Risk Management and the Business of Financial (Non-)Disclosure in Myanmar

by Ken MacLean

I recently returned from a six-week research trip to Burma/Myanmar. During interviews, nearly everyone I spoke with repeatedly used the phrase, “It’s sensitive.” I was not surprised. Self-censorship became the de facto way of life under repressive military rule (1962-2010). Since the 2010 elections, which ushered in a quasi-civilian government, the public space for the discussion of “sensitive” issues has expanded. But clear limits remain on what people are willing to talk about and with whom. Moreover, the topics I asked about (ongoing armed conflict, land mine contamination, resource struggles, as well as other obstacles to the peace process) were, in fact, very “sensitive” in nature.

The response, “it’s sensitive,” did not always connote the same thing. In some instances, the phrase was a cynical and dismissive assessment of the reform process: the more things change, the more they remain the same, and thus the topic did not deserve further discussion. At other times, the phrase conveyed frustration with the constraints my interlocutors face with regard to their meaningful participation in the reform process. At still other moments, the phrase clearly communicated fear: about who might be listening, what I might disclose to others, and how those others might react to his/her comments. Regardless of the reason(s) behind their decision to deflect conversation to other topics, “it’s sensitive” foregrounded one of the biggest problems that people in Myanmar face today: a deep of trust in government personnel, their business partners, and the lack of transparency and accountability regarding their financial dealings with one another.

Foreign-designed and/or led transparency and accountability initiatives in Myanmar, such as the Myanmar Center of Responsible Business, are intended to help overcome some aspects of this macro-level mistrust via good “governance projects.” Some projects are explicitly profit driven. Others are not, though the surge in foreign development assistance – what one colleague who works in the humanitarian sector termed the “aid offensive” – will accelerate the country’s neoliberal turn, which James Ferguson, Tania Li, and others have documented elsewhere.[1] As one sign of this turn, international financial institutions and NGOs increasingly frame the humanitarian crisis in Myanmar, especially in conflict-affected areas, as a “chronic problem of underdevelopment” rather than one that has it historical roots in decades of unresolved political and economic disputes.

12-11-contested-areas-in-south-east-burma-myanmar-e1409560327857.png

Courtesy of The Border Consortium

The Extractive Industries Transparency Initiative (EITI) is one of the best known of these transparency and accountability initiatives. The Government of Myanmar began the application process to become a Candidate Country when I started researching my article on counter-accounting and invisible data in late 2011. In early July of 2014, the EITI International Secretariat approved the government’s application. The decision obligates (but does not legally require) the government to comply with EITI-set international transparency standards. These standards include the disclosure of details regarding: company ownership, contract terms, state-owned extractive industries, and the allocation of resource revenues with the goal of reducing corruption, promoting rule of law, and attracting further foreign investment.

The EITI, and other initiatives like it, assume that greater transparency leads to greater accountability over time. The causal assumption (in both its weak and strong forms) is a largely specious one. More data do not necessarily result in more agreement. Instead, more data contribute to greater disagreement over what different numbers “mean”. This is because who counts what and how it gets counted are not simply technical questions; they are political and moral ones as well. Thus the need for closer ethnographic attention to the methodologies governments, for-profit entities, and non-profit organizations use to produce the data that inform their respective transparency ratings and accountability scorecards.

Risk management, which ISO 31000, a set of standards codified by the International Organization for Standardization, defines as “the effect of uncertainty on objectives,” is at the heart of these quantifying practices.[2] I did not engage with Michael Power’s fascinating work on risk management, which informs “good governance” rankings as well as responds to them, when preparing my article. I wish that I had. He points out that “the question of defining risk is not as important as analyzing the nature of the… institutions which shape and frame our knowledge of, and management strategies for, risk, including the definition of specific ‘risk objects’.”[3] Risk objects, Power explains, are “essentially ideas about harm with implicit causality,” which become the focus for management.[4] For the proponents of good governance, “corruption” is a risk object par excellence. Hence, the prominent role good governance advocates give to it as part of their efforts to replace the values and practices that maintain privilege, concealment, and opacity with those that promote accountability, openness, and clarity.

My research focused on the calculative practices one NGO, EarthRights International (ERI), used to make the financial details related to the controversial Yadana oil and gas pipeline more countable and thus subject to greater moral, as well as legal, scrutiny. They sought, in short, to account for the difference between what is known about joint venture governance and what is known to be unknown, what I termed “invisible data.” For-profit consulting firms do the same for their clients, but with important difference. These firms “organize uncertainty” (to borrow Power’s language) so as to make the risks associated with doing business in Myanmar manageable, but not eradicate them entirely. Doing so would make their expertise—conducting due diligence on potential local partners, tendering bids, negotiating joint venture governance matters, monitoring operational compliance with existing laws and policies, and so on—increasingly unnecessary and, eventually, threaten their business model.

For-profit companies create, for this reason, a data disclosure continuum that can be divided into three broad categories, each of which can be further sub-divided: public (for prospective clients), private (for current ones), and proprietary (for the firm’s experts and board of directors). That such tiered forms of disclosure exist is not surprising. Graduated disclosure is commonplace everywhere. But the manner in which some consulting firms in Myanmar openly advertise their approach to risk management is surprising given the immense emphasis that key development actors (e.g. the World Bank, the UNDP, the Asian Development Bank, USAID, and the EU International Aid Transparency Initiative) now place on transparency-accountability projects as the “solution” to the country’s manifold problems.

VDB Loi is a good example. Founded in 2012, the consulting firm provides legal and tax advice to transnational corporations operating in five resource-rich Southeast Asian countries, including Myanmar, which it refers to the region’s “last frontier.” VDB Loi attributes its successful track record to its “solution-minded” approaches and “on-the-ground” knowledge, which the firm’s founders claim provide an advantage that its competitors cannot. I was not familiar with the company when I began my research on ERI’s counter-accounting techniques, which its amateur experts, using invisible data, reconstructed the Yadana joint venture’s balance sheets. VDB Loi had only just split off from a well-known regional law firm. More relevantly, VDB Loi specializes in an aspect of the energy sector that I previously knew little about: risk management.

In 2013, Maplecroft, a prominent risk analytics firm, ranked Myanmar as the eighth riskiest in the world for multinational corporations, financial institutions, and international NGOs to operate in. So, the risk management services that VDB Loi and its competitors (e.g. DFDL Legal and Tax, Myanmar Legal Services Ltd., and Chandler & Thong-ek Law Offices Ltd.) provide to business entities that wish to invest in oil and gas properties and to develop proven reserves are in high demand.

Their assistance is critical for several reasons. Outdated laws, ambiguous policies, opaque financial reporting procedures, absence of independent regulatory bodies, and insufficient redress mechanisms characterize the energy sector, making the country’s largest source of foreign investment the primary locus of large-scale corruption. Due to the problems (and opportunities) large-scale corruption poses, VDB Loi stresses on its website that, “our access to the government’s actual practices is key to getting deals through.” What does “getting deals through” entail? According to one of the firm’s public briefing notes clients should, first, “Go big [with a ‘forward leading’ (i.e., very competitive)] proposal or go home”. Second, “Go step by step” because personal relationships with key government personnel require time and energy to foster sufficient trust and familiarity with one another’s institutional work cultures. Third, “Don’t expect to dot all the i’s”—that is, to comply with all reporting requirements—for the above stated reasons.

It is easy to criticize VDB Loi’s “solution-minded” approach—gaining and maintaining insider access—for reinforcing the very practices that internationally sponsored transparency and accountability initiatives in Myanmar, such as the EITI, seek to change. The critique is not without merit. However, it is also important to recognize that the firm’s approach, which includes a “pay for view” model for disclosing information to different types of clientele, provides a novel ethnographic means to theorize “the state” in Myanmar. VDB Loi, much like ERI, identifies and deploys invisible data to make actually existing practices in the energy sector more transparent, but only to a point. The firm, unlike ERI, does not want to maximize sectoral transparency. Rather, VDB Loi (and its competitors), as I explained earlier, want to have enough transparency to make industry-specific risks (e.g. corruption, land disputes, and vicarious liability for human rights violations) sufficiently predictable, and thus manageable, for themselves and for their (potential) clients.

For example, in August last year, the Ministry of Energy published, for the first time ever, a list of standardized terms and conditions that would henceforth govern joint venture production sharing contracts (PSC) for all onshore, shallow-water, and deep-water oil and gas blocks. The requirements have made aspects of this basic process significantly more transparent. But other critical aspects of the process remain very opaque. VDB Loi has identified three key ones—namely, insufficient information from the government regarding: 1) the role the Myanmar Investment Commission is authorized to play in licensing exploration contracts given that the state-owned Myanmar Oil and Gas Enterprise holds a quasi-monopoly on exploration and production; 2) the regulatory authority of the Ministry of Environmental Conservation and Forestry, which has veto power over proposed projects, but lacks detailed policies and procedures for evaluating the potential impacts of resource extraction on local ecosystems; and 3) the meaning of concepts (e.g., the country’s “inalienable rights” and the government’s “sovereign immunity”) that appear in PSC documents, but remain legally undefined. It is unclear whether these foreign actors—much less the international and domestic groups that promote transparency-accountability projects in this sector—will be able to convince the Government of Myanmar to clarify these and other areas of “high risk” concern soon, though a new Petroleum Act is rumored to exist in draft form. Thanks in part to VDB Loi and its competitors, foreign investors and operators continue to invest heavily in this sector despite the immense risks: 14.372 billion U.S. dollars in 115 active projects, as of June 2014.

Oil-and-Gas-Blocks

Oil and Gas Blocks. Source: The Irrawaddy, January 5, 2014.

A staff member at the Natural Resource Governance Institute told me that the investment figures are troubling from the perspective of transparency and accountability advocates given the government’s stated commitment to the EITI. Many domestic NGOs (e.g., Myanmar Alliance for Transparency and Accountability, Shwe Gas Movement, Karen Environmental and Social Action Network, and Eco-Dev) share his view.

First, he noted, the figures are contractually promised, but not yet fully deposited, in state-owned banks—what Martha Lampland calls “numbers for the moment,” meaning that they are “‘false’ yet beneficial for certain social practices.”[5] In this case, the figures foment corporate desire. The number of oil and gas blocks that remain drops after each successive bid round, which drives foreign investors and operators to rush into joint ventures with domestic companies, even though the overwhelming majority of them have little to no relevant industry experience, and the sector as a whole has yet to carry out major reforms, including sufficient controls to prevent large-scale financial corruption, including money laundering.

Second, the government facilitated the rush, the same staff member explained, by auctioning off exploration and production rights to these blocks as fast as possible—and in a manner that was not consistent with its own bidding and licensing requirements—in order to complete the deals prior to the July EITI board meeting. Doing so made it possible for the joint ventures to proceed with their projects without have to involve civil society organizations in a meaningful way, which is another EITI requirement.

Third, nearly half of the biggest foreign investors and operators (Total, Chevron, Royal Dutch Shell, British Petroleum, etc.) are based in the very same Western countries that imposed severe financial sanctions on the former military regime because of its human rights record, which is deteriorating. By removing rather than suspending the sanctions, my contact at the Natural Resource Governance Institute continued, these countries gave up most of the leverage they previously had, which is a significant problem should the Government of Myanmar further backtrack on the reforms made to date.

Two international NGOs are focusing their current work on these issues as a way to augment domestic demands for change. The first NGO uses a voluntary approach, the second a quasi-legal one. Their respective efforts, while welcome, highlight the limits of NGO-led transparency and accountability initiatives—in particular, the urgent need for more quantitative information about the oil and gas sector, even if they figures are not timely or fully accurate.

In June 2014, Global Witness (GW) published a report, Who Are The Real Winners of Myanmar’s Latest Oil and Gas Block Sales?. The release coincided with government’s announcement regarding the latest statistics on foreign and domestic investment in the sector. The NGO’s researchers invited each of the forty-seven companies that had successfully bid on thirty-six major oil and gas blocks between October 2013 and March 2014 to answer a simple question: who owns and controls you.” (The choice of the period chosen was a strategic one. The government was trying to finish the final prerequisite for its EITI application, the formation of a multi-stakeholder group that included civil society representatives in October, and submitted the application to become a Candidate Country in April.) According to Mirador Wealth researchers, merely knowing the identities of the “ultimate beneficial owners” would be a significant step towards reducing corruption. Disappointingly, less than a third of the companies surveyed responded to the request, and only two of them (both foreign) provided any information on their ultimate beneficial owners, indicating that government and industry actors will have to do a great deal more to satisfy the bare minimum EITI between now and the deadline for becoming EITI compliant in early 2017.

The U.S. Campaign for Burma (USCB), which has focused its advocacy efforts on transparency-accountability issues for the past several years due to the surge in foreign investment, is trying to address the shortcomings of the EITI approach, as well as the shortcomings of voluntary reporting. USCB, in collaboration with twenty-eight other human rights organizations unsuccessfully lobbied U.S. Congress in May 2014 to renew investment sanctions in response to the country’s deteriorating human rights situation. USCB released the results of its research, Report Card of U.S. Companies Investing in Burma, within days of the one Revenue Watch published. The Report Card, like the Global Witness survey, assessed whether U.S. companies complied with the U.S. State Department’s “Responsible Investment Reporting Requirements.” The requirements are legally binding, unlike the EITI, which is voluntary; it obligates all companies that invest in excess of $500,000 and/or the oil and gas sector (regardless of the amount) to publicly report on the social and environmental impacts their operations have on the ground, especially human rights related ones. Spokespersons for USCB similarly argue that the Reporting Requirements “has the potential to further the U.S. policy to ‘support the establishment of a peaceful, prosperous, and democratic state that respects human rights and the rule of law’.”

The data used to create the Report Card and to then link it to U.S. foreign policy came from a range of sources: news monitoring, reports and other information released by international bodies, government agencies, local and international civil society organizations in addition to the companies themselves. In this respect, USCB’s approach is similar to the one ERI’s counter-accountants employed, but again with an important difference. ERI’s counter-accountants used similar source material to identify invisible financial data with which to calculate what the Yadana spreadsheets did not disclose publicly about joint venture governance. By contrast, USCB researchers focused on normative aspects of joint venture governance. These aspects included:

Report-Card

U.S. Campaign for Burma, Report Card of U.S. Companies Investing in Burma.

    1. The degree of compliance with Reporting Requirements (timeliness, level of information disclosure, and operational due diligence);
    2. The quality of human rights and environmental protection policies and safeguard procedures;
    3. The measures put in place to mitigate risks of conflict, rights violations, and corruption; and
    4. The quality of constructive corporate engagement with affected communities and national policies regarding project operations on the ground.

USCB further subdivided each of these normative categories into a continuum—full compliance, high partial compliance, low partial compliance, and noncompliance. These indicators are helpful in that they enable cross-comparisons over time and between corporations possible, but only to a point because the indicators themselves are composites of other qualitative indicators. The laying of indicators and the lack of transparency regarding the internal choices the NGO made regarding what should be measured, the criteria used, and the assumptions that informed both.[6]

The above examples all have something in common. They demonstrate why who counts what and how it gets counted are political and moral in addition to being technical in nature. The examples also highlight that how what is known to be missing (invisible data) can be deployed strategically to increase transparency and enhance accountability, but not necessarily in ways we expect or want.


Notes

[1] James Ferguson. 1994. The Anti-Politics Machine: ‘Development,’ Depoliticization, and Bureaucratic Power in Lesotho. Cambridge: Cambridge University Press; Tania Murray Li. 2007. The Will to Improve: Governmentality, Development, and the Practice of Politics. Durham, N.C.: Duke University Press.

[2] International Organization for Standardization. 2009. ISO 31000 Risk Management – Principles and Guidelines, http://www.iso.org/iso/home/standards/iso31000.htm, accessed 28 August 2014.

[3] Michael Power. 2007. Organized Uncertainty: Designing A World of Risk Management. Oxford: Oxford University, pp. 3-4.

[4] Ibid., p. 25.

[5] Martha Lampland. 2009. False Numbers as Formalizing Practices. London: London School of Economics and Political Science, pp. 2-3.

[6] Sally Engle Merry. 2011. Measuring the World: Indicators, Human Rights, and Global Governance. Current Anthropology 52(3):S86.

Recommended Citation

Maclean, Ken. Risk Management and the Business of Financial (Non-)Disclosure in Myanmar. PoLAR: Political and Legal Anthropology Review Online, 31 August 2014, https://polarjournal.org/2014/08/31/risk-management-and-the-business-of-financial-non-disclosure-in-myanmar

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