BUSINESS IS BLOOMING
Is Myanmar Asia's first narco-state? Compelling evidence
points to that dubious distinction
By Anthony Davis and Bruce Hawke
Go to a map of the region
IN THE COOL, OPIUM-rich hills of Myanmar's northeast, the more things
change the more
they seem to stay the same. Back in the early 1970s, Lo Hsing-han was a
celebrated figure in the
Asian drug trade. From a fortified villa in the town of Lashio, the
ethnic Chinese warlord ran a
powerful government-backed militia force -- as well as convoys of opium
from northern Shan state
south to heroin refineries along the Thai border. Across the rugged
swathe of the Golden Triangle
and as far south as Bangkok, Lo Hsing-han was a name to reckon with.
Twenty-five years on, it still is. Since his early days as an
opium-running militia boss, Lo has had his
ups and downs. He joined the Shan rebel opposition and turned his guns
against the government;
was captured in Thailand and extradited to Myanmar; and then served time
in a Yangon jail. But at
63 he's back again, no less influential a figure in the tangled skein of
business-politics in northern
Myanmar. If anything, he's far more powerful, infinitely more wealthy,
and these days positively
respectable politically. From a gracious home in Myanmar's capital
Yangon, Lo runs one of
Myanmar's largest business conglomerates with interests in real estate,
manufacturing, export-import
and construction that includes key infrastructure projects. Serving as
an adviser on ethnic affairs to
the military junta's chief, Lt.-Gen. Khin Nyunt, his political
connections go straight to the top.
One recent afternoon back in that original villa on a hillside
overlooking Lashio, an expansive Lo held
forth on development plans for a 30,375-hectare stretch of hill country
northwest of the town that is
projected to involve new crops, roads and light industry. "Retired?" he
growled in Mandarin thick
with the accent of his native Kokang district. "I haven't retired! The
older I get, the more there seems
to do!"
Lo Hsing-han's zest for life and enthusiasm for "agricultural
development" does nothing to reassure
foreign anti-narcotics officials monitoring Myanmar's booming opium crop
and the tons of
high-quality heroin refined from it each year. In 1996 the northeastern
poppy-belt produced a
potential crop of 2,560 tons of opium sap -- compared with a mere 400
tons when Lo first entered
the fray in 1968. And these days the heroin refineries are no longer
only on the Thai border but
conveniently dotted across the hills along the Chinese frontier in the
heart of opium country. "Lo
Hsing-han is not the kind of guy you're going to give the benefit of the
doubt to," says a
Yangon-based foreign envoy. "We're very suspicious of him."
Lo Hsing-han's past and present epitomize much of Myanmar's crisis of
international legitimacy.
Many of the shadowy figures long associated with the drug trade have
insinuated themselves into the
political and business fabric of the nation. Heroin production is close
to an all-time high, while
narco-profits flood the economy. Given the power and connections these
people wield, Myanmar
seems well on its way to becoming a narco-state -- a country where
officialdom, if not directly
involved in trafficking, is certainly providing drug lords tacit
sanction. "Those guys were once beyond
the reach of the central authorities," says an anti-narcotics official.
"Now they are right downtown."
A senior Thai drug-suppression official recently expressed what many
have been saying in private --
that a nation with Myanmar's reputation for drug production should never
have been allowed to join
ASEAN.
HOW THE POPPIES FLOURISHED
In 1989, the Communist Party of Burma collapsed and set the stage for
Myanmar's insurgents to
forsake the hills for the boardrooms of Yangon. The government's
toughest guerrilla foe since the late
1960s, the CPB splintered along ethnic lines -- Kokang Chinese, Wa and
Shan -- around the
country's rugged northeastern marches. Desperate to prevent a link-up
between the insurgents and
the Burman democratic opposition, the junta moved swiftly to neutralize
the guerrillas.
Enter Lo Hsing-han, who helped junta chief Khin Nyunt reach a swift
ceasefire with the CPB's
Kokang Chinese-dominated Northern Bureau. Overnight, the Kokang Chinese
territory, wedged
against the China border, was transformed into Myanmar's Special Region
No. 1. Not long after, the
militarily strongest portion of the CPB, the tribal Wa, concluded a
similar deal, establishing Special
Region No. 2 in the Wa hills to the south. Linking up with another
ethnic Wa force on the Thai
border, they set up the 15,000-strong United Wa State Army. In eastern
Shan State, meanwhile, a
third CPB component became Special Region No. 4 headed by two ex-Red
Guards who joined the
CPB during China's Cultural Revolution.
The ceasefire deals soon were extended into agreements with a patchwork
of 12 other ethnic
insurgent groups scattered across the north and east. The agreements
stipulated that the insurgents
would halt their attacks on government positions. In exchange they were
permitted to keep their
weapons, administer their areas and move into business. It was an
arrangement that suited both
sides, particularly the ex-CPB guerrillas who promptly opened refineries
producing No. 4 heroin. At
the same time, they responded enthusiastically to the government's carte
blanche invitation to
participate in the country's newly liberalized but ramshackle economy.
In 1989, the junta dropped a policy of confiscating bank deposits and
foreign currency of dubious
origin. Instead it opted for a "whitening tax" on questionable
repatriated funds levied first at 40% and
since reduced to 25%. Equally significant, in early 1993, de facto
legalization of the black-market
exchange rate took place and narco-funds previously held in Bangkok,
Singapore and Hong Kong
flooded back into Myanmar. Construction in Yangon and Mandalay boomed,
most obviously in
lavish, international hotels -- most of which now stand virtually empty.
"It's clear it all started with
dirty money," says a diplomat. Equally clear is that "legitimate"
businesses in downtown Yangon also
provided ideal conduits for laundering repatriated narco-funds -- and
continue to do so. A retired
Myanmar banker reckons "at least 60% of private business in Yangon is
drugs-related."
THE MONEY WASHING-MACHINE
In this lush new business environment, it was not long before the United
Wa State Army had evolved
into what the U.S. State Department has described as the world's largest
armed narcotics-trafficking
organization. Vital international connections were provided by three
China-born heroin traders based
along the Thai border -- Wei Hsueh-long and brothers Hsueh-kang and
Hsueh-yin. In 1992, Wei
Hsueh-long moved north to Wa army headquarters at Panghsang on the
Chinese frontier and set up
heroin refineries. More recently, the Wa have moved into large-scale
amphetamine production,
targeted mainly at the Thai market.
They also established in Yangon an impressively diversified line of
businesses under a flagship
company, the Myanmar Kyone Yeom Group. It has moved into construction,
real estate, mining,
tourism, transport, forestry products and finance -- though the
profitability of many of its ventures
remains murky. With branch offices around the globe, Kyone Yeom has also
established significant
reach.
Group chairman is a mustachioed insurgent colonel of Chinese ancestry,
Kyaw Myint -- or Michael
Hu Hwa -- whose management style owes more to jungle boot camp than
Harvard Business School.
Described as arrogant and given to explosive outbursts of temper, the
colonel has attended board
meetings flanked by bodyguards with a pistol strapped to his hip.
Uninitiated visitors to company
headquarters on Botahtaung Pagoda Rd. have been startled to be received
by the chairman in full
uniform in an office with assault rifles hanging from the walls.
Perhaps predictably, Kyaw Myint's transition to Yangon polite society
has not been without
setbacks. Efforts to secure a seat on the board of the Yangon
International School where his son is
enrolled were rebuffed by expatriate parents skeptical that their
offspring's education would benefit
from association with an organization that the U.S. State Department has
put on its blacklist. Last
year Kyaw Myint tried to railroad a job as chairman of Prime Commercial
Bank, in which his
company held a controlling stake. He showed up, pistol in hand, at the
Central Bank to press his
case. But his application was turned down, and, shortly after,
authorities quietly closed Prime
Commercial.
Ventures into the murky world of Myanmar's fledgling finance industry
have met with better success.
Since late 1995, Kyone Yeom has established a nationwide financial
operation widely viewed as a
thinly disguised money-laundering vehicle. The scheme involves a
subsidiary, the National Races
Cooperative Society, offering a startling 7% interest per month -- or
84% per annum -- on term
deposits, a rate that undercuts Chinatown's informal banking network by
a full 2 percentage points.
Good going in a country where finance companies have no legal standing
and where only banks are
permitted to offer interest, currently capped at 16% a year. But then as
one Kyone Yeom employee
cheerfully pointed out: "They're the Wa! They can do anything they
want."
PAINT, WHISKY AND HEROIN
The headquarters of Peace Myanmar Group are housed in a gracious, if
dilapidated, colonial
mansion on Kaba Aye Pagoda Rd., where neither rifles nor military
uniforms are in view. The
company holds the Mitsubishi Electric franchise, runs a paint factory, a
liquor distillery producing
Myanmar Rum and Myanmar Dry Gin, as well as Myanmar Peace drinking water
and several
energy drinks. Its latest play is a joint venture bottling whisky under
the brand name of Highland
Pride for informal export to China. Founded in 1994, Peace Myanmar is
owned by Yang Maoliang,
head of Kokang's ruling Yang clan.
In late 1992, a brief mini-war flared in Kokang; it was about neither
liquor nor paint. Pitting the
Yangs against the rival Peng clan, the fight was for control of the
booming opium and heroin trade in
an area where 23 refineries were set up between the 1989 ceasefire and
1991. A settlement
brokered by junta chief Khin Nyunt and his adviser Lo Hsing-han restored
an uneasy peace.
Several refineries run by the Yangs in Kokang continued to operate,
producing between 1,800 and
2,400 kg of No. 4 heroin annually and providing working capital for the
rapid expansion of Peace
Myanmar. The same year the company was founded, one of the three Yang
brothers, Yang
Maoxian, was arrested in China and executed for smuggling massive heroin
shipments into the
People's Republic. The Yangs were unmoved: In April 1996, Guangzhou
police intercepted 598.85
kg of No. 4 heroin -- the biggest bust in China's history.
Investigations later revealed that Chinese
traffickers drove the shipment from Longtan village in Kokang -- not far
from Yang Maoliang's
military headquarters at Xi-ou and a nearby heroin refinery. Before
crossing back into China on
April 7, 1996, say Chinese sources pointedly, the convoy was waved
through a Burmese military
checkpoint, no questions asked.
THE UNDISPUTED KING OF KOKANG
The real godfather of Kokang, however, is undoubtedly Lo Hsing-han. "Lo
is hugely influential and
powerful," says a diplomat. "The government thinks he made a major
contribution to their efforts to
reach ceasefires with the insurgents and in exchange they have provided
a variety of economic
concessions and opportunities to him." In June 1992, Lo founded the
family's flagship company Asia
World with his Western-educated son, Steven Law (a.k.a. Htun Myint
Naing) acting as managing
director. Since then, Asia World and its subsidiaries have expanded from
an import-export and
trading base, into bus transport, housing and hotel construction, a
supermarket chain, manufacturing
and major infrastructure projects, notably Yangon port development and
upgrading the highway
between Mandalay and Muse on the Chinese border.
One of the group's highest profile ventures is the Traders Hotel in
downtown Yangon, in which the
Los hold a 10% stake. Put up in expectation of a tourism and business
boom that never happened,
like all the other prestige inns built at the time, Traders is largely
empty and running at a loss. The Lo
family has an enduring connection with Singaporean business figures, and
Steven Law is a frequent
visitor to the island republic. But the welcome enjoyed by the Lo family
in drugs-tough Singapore
has not been extended by the international community as a whole. In
1996, Steven was added to the
list of those refused visas to the U.S. for suspected involvement in
narcotics trafficking.
Now older and mellower, Lo Senior has apparently stepped back from
hands-on involvement in the
drug trade. Nonetheless, he maintains close links to his old stomping
grounds in northern Shan state.
Armed Kokang loyalists are still based at Salween Village, a militia
headquarters near Nampawng,
south of Lashio, which was set up by Lo with government assistance on
his 1980 release from jail.
Today the area presents a telling reflection of the armed stand-off
prevailing across the northeast. In
Nampawng an army garrison maintains a government presence in -- but not
beyond -- its own
compound. The Shan village itself is controlled bytroops of the Shan
State Army; while Salween
Village, four km away, is guarded by Lo followers. In the Kutkai region
north of Lashio another
insurgent group, the Kachin Defense Army, rules its own enclave in one
of the richest
opium-producing areas in the north. The KDA is assuming a growing
prominence in the narcotics
trade. Armed with government-issued "special permits," KDA trucks run
consignments of opium and
refined heroin on behalf of Kokang Chinese producers to the border of
India's Manipur state -- an
export route now preferred to the increasingly risky Chinese border.
Heroin refineries also operate in
the Indian border area.
THE PRINCE OF DEATH'S PENSION PLAN
One of the most notorious names associated with Myanmar's drug trade is
that of Khun Sa. After
surrendering to the government in January 1996, he also gave up the
rigors of the jungle for a
comfortable villa in Yangon, where he re-invented himself as something
more than a
"liberation-fighter." Khun Sa is far from retired, and up in opium
country his armed loyalists still
operate in his original Loi Maw fiefdom, as well as on the Thai border.
Khun Sa's 39-year-old
second son, Sam Heung, now oversees operations near his father's old
Thai border base.
Having arrived in Yangon with boxes of cash in various currencies, Khun
Sa has not been short of
start-up capital for new ventures. The man once dubbed the "Prince of
Death" has bought up prime
real estate in the capital's Sanchaung township, part of which is to be
developed as an amusement
park. But last year's eviction of locals from the site and the
bulldozing of Kyun Taw cemetery
amused no one and threatened to spill over into communal rioting.
Elsewhere, Khun Sa is involved in two casino projects, aimed at
high-spending Thais -- one outside
Tachilek overseen by Sam Heung, the other on an island opposite the Thai
province of Ranong.
Both are joint ventures with politically well-connected Thai
businessmen.
If Khun Sa and Lo Hsing-han represent the old breed of Myanmar
businessmen, then Kyaw Win
symbolizes a new, increasingly prominent class of entrepreneurs, who are
flourishing in the liberalized
economy. An ethnic Chinese educated in Mandalay, Kyaw Win has since the
mid-1980s been
closely associated with Thai timber tycoon Choon Tangkakarn, head of
Pathumthani Sawmills and a
man with a dubious reputation among law enforcers. In 1989, Choon and
Kyaw Win cooperated in
a logging venture in a government-approved concession near the Thai
border. At the time, the area
was controlled by Khun Sa's army. "There is no way they could have
operated there without making
a deal with Khun Sa," says a narcotics agent. Also in on the logging
deal was Maj.-Gen. Maung
Aye, who is now Myanmar's army commander and whose association with Kyaw
Win continues.
In 1990, Kyaw Win moved to Yangon, founding May Flower Trading Company
in 1991 and
Myanmar May Flower Bank in 1994. Two years ago, the bank was granted a
foreign-exchange
license, making it the only lender in Myanmar to earn such a privilege;
Kyaw Win frankly attributes
the honor to his influence in high places. Interestingly enough, since
Khun Sa's surrender, the bank
has enjoyed sudden and remarkable growth. Since near bankruptcy in late
1995, it has opened
branches across the country. "May Flower was nothing just two years
ago," says an intelligence
source. "There has been incredible expansion in a short period of time."
The latest acquisition in Kyaw Win's burgeoning business empire is
Yangon Airways, one of two
private, domestic carriers operating in Myanmar. Last year, he
approached the airline's Thai
shareholder, Adul Chayopas, with an offer to buy the loss-plagued
airline. "What could possibly
prompt an investor to invest in an airline when the tourist campaign has
flopped?" asks a bemused
narcotics agent. But Kyaw Win has both invested and added some
improbably remote destinations
to the airline's network, including Lashio and Mergui -- neither of
which are noted tourist attractions.
KICKING THE HABIT GETS HARDER
There is only one charitable interpretation of why narco-barons and
their associates are quietly
taking over Myanmar's private sector: The government is prepared to turn
a blind eye to the process
in the overriding interests of securing peace, integrating
insurgent-held areas into the national
mainstream and, at the same time, promoting economic development -- if
necessary with dirty
money. "The regime feels it has the upper hand on the traffickers and
can force them to use their
money for the good of the country," says a veteran Western narcotics
official.
Those who are actually prepared to credit the junta with a long-term
narcotics strategy say the
government may hope that over time today's drug lords, attracted by the
prospect of making real
money legally, may mellow into legitimate tycoons. "Just as the
government wants to deal with opium
cultivators by showing them a different way to make a living, so it is
trying to deal with leaders by
showing them too there's a different way of making a living," says a
diplomat in Yangon. "We'll let
you go legit, if you stop your refining and trafficking."
Both Asian and Western diplomats point to the junta's more muscular
approach to narcotics
interdiction in the field over the past year. Military units have
attacked narcotics convoys and
refineries, while drug seizures have risen -- albeit from a
conspicuously low base. In 1996 one ton of
opium and 500 kg of heroin were seized, while in the first eight months
of 1997 six tons of opium
and one ton of heroin were seized. "It's still spotty and not uniformly
effective, but there's increasing
military pressure against the whole area," concedes one diplomat. For
its part, the regime -- to
widespread incredulity -- has vowed to enforce "opium-free zones" in
border areas by 2000.
The notion that Yangon's corruption-riddled regime is able -- or willing
-- to force a well-entrenched
narco-mafia to become respectable businessmen is probably naive. The
traffickers have evinced no
interest in turning their backs on drugs in favor of legitimate
business. In January 1991, Kokang
warlord Peng Jia-sheng assured visiting U.N. officials of plans to end
heroin production in Special
Region No. 1 within one year and eradicate opium cultivation within
seven. But the opium poppy still
blooms in Kokang and heroin production in the region continued its
relentless rise during the early
1990s.
Indeed, the narco-traffickers themselves undoubtedly view their
situation in Myanmar today rather
differently from the junta. "They're building for the future,
entrenching themselves and making
investments," says the intelligence source. "They feel they have the
generals in their pockets." Just
how many generals is open to debate. But they certainly have quite a few
colonels and majors. At
unit level, military complicity in both narcotics production and
transport has been long-standing, a
situation aggravated by the collapse of the kyat and dire conditions in
the field.
There is no hard evidence that military involvement is orchestrated from
Yangon as a matter of
policy. However, the repatriation and laundering of narco-profits, as
well as the impunity enjoyed by
the traffickers has reached an institutionalized level. A diplomat,
impatient over Yangon's
conspicuous inaction over money-laundering, says: "There is no question
that this government has a
'don't ask' policy over the source of funds or start-up capital used by
these groups."
Moreover, a recent anti-corruption purge does not appear to have hurt
the operations of major
narco-traffickers. "What they're going after is the personal squeeze
typified by [purged ex-ministers]
Kyaw Ba and Tun Kyi," says the intelligence source. "The drug barons
aren't hurting. It's business as
usual." Significantly, on Dec. 11, an article in the state-run Yangon
press announced the blacklisting
of the Kyone Yeom Group for "submitting false accounts." But after
meetings between Wa leaders
and junta chief Khin Nyunt, the minister responsible was abruptly
shunted to an inactive post.
Whether Myanmar can be said to constitute a "narco-state" remains for
the most part a matter of
semantics and opinion. Fact is, however, that narco-capitalists and
their close associates are now
involved in running ports, toll roads, airlines, banks and industries,
often in joint ventures with the
government. And the junta is increasingly dependent on narco-dollars to
keep a floundering
economy above water. The danger is that the wary but mutually beneficial
relationship between
Myanmar's military regime and drug barons becomes a habit that is ever
more difficult to kick. For
ultimately their survival may depend on it.
Anthony Davis is an Asiaweek Special Correspondent.
Bruce Hawke is a business journalist specializing in Myanmar.
Burma Becoming a Narco-State: Asiaweek; Jan 23, 1998
This archive was generated by hypermail 2b30 : Fri Apr 13 2001 - 13:01:34 PDT