
MASTERCARD, VISA, AND AMERICAN EXPRESS TO SUSPEND THEIR
OPERATIONS IN BURMA, MANY HOTELS, SHOPS, AND TRAVEL AGENCIES
AROUND RANGOON ARE STILL ACCEPTING CREDIT CARDS. MOST ARE
NOT KEEN TO DO SO, TAKING A CARD FROM A CUSTOMER ONLY IN A
PINCH. HOWEVER, OTHERS ADVERTISE AGGRESSIVELY THAT
"MASTERCARD AND VISA ARE ACCEPTED!"

3. (SBU) HOW IS THIS POSSIBLE? AS REPORTED NUMEROUS TIMES
(REFTELS), BURMESE BUSINESSES HAVE BEEN EXTREMELY DEVIOUS IN
FINDING WORK-AROUNDS TO MINIMIZE THE DISRUPTION OF VARIOUS
SANCTIONS. AS ONE BUSINESSMAN TOLD US WHEN THE NEW U.S.
SANCTIONS TOOK EFFECT IN JULY 2003, "WE'VE HAD SANCTIONS FROM
OUR OWN GOVERNMENT FOR FORTY YEARS. YOURS WILL HAVE LITTLE
EFFECT." SOME TRADERS, PREVENTED FROM USING U.S. DOLLAR
LETTERS OF CREDIT WITH A BURMESE BANK, ARE NOW USING AN
ELABORATE ACCOUNT SETTLEMENT PROCESS THAT OCCURS IN OFFSHORE
BANKS (MOSTLY IN SINGAPORE). OTHERS ARE SHIFTING AS MUCH AS
POSSIBLE TO BORDER TRADE AND ITS CASH-BASED TRANSACTIONS.
NEARLY ALL USE AN ALREADY ACTIVE INFORMAL REMITTANCE SYSTEM
(CALLED "HUNDI" OR "HAWALLAH") TO MAKE AND RECEIVE U.S.
DOLLAR PAYMENTS.

THE MAGIC OF MODERN TECHNOLOGY

4. (SBU) THE HOTELS, SHOPS, AND SERVICES THAT ARE ACCEPTING
PLASTIC AGAIN IN RANGOON ARE RELYING PRIMARILY ON MERCHANT
ACCOUNTS SET UP OFFSHORE OR BY INTERNET-BASED SERVICES. IN
THE FORMER CASE, AN ENTITY IN RANGOON THAT HAS A CORPORATE
PARENT OR SUBSIDIARY WITH A MERCHANT ACCOUNT IN A BANK
OUTSIDE BURMA CAN PHONE IN NUMBERS OR DELIVER CREDIT CARD
SLIPS TO THEIR AFFILIATE FOR PROCESSING. THE SETTLEMENT, AS
FAR AS THE CREDIT CARD COMPANY AND U.S. FINANCIAL SYSTEM IS
CONCERNED, IS BETWEEN THE MERCHANT ACCOUNT IN SINGAPORE,
BANGKOK, OR HONG KONG AND THE CUSTOMER'S ACCOUNT IN NEW YORK,
FRANKFURT, OR LONDON.

5. (SBU) IT'S NOT CLEAR EXACTLY HOW THE LATTER LOOPHOLE WORKS
-- WHETHER THE BUSINESS CAN CONTRACT WITH AN ONLINE COMPANY
(SUCH AS WORLDPAY) DIRECTLY OR WHETHER IT MUST DO SO UNDER
THE NAME OF ITS OFFSHORE AFFILIATE. WHICHEVER THE CASE, SOME
ARE USING THESE THIRD-PARTY SERVICES TO PROVIDE MERCHANT
ACCOUNTS AND SETTLEMENT SERVICES.

COMMENT: ILLEGAL OR INEVITABLE?

6. (SBU) THE QUESTION IS WHETHER THE BURMESE COMPANIES'
ACTIVITIES LEAD TO VIOLATIONS OF U.S. SANCTIONS OR WHETHER
THEY ARE MERELY TAKING ADVANTAGE OF A LEGAL LOOPHOLE TO
CONTINUE SOME MEASURE OF BUSINESS AS USUAL. IN ANY EVENT, WE
THINK IT WORTHWHILE TO INFORM THE CREDIT CARD COMPANIES THAT
THEIR SERVICES ARE BEING OFFERED IN BURMA DESPITE THEIR
INSTRUCTIONS TO THE CONTRARY. THEY CAN, IN TURN, INFORM
THEIR MEMBER INSTITUTIONS THAT TRANSACTIONS THEY ARE
FACILITATING MAY BE INDIRECTLY SENDING MONEY TO BURMA. END
COMMENT.
MCMULLEN

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