[IWAR] BURMA narco-state?

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Date: Mon Jan 19 1998 - 10:31:31 PST

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     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
    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 
    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
    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
    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 
    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 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.
    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 
    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 
    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.
    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 
    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
    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

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