The European Union made this decision at a controversial time, just days after the BBC received footage of soldiers standing by as Buddhists attacked Muslims in Burma. The decision also came close on the heels of a Human Rights Watch report accusing the Burmese public forces of permitting and even joining in ethnic cleansing against the Rohingya, a Muslim ethnic minority. Human rights groups decried the European Union’s decision to give up sanctions as a point of leverage when such human rights abuses are ongoing.

Yet Nobel Peace Prize Laureate Daw Aung San Suu Kyi supported the European Union’s decision, telling the BBC, “It is time we let these sanctions go…I don’t want to rely on external factors forever to bring about national reconciliation which is the key to progress in our country.”

Meanwhile, the European Union’s decision puts pressure on the United States, which eased its sanctions in May 2012 but left in place the underlying legislation that would allow them to be reinstated easily. The United States has maintained its Specially Designated Nationals (“SDN”) list for Burma, although it recently issued a General License to allow U.S. persons to conduct business with four Burmese banks on the SDN list. Two are owned by the best-known “cronies” of the former military regime – both men are on the SDN list — and the other two are owned by the government. The General License will make it easier for U.S. companies to conduct business in Burma, but belies the U.S. government’s earlier indications that it could engage with Burma without supporting those who made fortunes through their alliances with the former junta.

The United States continues to strengthen economic ties with Burma in other ways. For example, the U.S. Acting Trade Representative just visited Burma to begin discussions on a framework agreement covering trade and investment between the two countries. It is unclear whether the U.S. will lift its sanctions in the near-term, especially since this would require that Congress act to unwind the underlying legislation.  But it is clear that the United States will continue to build closer economic ties with Burma, following the footsteps of Europe.

This week, members of the United Nations (“U.N.”) Working Group on Human Rights and Transnational Corporations are making an official visit to the United States as part of the Group’s mandate to promote the effective implementation of the U.N. Guiding Principles on Business and Human Rights. The visit, only the second by the Working Group since its establishment in 2011, provides an important opportunity to engage all stakeholders on efforts to make respect for human rights part of mainstream corporate practice in the United States.

The home of some of the world’s largest corporations, the United States is an important test case for Guiding Principles implementation. The visit by the Working Group will undoubtedly highlight the extent to which major U.S. companies are addressing challenges and opportunities in implementing the human rights due diligence process called for in the Guiding Principles. Equally important, it will also point to the critical role of the U.S. government in making this framework part of corporate America’s DNA.

The U.S. approach to integrating human rights concerns throughout business practices has been piecemeal and limited to date, due largely to the structure and culture of our political system:

• First, there are few U.S. federal government institutions and agencies that focus specifically on human rights, which can lead to policy incoherence. The State Department’s Bureau of Democracy, Human Rights, and Labor has a specific human rights mandate, as does the relatively new Human Rights and Special Prosecutions Section at the Department of Justice, although it has thus far not focused on the nexus of business and human rights in its prosecutions. The Department of Labor covers a subset of human rights. At the same time, other government agencies don’t see human rights as part of their mandate, even though they interact far more with and have more influence on business.
• Second, the U.S. Congress has created two permanent bodies that focus on human rights: the Senate Judiciary Subcommittee on Human Rights and the Law and the Tom Lantos Human Rights Commission in the House of Representatives, neither of which has focused attention on corporate related challenges to date.
• Third, the United States does not have overarching human rights legislation or a national human rights institution, unlike most countries in the world.  Far more energy is poured into our impressive domestic civil rights machinery, which protect Constitutional rights that apply domestically – which can leave externally-focused human rights efforts sitting in few and underfunded homes.
• Fourth, the Congress is less responsive to U.N. backed initiatives. Historically, it has shown limited deference to and interest in the U.N. compared to its European brethren.  For example, the U.S. Congress has refused to ratify a number of international conventions, even though the President and most other countries had signed them.  It is fair to say that most Members of Congress are unlikely to have ever heard of the Guiding Principles or the six-year global multistakeholder consultation process led by Harvard Professor John Ruggie that led to their unanimous endorsement by the U.N. Human Rights Council in 2011. Under the U.S. Constitution, only Congress can legislate, and it has passed no legislation supporting the U.N. Guiding Principles, nor has it held any hearings on them.  Notably, although some Members of Congress care passionately about human rights, they simply have no awareness of the helpful framework provided by the Guiding Principles to promote good conduct among all companies wherever they operate.

But it isn’t an altogether bleak scenario: the Obama Administration has taken a handful of steps to support the Guiding Principles. For example, the State Department’s Bureau of Democracy, Human Rights, and Labor (“DRL”) worked with the Treasury Department to develop the landmark Burma Reporting Requirements on Responsible Business, which require U.S. companies investing in Burma to report on their social and environmental due diligence. The Reporting Requirements are not final, but are likely to recommend the due diligence system in the U.N. Guiding Principles as a good practice. Likewise, DRL has held a series of roundtables with companies and civil society to increase awareness of the Guiding Principles. Separately, the Department of Labor has developed a Toolkit for Responsible Business aiming to reduce child and forced labor that refers to the Guiding Principles.

In an effort to cut off funding to armed groups in the Democratic Republic of Congo (“DRC”), Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires companies reporting to the Securities and Exchange Commission to identify whether their products are “DRC conflict free,” and describe the due diligence they conducted to arrive at their conclusions.  The Dodd-Frank Act, as it is popularly known, was passed before the Guiding Principles were finalized, and its provisions were not developed with them specifically in mind.  They do, however, use the language of due diligence to address indirect business impacts on human rights, and to that extent, are consistent with the Guiding Principles.

In sum, U.S. progress to date has been limited and issue-specific.  There is no indication of sufficient momentum to prompt most U.S. companies to develop human rights policies and procedures – except for the largest, brand-facing companies, many of which have these in place anyway.

But the United States cannot afford to ignore the issue. It needs to adopt a more coherent approach so that the goal of ensuring corporate respect for human rights in a more targeted and efficient manner can be  achieved. For example, the conflict minerals provision, while well-intended, is extremely expensive to implement, and it is unclear whether it will attain its fairly narrow goals. Attacking each human rights issue in such a ponderous way isn’t feasible. We need measures that lead companies to adopt systems that take human rights, writ more broadly, into account throughout their decision-making, from procurement to product design to investment choices.

The good news?  The United States can learn from the experiences of other nations. For example, human rights could be put on the radar for thousands of U.S.-based companies simply by requiring them to report on whether they have in place human rights policies and procedures, and what they include, as a number of other countries have done. Such a step would help quickly start to shift U.S. business culture, which for the most part remains convinced that human rights are of no direct relevance to companies or their bottom lines.

Moreover, the United States can learn from its own experience. The United States has helped companies incorporate social and environmental issues into their business fundamentals before. A report from the International Corporate Accountability Roundtable notes that the U.S. government has improved corporate environmental and labor practices through administrative law requirements, incentive schemes, and disclosure requirements.  For example, federal procurement regulations incentivize companies to improve their labor practices by requiring companies seeking government contracts to certify that their products were not made with forced or child labor. These regulations could be expanded to include human rights more broadly.

Moreover, the United States government has played an important role in developing industry-specific guidelines on human rights through its role in founding the Fair Labor Association and the Voluntary Principles on Security and Human Rights.  Such efforts should continue.

The human rights bodies in the Congress should hold hearings that regularly touch on the U.N. Guiding Principles and the nexus of business and human rights. The State Department should continue to leverage opportunities to heighten awareness of the agenda in other government agencies.

Of course, the U.S. government will not be the only entity seeking to support the Guiding Principles. Perhaps the most likely vehicle to “encourage” companies to conduct human rights due diligence will arise from the Supreme Court’s recent decision in Kiobel v. Shell.  This narrowing of the Alien Tort Statute’s applicability is almost sure to prompt U.S. NGOs to advocate for a law providing a cause of action against companies complicit in human rights abuses abroad.

The U.N. Working Group’s visit provides an opportunity to reflect on our progress. And our path has just begun.

On January 16, Oxfam filed an intervenor brief in the case that the American Petroleum Institute (“API”) and others have brought against the Securities and Exchange Commission (“SEC”) to block its final rule.  More unusually, two Senators and one former Senator filed an amicus brief siding with the SEC, which was accompanied by another amicus brief from twelve members of the House of Representatives.  Each brief argued slightly different points, but all emphasized the SEC’s power to issue the rule in its current form, asserted that the final rule is aligned with Congressional intent, and argued that the final rule was supported by an adequate analysis of its economic impact.

Now, Norway-based Statoil has — albeit discretely — sought to distance itself the rest of the oil industry, noting in a letter to Global Witness that it explicitly withheld support for the API lawsuit, although it did not want to impede the ability of other oil companies to bring such a case. Until now, Newmont Mining was the only company covered by the legislation to explicitly support Section 1504.  Statoil’s support is more attenuated, but nonetheless of interest, particularly as similar legislation moves forward in the European Union.

In fact, legislation similar to Section 1504 has been proposed in a number of non-U.S. jurisdictions, including the European Union, Canada, and Switzerland.  The E.U. proposal has moved the farthest, and it is rumored that a vote will happen this spring. In most significant respects, the current E.U. draft parallels Section 1504, although it also covers the forestry industry. Moving beyond revenue transparency, developing nations have also passed legislation in recent years requiring the disclosure not only of payments, but of oil, gas, and mining agreements signed with the governments.

Finally, the SEC is facing demands that it issue a rule requiring corporations to disclose their use of corporate treasury funds for political purposes. Statoil’s position may simply be a nod to the fact that companies will come under growing legislative and regulatory pressure to be transparent on issues ranging from foreign government payments, to contracts, to political payments.

The petitioners’ lawsuit made several key arguments, including the claims that:

• the SEC should have incorporated three modifications to the final rule;
• the SEC’s economic analysis was insufficient; and
• the final rule violates the petitioners’ First Amendment rights.

The SEC’s brief addresses each of these claims, as summarized below.

Response to Petitioners’ Claim that the SEC Should Have Incorporated Three Modifications to the Final Rule

The SEC’s brief states that it did not act arbitrarily or capriciously when it rejected the three rule modifications that the petitioners sought.

1. Regarding the petitioners’ argument that public reporting should be aggregated rather than company-by-company, the SEC argues that it was statutorily required to mandate detailed public reporting for each company at a project level, rather than aggregating industry data before making it public.
2. The SEC’s brief also claims that the SEC adequately considered the petitioners’ urgings that the rule not mandate reporting in instances in which host government laws forbid such disclosures. Petitioners had argued that this might place issuers at a competitive disadvantage compared to extractive companies that are not listed in the United States. The SEC’s brief counters that Congress intended for Section 1504 to lead to the disclosure of payments made to intransigent governments, including those that have in place laws prohibiting such disclosure. The SEC’s brief quotes former Senator Richard Lugar (R-IN), an original sponsor of the provision, who noted: “The United States ‘cannot force foreign governments to treat their citizens as we would hope, but this amendment would make it much more difficult’ for these governments to ‘hide the truth.’”
3. Regarding the claim that the SEC had not sufficiently defined “project,” the SEC claims that it had discretion regarding whether to define the term and had determined not to do so, due in part to the fact that one of the litigants, the API, had itself argued against defining the term.

Response to Petitioners’ Claim that the SEC Conducted an Inadequate Economic Analysis

The SEC has been perceived to be particularly vulnerable to the petitioners’ attack on its analysis of the rule’s economic impact. The SEC claims, however, that its economic analysis was sufficient because precedent only requires it to do the “best it can.” The brief argues that the SEC met this standard by using all available data.

The SEC’s brief also notes that companies had provided little information regarding costs during the rulemaking process despite the SEC’s requests for such data, and moreover emphasizes that the SEC’s cost analysis was in keeping with the limited figures that the API submitted during the rulemaking process. Additionally, the brief claims that the SEC’s identification of the benefits of the rule, although only qualitative in nature, was adequate because it was impossible to quantify such benefits due to a dearth of data.

Response to Petitioners’ Claim that the Final Rule Violates Petitioners’ First Amendment Rights

The petitioners argued that the final rule compelled speech in violation of the First Amendment. The SEC’s brief posits, however, that the petitioners waived their right to challenge the final rule as violating the First Amendment because petitioners had not raised this issue during the rulemaking. The brief adds that, in any case, the rule only requires factual disclosures, and therefore does not compel speech protected by the First Amendment.

The New Rule

As discussed in previous posts, in late August 2012, the SEC adopted the “Disclosure of Payments by Resource Extraction Issuers” rule (the Rule), which applies to issuers that are engaged in the commercial development of oil, natural gas, or minerals, which includes exploration, extraction, processing (but not refining), and export from the host country. Section 1504 states that it is intended to support transparency regarding the payments made to governments in order to enhance accountability and good governance.

Under the new Rule, issuers must disclose all payments (or aggregation of related payments) of $100,000 or more to the U.S. federal and foreign governments for such activities. “Payments” are defined to include taxes, royalties, fees, production entitlements, bonuses, dividends, and expenditures for infrastructure improvements. Such reports must be made annually on Form SD and must include information including the amount paid, the recipient government, and the particular project to which the payment relates.

Issuers will be required to file their first report for the period beginning October 1, 2013 through the end of the company’s fiscal year, and annually thereafter. A number of multinational oil, gas, and mining companies already voluntarily report their payments to their host governments through the Extractive Industries Transparency Initiative, but the rule requires more detailed reporting for a larger number of countries.

When the SEC commissioners voted to adopt the Rule, two of the five commissioners, including the Chair, had to recuse themselves due to conflicts of interest. Of the remaining three commissioners, two voted to approve the Rule while the third issued a dissent claiming that the SEC had not adequately considered the cost or impact of the Rule, that the $100,000 threshold was too low, and that the Rule would put U.S. companies at a disadvantage to foreign competitors that are not required to make such reports.

The Lawsuit

On October 10, four industry groups filed suit in federal court in Washington, D.C. challenging the Rule. The lawsuit charges that the SEC violated the Administrative Procedure Act by adopting the Rule without taking into account significant public comments claiming that the Rule would have a negative impact on U.S. industry. The lawsuit also specifically charges that the SEC failed to conduct an adequate cost-benefit analysis as required by law.

The SEC noted in the public hearing on the Rule that the key benefits of the Rule — increased transparency and accountability of governments to their citizens — are challenging to quantify. The SEC estimated that the cost of compliance with the Rule would approach $1 billion initially, with follow-on costs in the $200 million to $400 million range.

Skeptics have charged that compliance costs will greatly exceed those estimates. The complaint quoted the dissenting commissioner, who criticized the SEC for failing to adequately tailor the Rule to avoid significant adverse effects on competition and stated that “[w]e are not at liberty to ignore selectively the longstanding congressional mandate to consider the impact our rulemaking is likely to have on competition.”

The lawsuit also alleges that the SEC improperly failed to provide for exemptions from the Rule when “necessary or appropriate,” as the SEC is empowered to do, and emphasizes the need for exemptions in certain circumstances, such as where foreign governments bar public disclosure of the subject payments.

Finally, the lawsuit claims the rule violates the reporting companies’ First Amendment rights by making them engage in speech against their will. If successful, the First Amendment challenge could invalidate not only the Rule itself, but also the corresponding provision of Dodd-Frank that directs implementation of the Rule.

The Road Ahead

The litigation is likely to grind on for some time. One question is whether the SEC will voluntarily stay the effective date of the Rule pending resolution of the litigation. While the SEC is not required to do so, it has taken that route in select prior instances. Alternatively, the plaintiffs may ask the court to impose a stay.

As to the ultimate outcome, the SEC might be vulnerable due to its cost-benefit analysis. In July 2011, a federal appeals court struck down the direct proxy access regulation, SEC Rule 14a-11, which would have given shareholders the right to have their director nominees included in management’s proxy materials, on grounds that the SEC failed adequately to assess economic impact and conduct a cost-benefit analysis.

The lawsuit has implications for the ability of the SEC to promulgate rules with costs and benefits that are not easily assessed. As a result, the litigation is likely to be closely watched by those interested in challenging the “conflict minerals” rule, issued by the SEC at the same as the conflict minerals rule. As previously discussed, on October 19, the U.S. Chamber of Commerce and the National Association of Manufacturers filed a petition of review with regard to the conflict minerals rule.

The lawsuit with regard to the extractive industry transparency rule has prompted a strong reaction from some stakeholder groups. The lawsuit drew strong criticism from the bipartisan lawmakers that sponsored Section 1504.  Senators Ben Cardin (D-MD) and Richard Lugar (R-IN) called the lawsuit both “expected” and “frivolous.”

Non-governmental organizations that supported the law also protested the lawsuit.  Global Witness, for example, stated, “the companies claim this law will create a competitive disadvantage, but their arguments don’t stack up.” Finally, Earthrights International and Oxfam America are considering legal action in support of the rule. Earlier this year, Earthrights and Oxfam filed a suit against the SEC seeking to compel the issuance of a final rule.

This post includes content from a client alert previously published by Foley Hoag’s Securities Law practice. The full alert can be found here.

From the information available thus far, it is clear, however, that the law is a significant improvement on the version that the lower Hluttaw passed earlier this summer, which would have required foreign investors to make a minimum $5 million investment – which would have been the largest threshold in Southeast Asia. The earlier draft also would have forced foreign companies to take a minority position in enterprises active in certain restricted sectors. Additionally, the older version prohibited foreign firms from investing in small and medium enterprises, and completely barred them from investing in some sectors. Adding insult to injury, Burmese nationals had the right to buy out their business partners at the market rate during the course of the contract.

The bill that passed in September offers at least some improvements. It dropped the $500 million minimum investment requirement, and allows foreign firms to acquire a 50% interest in the restricted sectors. Foreign companies can acquire significantly larger interests in some sectors. Critically, the buy-out clauses were removed. Presumably, some of the other more draconian aspects of the earlier draft have been softened or removed, but this information is not yet available.

The foreign direct investment law indicates the contradictory currents in Burma at the moment. On the one hand, some members of the local business community — and the country’s myriad un- and under-employed workers — are eager for new opportunities. At the same time, some recognize that the opening of the economy will create new winners and losers, and will weaken the advantages that a small and privileged coterie enjoyed due to their political connections.

Burma also has a long and storied history of economic protectionism that remained constant as the country moved over the decades from democracy to military dictatorship. Therefore, it is not altogether surprising that the foreign direct investment law does not resemble that of an Asian tiger starving for outside money, but rather that of a country taking a good, hard, peckish sniff.

Although the Declaration is a soft law instrument and therefore not binding on companies, given the broad support that it received at the UN General Assembly, it is certainly persuasive. And, in fact, national courts of countries including Belize and Colombia have begun to cite to the Declaration in their court decisions related to indigenous peoples.

Nevertheless, state practice lags woefully behind the Declaration. Although the laws of a number of countries in Latin America provide for consultation with indigenous peoples, none have regulations in place requiring their consent. At the same time, some of their highest courts, such as Colombia’s Constitutional Court, have followed the precedent of the Inter-American Court of Human Rights and stated that governments should obtain consent for development projects with significant impacts.

The current scenario places companies in a highly awkward position. First, in some instances, they are asked to follow regulations that call for the company – working closely with the government – to consult with indigenous communities, even though the court system might invalidate the project if consent is not obtained. Moreover, when companies seek consent because they apply the IFC Performance Standards or the Equator Principles, or because they believe that seeking consent constitutes good risk management, they might receive little support or even face opposition from their host governments.

Curiously, it is governments, not companies, that sometimes are the impediment to the implementation of the UNDRIP. There are many reasons why governments might be slow to implement the UNDRIP, including fear that they will lose control of development projects within their territories. Nevertheless, unless governments clarify their positions on the rights of indigenous peoples, and bring their regulations into line with their international commitments and the rulings of national and regional courts, companies will continue to face an awkward double standard. The new Equator Principles merely increase the visibility of the current conundrum, in which lenders impose higher standards for projects on indigenous lands than most governments.

As discussed in previous posts, Section 1504 directs the SEC to issue rules requiring extractive companies (oil, gas, and mining companies) that report to the SEC to disclose their payments to foreign governments, as well as the U.S. federal government. The requirement applies to foreign issuers, and makes no exceptions for small or medium-sized enterprises.

Important aspects of the final rule include:

• In keeping with the statutory language, companies must report on a project basis on payments made to governments related to commercial development by the issuers, subsidiaries, or entities that they control. The SEC did not define “control,” and stated that the issuer should determine control based on all relevant facts and circumstances.
• “Commercial development” is defined according to the language in the statute, which is broader than the Extractive Industries Transparency Initiative (“EITI”), and includes exploration, extraction, processing, export, or the acquisition of licenses for any of these activities.
• The payment types are consistent with the EITI and include taxes, royalties, fees (including license fees), production entitlement payments, dividends, and payments for infrastructure improvements. Notably, dividends and payments for infrastructure improvements were not included in the draft rule.
• Companies must report “not de minimis” payments, which the final rule defines as payments or a series of payments equal to or exceeding $100,000 in a fiscal year.
• “Project” remains undefined. The SEC stated that it would release limited guidance on this point. The SEC commented that industry frequently uses the term “project,” and it has a commonly understood meaning. Additionally, the contractual arrangements between a company and the government typically define the scope of a project. The SEC added that the statute makes it clear that project is not simply defined at a country level, but rather is more granular. Additional written guidance should be forthcoming.
• There are no exemptions from or exceptions to from the rule for companies required to file annual reports with the SEC, even if contracts or foreign law proscribe the sharing of payment information.
• The report will be filed, not furnished, separately from the annual report in a new form, Form SD. Statements in Form SD are subject to the liabilities imposed under the Exchange Act
• If a company’s fiscal year ends after September 30, 2013, it must report on payments throughout the 2013 fiscal year. If a company’s fiscal year ends before September 30, 2013, it initially must report on payments made between October 1, 2013 and December 31, 2013. A company should file the form on the public EDGAR system no more than 150 days after the end of its most recent fiscal year.
• The SEC admitted that it did not have the expertise to quantitatively determine the benefits of implementing the rule. It estimated initial costs to fall between $44 million and 1 billion, and ongoing costs to be between $200 and 400 million. The SEC also stated that the rule may have significant effects on competition.

Notably, Commissioner Gallagher did not support the rule for two main reasons. First, he stated that the SEC did not use its discretion to adequately tailor the rule to adhere to the Commission’s purpose of supporting competition and protecting investors, while also meeting Congressional intent expressed in Section 1504. He particularly criticized the decision to define $100,000 as “not de minimis,” as he believes this amount is de minimis for the relevant issuers. He also argued that “project” should have been defined at the country level. Second, he expressed concern that the economic benefit analysis simply did not quantify the benefit of the rule and therefore was inadequate.

The final rule has elicited criticism, primarily from companies and business associations that fear the regulation will impede the competitiveness of public oil, gas, and mining companies operating around the world.

Amy Lehr, the author of this post, will be presenting during a webinar on “Responsible Business in Myanmar: Operating Context, Sanctions, and International CSR Standards,” this Thursday, August 16, at 11:00 a.m. She will be joined by John Ruggie and Gare Smith. Information on registration can be found here.

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The U.S. decision to ease financial and investment sanctions on Burma for the first time since 1997 is a landmark – and controversial – moment. It presents Western businesses with an opportunity to enter a largely untapped market, albeit one that suffers from weak rule of law and internal conflict. In response to such concerns, although the Obama Administration will now allow U.S. companies to invest in Burma, they must comply with Burma-specific reporting requirements for responsible business, which mandate public disclosure on social, environmental, and anti-corruption policies and procedures.

This is the first time the United States has implemented such requirements as an element of easing a sanctions regime. The imposition of the requirements indicates that, although the Administration wants U.S. companies to invest in Burma, both the government and civil society are deeply concerned about the ability of companies to operate responsibly in that context. Due to such worries, U.S. companies have a significant incentive to enter this market in a manner that follows international best practices regarding the environment, human rights impacts, and corruption – and a chance to demonstrate that U.S. businesses indeed are partners of choice.

The unique reporting requirements for Burma are a balancing act. By easing the sanctions, the Obama Administration seeks to reward the reformers in Burma’s government and to support U.S. business. Burma offers a new market for Western goods, has plentiful natural resources, was once the rice basket of Asia, and has profound needs for new infrastructure, all of which present an opportunity for business. At the same time, human rights and labor organizations are profoundly concerned about ongoing human rights abuses and corruption. The Reporting Requirements are an attempt to address those concerns.

Undoubtedly, civil society will criticize the requirements, in part because they only stipulate that companies must publicly divulge their human rights, environmental, and anti-corruption policies and procedures, but do not require the companies to have them in the first place. Yet regardless of whether the reporting requirements are perfect, they highlight the fact that civil society and – to a lesser degree – governments are deeply concerned about the role of business in Burma, which is currently dominated by companies with poor human rights and environmental track records. Western multinational companies entering Burma will therefore be in a “reputational fishbowl” as the organizations that strived to maintain sanctions against the Burmese government turn their attention to the role of companies inside the country.

Getting things right in Burma will be no easy task. Beyond the basic infrastructure problems – foreign cell phones do not work, Internet access is painfully slow, and many banks are on the Department of Treasury’s sanctions list – corruption is a huge challenge. Transparency International ranks the country at 180 of 182 countries, just ahead of Somalia and North Korea. Businesses closely tied to the former junta dominate the formal economy.

Political repression is still a problem; Burma appeared in Freedom House’s 2012 “Worst of the Worst” list of the world’s 10 most repressive countries, although the situation is improving. Of particular relevance to business, land-grabbing from poor villagers for corporate projects has long been a significant problem, although the villagers are starting to fight back. Moreover, the antiquated minimum wage law dates back to 1949. Its inadequacy has led to frustration over inadequate wages and unsafe working conditions, prompting a wave of labor protests in recent months. And finally, the government is still fighting internal wars in areas such as mineral-rich Kachin State.

Despite this perfect storm of challenges, there is an opportunity. Many Burmese resent the role that companies from neighboring countries have played in the country, citing their failure to avoid environmental degradation and human rights abuses. Burmese also express dismay that some of these companies import foreign labor to carry out projects, which leaves locals with few if any benefits. Many Burmese want economic development, but wish for the benefits to spread to the general population, and express hope that the multinationals poised to enter Burma will be different.

Therein lies the opportunity. If Western companies operate according to international environmental and human rights standards, such as the U.N. Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises, they will differentiate themselves and become partners of choice both in Burma and the region.

In a sense, because it has been closed off for so long, Burma is a test case that will demonstrate whether Western companies have learned key lessons about operating responsibly over the past two decades. Given the stakes, this experiment cannot afford to fail.

The sanctions represent a balance between ongoing U.S. concerns regarding ongoing and severe conflict in Burma’s border regions and the continuing repression of human rights in the country and the Administration’s desire not to have U.S. companies be the last movers in an emerging market.  Asian investment, particularly from China, Thailand, Singapore, and Malaysia, has been increasing rapidly over the past decade despite Western sanctions. Moreover, since the European Union suspended most sanctions in April, European companies have visited the country in increasing numbers, leading some U.S. companies to express concern that they would be left behind. 

The Reporting Requirements on Responsible Investment in Burma require that U.S. companies that invest an aggregate of at least $500,000 in Burma submit an annual public report on the following topics:

• Overview of operations in Burma;
• Human rights, labor rights, and environmental policies and procedures;
• Arrangements with security providers (if applicable);
• Property/land acquisition, including processes to identify land rights and address resettlement practices, if the property is worth more than $500,000 or over 30 acres; and
• Payments to the Government of Burma, sub-national authorities, and state-owned enterprises if the aggregate annual amount exceeds $10,000.

Notably, companies are not required to have human rights, labor, and environmental policies and procedures, or to demonstrate that they implement them effectively, but rather merely to identify whether or not they exist. Nevertheless, the public nature of the reporting creates some pressure on companies to demonstrate that they take seriously the substantial social and environmental risks of operating in the long-isolated country.

U.S. companies must also submit annual information to the U.S. State Department regarding the following, which are confidential and will not be made public, including:

• The contact information of the individual preparing the report;
• Whether the company or individuals representing it have held meetings or had other communications with the military or other armed groups, and, if so, with whom they met; and
• Any risks or impacts that due diligence on human rights, labor, and the environment identified, and steps taken to mitigate them.

Moreover, in an attempt to address concerns regarding the corruption at the Myanmar Oil and Gas Company (MOGE), the Reporting Requirements specify that U.S. persons with new investments based on an agreement with MOGE must notify the State Department of the agreement in writing within 60 days of entering the investment.

Stakeholders will have 60 days to comment on the new Responsible Business Reporting Requirements.

Burma certainly represents new opportunities, and some have referred to it as a new Asian tiger.  Nevertheless, the new responsible business reporting regime reflects the fact that business in Burma will come under particular scrutiny due to past and ongoing human rights and labor abuses in the country.