Sara Kulic, Illicit Finance and Economic Threats (IFET) Team
Week of Monday, July 26, 2021
The Jade industry represents the main source of funding for the
the military junta in Myanmar, fueling human rights abuses[1]
The jade industry in Myanmar is worth $31 billion USD, with China being the main destination market.[2] The jade industry represents the main source of funding for the military junta and an array of militias operating throughout the country. The military monopoly over the jade industry is ensured through a myriad of companies operating under military oversight and has likely intensified following the February 1, 2021 coup. Mismanagement of the jade industry deprives the country of significant amounts of revenue while exposing the industry to human rights abuses, corruption, drug trafficking, money laundering, and environmental crimes. If corrupt military control continues, intensifying and prolonging the conflict, increased human rights abuses are likely to occur.
Myanmar produces 70% of the world’s jade.[3] The jade industry has the potential to boost the country’s economy and represents an important source of livelihood for people living and working in resource-rich areas. However, like other natural resources, the jade industry is open for exploitation through corruption, bribery, and the use of force. The miners are often killed if they refuse to pay jade taxes to the military and armed groups.[4] This increases the risk for civilians living in jade-mining areas, exposing them to threats and human rights abuses, such as forced labor and displacement. The lucrative industry has been controlled by Myanmar's military (“Tatmadaw”) and connected companies, long before the February 1, 2021 coup. Military conglomerate Myanma Economic Holdings Limited (MEHL) is the single largest holder of jade mining permits in Myanmar.[5] The establishment of the MEHL set a foundation for military control over the jade industry, securing the funding for the military regime with a record of widespread human rights abuses.
The regulation of mining and issuing of licenses has been controlled by the state-owned Myanmar Gems Enterprise (MGE) and connected companies run by military elites and armed actors.[6] Deep-rooted military control over the jade industry has likely intensified following the coup, as the military has complete control over the country, and is able to exploit the country’s natural resources to sustain its rule. Although previously dominated by the military, the jade industry is now entirely in the predatory hands of Tatmadaw, which uses corrupt licensing and an annual gems emporium, which brings the country significant amounts of revenue and secures funding for the junta’s rule. Some militias enjoy implicit approval from the Tatmadaw in exchange for their support in the fight against Tatmadaw’s adversaries, such as the Arakan Army, whose primary source of revenue is the jade industry.[7] Militias fighting against Tatmadaw’s adversaries likely enjoy Tatmadaw’s approval for other illicit activities, such as drug trafficking and wildlife crimes, including illegal logging and timber trafficking. An array of actors involved in the jade industry has the potential to increase competition between them, and attract new criminal actors into the business.
The military control of the jade industry is combined with corruption, which is a tool for obtaining mining licenses and results in various actors illegally exploiting the country’s natural resources. Shareholders of the MEHL are current or retired military officials, involved in crimes under international law and other serious human rights violations in Rakhine, Kachin, and the northern Shan States since 2016, with junta chief General Min Aung Hlaing being one of the biggest shareholders.[8] The MEHL likely consists of companies under the direct or indirect supervision of military elites and their families. As a result, companies without ties to the military are very unlikely to obtain licenses and are likely engaged in illegal mining themselves, or are supporting corrupt actors working under their licenses.
Most of the jade is being smuggled out of the country, with up to 90% smuggled to China.[9] Smuggling deprives the country of significant amounts of revenue that would be collected through jade-related taxes. As most of the jade is smuggled out of the country, it is hard to get exact amounts of annual losses, but it is estimated that Myanmar loses hundreds of millions of dollars in tax revenue annually. For example, for the fiscal year 2017-2018, MGE reported $1,019.7 million USD of jade sales, while a minimum of $2,379.3 million USD worth of jade was believed to be smuggled out of the country.[10] Smuggling enables the accumulation of wealth in the hands of corrupt and criminal actors while depriving the country and its people of both natural resources and revenues. Cross-border jade smuggling is likely to facilitate the smuggling of other commodities such as other gems, wildlife, drugs, people, and weapons.
A complex network of actors profit from the jade industry, with former military commanders, involved through MEHL-related companies, and Tatmadaw senior military officials as the main profiteers. For example, Tayza Kyaw, a former Northern commander, promoted to a Commander of Bureau of Special Operations after February 1, 2021 coup is accused of requesting bribes in exchange for safe passage for necessary mining material.[11] Despite the prohibition of foreign ownership in gemstone extraction, Chinese businesses operate through front companies in resource-rich areas, particularly in Kachin State’s Hpakant township, where the world’s largest and most lucrative jade mines are located.[12] Corrupted deals with the military and armed groups controlling resource-rich areas enable Chinese businesses to bypass regulations, exploiting the country’s natural resources.
Corrupt deals with Chinese businesses likely facilitate the exploitation of other Myanmar’s natural resources and gems, like rubies. The concentration of Chinese companies in the jade sector is likely to push out smaller, local companies, with smaller budgets and no connections, from the industry. The Chinese infiltration in the jade business is likely to increase following the turmoil of the coup, as the military and armed groups control resource-rich areas, and the rule of law is deteriorating. Although the COVID-19 pandemic has resulted in tighter border controls and restrictions, considering the vast border with China, it is likely that smugglers continue to find routes for smuggling.
The jade trade in Myanmar converges with other crimes, increasing violence, and human rights abuses. Armed groups engaged in both drugs and jade trade have created a lucrative economy, using jade profits to purchase and transport drugs, and the proceeds of drug sales to finance further jade mining.[13] Overlap of the drug trade and jade industry significantly undermines the possibility to detect and disrupt illicit flows. Drug use has become endemic in Kachin State’s jade mining regions, with instances of companies providing yaba pills to miners to encourage them to work, or paying them in drugs directly.[14] If demand for drugs in mining areas continues to rise, more criminal actors are likely to be attracted, therefore increasing crime, competition, and violence. Corruption and bribery are likely tools for domestic and cross-border transportation of drugs, with checkpoints and borders controlled by military elites. In an environment where illicit flows reinforce one another, economic development and stability are very unlikely.
The jade industry is used to launder drug money invested into mining equipment, or moved from China to Myanmar, and mixed with jade revenue through mining and related companies.[15] The laundering of drug money is likely under the military elite’s oversight, as they control most mining and related companies. Such an environment is likely to attract drug lords to the jade industry, looking to expand their illicit activities. The drug-jade nexus has the potential to boost the already growing drug economy in Thailand, Myanmar, and Laos, an area known as the Golden Triangle, representing a global threat. The infiltration of the drug revenues into the jade industry threatens the legitimacy of the global jade market, as it makes it unclear to what extent the jade circulating global market is connected to the drug trade.
Deep-rooted corruption has extended the military monopoly to include the importation of dynamite. Dynamite revenue is being shared with the son of Senior General Min Aung Hlaing, Commander-in-Chief of Myanmar’s armed forces.[16] Endemic corruption in the jade industry deepens inequalities and creates a culture of impunity, while significantly undermining the legitimacy of the industry. The jade industry also overlaps with the arms trade, with jade taxes being paid with weapons. Senior members of the Kachin Independence Army (KIA) required a third of tax payments to be made in arms, with instances of the United Wa State Army (UWSA) paying the jade taxes to KIA in the form of armaments, prior to the coup.[17] KIA and Arakan Army (AA) profited from this exchange, as they would otherwise face difficulties in obtaining and transporting weapons through UWSA controlled territory.[18] Considering the turmoil in the country, it is likely that the trade continues, ensuring the distribution of weapons across the areas controlled by different armed groups. The strengthening capacities of Tatmadaw adversaries are likely to increase violence and prolong the conflict.
The jade industry is likely a factor of prolongation and intensification of the armed conflict, providing a lucrative source of revenue to different actors fighting to establish and maintain control over mines. The competition for control over the mining areas has likely intensified after the coup, particularly in resource-rich areas controlled by armed groups opposing the military rule. The same military that controls and profits from the jade industry is responsible for atrocities committed against the Rohingya minority population.[19] This means that the jade circulating on the global market fuels the conflict and widespread human rights abuses in Myanmar. Myanmar’s annual jade and gems emporium held in April 2021, brought in $6.5 million USD on the sixth day alone.[20] Considering the military rule in the country, most if not all of the money went into the military coffers, securing finances for the junta’s rule. In such an environment, the wealth, and thus power of the military, is likely to continue to grow undisrupted, weakening the peace-building process. The strengthening military governance poses a threat to regional stability, increasing the likelihood of cross-border illicit flows and refugee crises.
Military monopoly and corrupt governance have the potential to spread to other industries in the country, undermining the possibility for economic growth and foreign investments. Corrupt management is threatening to the mining of coal, copper, and other gemstones, shipping and port terminal management, transportation and logistics, and banking, as these sectors are under the direct control of the MEHL or its subsidiaries.[21] The uncontrolled mining results in waste being left near mines, instead of a designated dumping site, creating tailings ponds that fill with water during the monsoon season, causing deadly landslides.[22] Corrupt management of the jade industry reduces the likelihood of the regulation of jade mining, which has a significant environmental impact and increases dangers for miners.
The perpetuating cycle of corruption and violence furthers economic deprivation of the population, pushing it into illegal mining as the only way to make a livelihood. Economic deprivation and resentment towards the military regime increase the recruitment pool for armed groups operating in mining areas. The AA, which was a designated terrorist organization by the Myanmar government until March 11, 2021, enlisted many of its fighters from the jade mines around Hpakant.[23] This is likely to increase violence and illicit activities those groups control in their areas of operation. The growing recruitment and strengthening of armed groups have the potential to increase competition for control over resource-rich and strategically important areas, increasing violence and instability.
Even before the coup, attempts to regulate the jade sector were unsuccessful. Instead, they caused turmoil, reduced the likelihood for reform, and changed the deep-rooted military management of the jade industry. As the National League for Democracy (NLD) came into power in 2016, the NLD decided to take action and reform the gemstone sector, starting with suspension of the issuance of new jade and gemstone mining licenses and stopping the renewal of existing ones.[24] However, until the expiration of previously issued licenses, criminal and corrupt actors continued mining and trading. Additionally, it is likely that actors who are unable to obtain licenses, turned to illegal mining. Lack of oversight and accountability reduces the likelihood of successful reforms.
The 2019 Gemstone Law represents another attempt to regulate the jade industry. However, the law fails to tackle important issues such as licensing criteria, environmental protection, accountability, ethnic grievances, and land rights.[25] An important flaw in the NLD’s attempt is failing to address the role of the Myanma Gems Enterprise (MGE), responsible for overseeing and enforcing jade regulation, and all gemstone activities in Myanmar, whose senior officials are almost all former Tatmadaw officers.[26] This implies that, despite the attempts to regulate the jade sector by rooting out corrupted practices, the corrupt actors have remained in control of the industry, making regulation highly unlikely. The February 1, 2021 coup significantly undermined the possibility for reforms since the control over the industry is entirely in the hands of the Tatmadaw.
Since the coup, the United States (US) and European Union (EU) have issued numerous sanctions against Myanmar’s military officials, their family members, assets, and several state-owned companies with close ties to the military. On Thursday, April 8, 2021, the US Treasury sanctioned MGE, blocking all property and interests in property that are in the US or in the possession or control of US persons.[27] The sanctions imposed since the coup are restrictive, applying only to those directly connected to the military. MEHL, as the biggest conglomerate, consists of various companies, some with direct but some with indirect ties to the military, operating in a variety of sectors. Also, militias fighting on behalf of or against the military, being heavily involved in the jade industry that finances their operations, were not affected by the sanctions. Although the military has a crucial role in the jade industry, the role of militias should not be undermined and needs to be addressed. Sanctioning only a handful of military and military-connected actors is unlikely to have an impact, considering a complex array of actors profiteering from the jade industry.
A comprehensive reform of the legislation, including enhanced regulation and removal of armed actors from the jade industry, has the potential to transform the industry into a sector that boosts the economy. Although it would be a lengthy process, it is a crucial step towards the sustainability of the jade industry and the economic prosperity of the country. The licensing process needs to be regulated with an emphasis on environmental issues and respect for human rights in the mining sector, preventing those involved in human rights abuses and illicit activities from obtaining licenses. The establishment of an independent body that monitors compliance with the regulatory framework is likely to prevent illicit mining and trade. Regulatory oversight is likely to prevent human rights abuses and environmental crimes in the jade industry. Ensuring accountability in the jade sector has the potential to reduce illicit flows facilitated by corruption, acting as a deterrent and example for other industries in the country.
Economic sanctions imposed by the international community have the potential to reduce funding for the military regime through economic pressure. Significantly reducing the junta’s funding has the potential to reduce its power, representing a step towards conflict resolution. China, as the main market for Myanmar’s jade, has a crucial role in addressing this conflict industry. However, China has not imposed or supported sanctions on Myanmar, emphasizing how sanctions represent inappropriate intervention into a conflict that should be resolved internally. The fact that Myanmar’s jade industry represents a crucial source for China’s jade market, and investment ground for Chinese businesses, likely impacts China’s reluctance to condemn the military regime or impose sanctions. Although conflict-resolution requires an internal dialog that includes all parties involved in the conflict and addresses historic, ethnic grievances, the conflict-resolution discussion is highly unlikely as long as the junta has an undisrupted source of funding. The military control over the jade industry represents a serious threat to peace, impeding the return of democracy to Myanmar. A crucial step in disrupting this conflict economy is imposing bans on all jade imports from Myanmar. If all countries act unified by imposing import bans, the threat is likely to be disrupted. Besides import bans, countries should remain vigilant, and monitor domestic companies engaged in business in Myanmar, ensuring that companies do not engage in business with military-owned and controlled businesses in Myanmar.
The Counterterrorism Group (CTG) will continue to monitor developments and threats occurring in Myanmar. A variety of specialty teams within CTG ensures that threats to international peace and stability are detected, monitored, and analyzed, providing recommendations for their disruption. CTG’s Worldwide Analysis of Terrorism, Crime, and Hazards (W.A.T.C.H.) Officers and the PACOM Team will ensure up-to-date reports, monitoring developments in the region, and ongoing efforts to sustain the military rule in Myanmar. The Illicit Finance and Economic Threats (IFET) Team at CTG will continue to monitor illicit financial flows in Myanmar and the region, analyzing their ramifications, and possible ways to tackle them.
________________________________________________________________________ The Counterterrorism Group (CTG)
[1] “Phone Thiri Kyaw well known young actress in Myanmar joined the protest YGN, Myanmar” by Saw Wunna licensed under Unsplash
[2] Jade mining in Myanmar is a $31 billion industry, and it's now in the hands of the corrupt military junta, INSIDER, July 2021, https://www.insider.com/myanmars-junta-dominates-worlds-jade-industry-report-2021-6
[3] Ibid
[4] Jade and Conflict: Myanmar’s Vicious Circle, Global Witness, June 2021, https://www.globalwitness.org/en/campaigns/natural-resource-governance/jade-and-conflict-myanmars-vicious-circle/
[5] Ibid
[6] Military coup clouds control over jade, gems in Myanmar, Aljazeera, April 2021, https://www.aljazeera.com/news/2021/4/22/myanmar-militarys-lucrative-jade-industry
[7] Jade and Conflict: Myanmar’s Vicious Circle, Global Witness, June 2021, https://www.globalwitness.org/en/campaigns/natural-resource-governance/jade-and-conflict-myanmars-vicious-circle/
[8] Military Ltd: The company financing human rights abuses in Myanmar, Amnesty International, September 2020, https://www.amnesty.org/en/documents/asa16/2969/2020/en/
[9] Military coup clouds control over jade, gems in Myanmar, Aljazeera, April 2021, https://www.aljazeera.com/news/2021/4/22/myanmar-militarys-lucrative-jade-industry
[10] Jade and Conflict: Myanmar’s Vicious Circle, Global Witness, June 2021, https://www.globalwitness.org/en/campaigns/natural-resource-governance/jade-and-conflict-myanmars-vicious-circle/
[11] Ibid
[12] Ibid
[13] Ibid
[14] Ibid
[15] Ibid
[16] Jade mining in Myanmar is a $31 billion industry, and it's now in the hands of the corrupt military junta, INSIDER, July 2021, https://www.insider.com/myanmars-junta-dominates-worlds-jade-industry-report-2021-6
[17] Jade and Conflict: Myanmar’s Vicious Circle, Global Witness, June 2021, https://www.globalwitness.org/en/campaigns/natural-resource-governance/jade-and-conflict-myanmars-vicious-circle/
[18] Ibid
[19] Myanmar army ‘tightens grip’ on multibillion dollar jade trade, Aljazeera, June 2021, https://www.aljazeera.com/news/2021/6/29/global-witness-report-jade-in-myanmar
[20] Military coup clouds control over jade, gems in Myanmar, Aljazeera, April 2021, https://www.aljazeera.com/news/2021/4/22/myanmar-militarys-lucrative-jade-industry
[21] Military LTD: The company financing human rights abuses in Myanmar, Amnesty International, September 2020, https://www.amnesty.org/en/documents/asa16/2969/2020/en/
[22] Jade and Conflict: Myanmar’s Vicious Circle, Global Witness, June 2021, https://www.globalwitness.org/en/campaigns/natural-resource-governance/jade-and-conflict-myanmars-vicious-circle/
[23] Ibid
[24] Ibid
[25] Ibid
[26] Ibid
[27] Treasury Sanctions Key Gems Enterprise in Burma, U.S. Department of the Treasury, April 2021, https://home.treasury.gov/news/press-releases/jy0115