The U.S. State Department finally released a document providing answers to FAQs about the Responsible Investment Reporting Requirements for new investments in Myanmar, in which it directs investors to consult ERI’s Detailed Guidance on Reporting.  The FAQs are partially a response to the first round of company reports, which were filed in July, and which we criticized as inadequate both on our website and in a coalition letter to the Administration.  Let’s see if the U.S Government agrees that those company reports were as deficient as we suggested.

1. “Passive investors” and the responsibility to respect human rights

One of our biggest concerns with the first company reports was that a number of investment firms excused their lack of human rights and other due diligence policies by explaining that they were merely “passive investors” rather than active participants.  The FAQs appear to respond to this concern, noting that all investors must report regardless of the type of investment or whether they actually have operations in Myanmar, and that companies should answer each question carefully in light of the intended purposes of the Reporting Requirements.

As the FAQs explain, “Because the human rights impacts of U.S. investment in Burma may be direct or indirect,” and because a company “may have significant influence over the activities of other entities in its supply chain,” it can be important even for investors with only a financial link to Myanmar to apply due diligence policies to their investments.  Note in particular that the U.S. Government does not limit its reporting expectations to companies that an investor actually controls, but rather includes those over which it may exercise significant influence by virtue of a business relationship.

2. Identifying Myanmar business partners

Another area of concern that ERI raised based on the initial company reports was the failure to disclose the identities of business partners. For example, one company that submitted disclosures in the first round reported fairly extensively about its due diligence on local Myanmar partners but declined to disclose their names.  ERI believes this sort of secrecy undermines the benefits of public disclosure because it enables U.S.-based investors to “launder” their responsibilities through anonymous Myanmar entities.  The U.S. Government agrees with us in spirit, noting in the FAQs that information on business partners would help the government to “better calibrate U.S. policy . . . and to encourage and assist businesses to develop” robust due diligence and risk management procedures.

It’s unfortunate that the FAQs don’t go further.  In fact, local partnerships are often where the rubber hits the road when it comes to human rights and environmental impacts in Myanmar.  For example, an international oil company may have state-of-the-art human rights and land acquisition due diligence policies, but if the Myanmar contractor it hires to actually build the pipeline doesn’t apply those standards, then we will continue seeing the epidemic of land-grabbing, widespread environmental impacts, and episodes of severe repression that have dogged major foreign investments such as the Shwe Gas Project.  The Reporting Requirements may not explicitly spell out the necessity of identifying partners, but it’s hard to square the FAQs’ injunction to companies to answer questions in light of the intended goals of the reporting regime with the ability to keep those partners secret.

3. Lack of mechanism for tracking non-compliance

In our coalition’s letter to the Administration, we noted that the Reporting Requirements do not spell out how the U.S. Government will ensure that covered companies actually comply.  The FAQs don’t directly address this concern, although they do point out for the first time that there are civil and criminal penalties if a company with $500,000 of new investment or a deal with the state-owned Myanma Oil and Gas Enterprise Myanmar fails to submit a report.

This is a welcome clarification, but it’s inadequate.  For example, how will the Government have any idea if covered companies are failing to submit reports?  The FAQs could have explained how and whether the Government will track and enforce implementation of the Reporting Requirements.  And what about companies that submit false information or incomplete reports?  I think it should be clear that reports that are not accurate or complete are pretty much the same thing as reports that were never submitted at all and should trigger similar penalties.  But this should not be left to interpretation; FAQs are meant, after all, to be a practical guide for companies, rather than a half-hearted attempt to summarize material that already exists.

Overall, then, the FAQs represent a step forward in clarifying how businesses in Myanmar should publicly account for their policies and actions if they want to be considered responsible investors.  However, serious weaknesses in the reporting regime are a continued threat to the success of this attempt to ensure that U.S. economic reengagement in Myanmar does not trigger serious human rights and environmental abuse.