By Min Min Ayer Naing (Baker McKenzie Myanmar)
I. Corporate liability compliance reign in Myanmar
1. What is the nature of corporate liability? What is its legal basis?
The nature of corporate liability in Myanmar has become more important with the growth of industrialization and foreign investment. There is no specific and directly relevant law for corporate liability and compliance other than the Myanmar Companies Act (1914). Important and relevant provisions on corporate liability are scattered and embedded in different laws of Myanmar. The Penal Code of Myanmar (1861) and the Code of Criminal Procedure (1898) are the main laws for taking criminal action. However, these laws deal with criminal liabilities for individuals and not for corporate entities.
In case of breach on, or noncompliance with, corporate liabilities, one or more of the following specific laws are relevant:
- Myanmar Investment Law (2016)
- Myanmar Companies Act (1914)
- Social Security Law (2012)
- Workmen Compensation Law (1923)
- Shops and Establishment Law (2016)
- Factories Act (1951)
- Minimum Wages Law (2013)
- Employment and Skill Development Law (2013)
- Leave and Holiday Act (1951)
- The Control of Anti-Money Laundering Law (2001)
- Income Tax Law (1974)
- Commercial Tax Law (1990)
- Special Commodities Tax Law (2016)
- Anti-corruption Law (2013)
- Environmental Conservation Law (2012)
- Consumers Protection Law (2014)
- Competition Law (2014)
- Payment of Wages Law (2016)
- Forest Law (1992)
- Mines Law (1994)
- Central Bank of Myanmar Law (2013)
- The Financial Institution Law (2016)
- The Special Economic Zone Law (2014)
- Telecommunication Law (2013)
- The Electronic Transactions Law (2005)
- The Sea Customs Act (1878)
- The Land Customs Act (1924)
Currently, companies, NGOs and local associations have taken steps to comply with corporate liability in accordance with the requirements under the United Nations Global Compact. A number of companies and NGOs have registered themselves under the UN Global Compact Initiative and declared their status.
Since 2010, corporate and social responsibility policies have been discussed in great detail, and a number of events have taken place to raise awareness. These are as follows:
- ASEAN Seminar on CSR in the Field of Labor, 27-28 October 2010, Indonesia
- Follow-up events on that ASEAN Seminar
- 1st Workshop on CSR, 28 June 2011 (UMFCCI and Friedrich-Ebert-Stiftung, FES, Germany)
- ASEAN Seminar on Work-Life Harmony and Flexible Labor Practices, 25-26 August 2011, Singapore
- CSR Unit established in April 2012
- Self-commitment to the UN Global Compact from several companies in 2012
- CSR Workshop on 4 May 2012 (UMFCCI and Hanns Seidel Foundation, Germany)
- ILO and Myanmar Centre for Responsible Business Meetings in 2016
The Myanmar government has encouraged that some principles in line with corporate liability measures be complied with by the relevant sectors in accordance with the ISO 26000 International Standard for social responsibility, which mainly emphasizes the following:
- Respect for the rule of law
- Social and environmental responsibility
- Labor practices and labor rights
- Job creation, income generation
- Skills development
- Technology transfer
State Counsellor Daw Aung San Su Kyu delivered a special message at the World Economic Forum in 2011, where she said, “I would like to request those who have invested or are thinking of investing in Myanmar to put a premium on:
- respect for the law
- environmental and social factors
- the rights of workers
- job creation, and
- the promotion of technological skills
Such an approach would not only be in line with a global sense of responsibility, it would lead in the long run to greater benefits for all concerned.”
Corporate liability under the Myanmar Companies Act (1914) (the “Act”)
Every legal entity in Myanmar must comply with the requirements set out by the Directorate of Investment and Company Administration for compliance with measures concerning corporate liabilities under the Act. Section 27 (A) of the Act requires every entity doing business in Myanmar to apply for a permit under this Act. Failure to comply with this requirement may result in: (i) the revocation of the form of permit; (ii) blacklisting; and (iii) fines up to MMK 500 and MMK 50 for each day of continuing default. There are many relevant provisions relating to obligations with which corporate entities must comply. These include the following:
- Section 70 (1) on the liability of director in a limited company — The liability of the director or of any director may, if so provided by the memorandum, be unlimited.
- Section 70 (2) on the giving of notice for unlimited liability — In a limited company in which the liability of any director is unlimited, the directors of the company (if any) and the member of the company or one of them shall give the director a notice in writing that such director’s liability is unlimited.
- Section 72(1) on the requirement for a registered office — From day one or from the twenty-eighth day after the date of its incorporation, whichever is earlier, a company shall have a registered office to which all communications and notices may be addressed.
- Section 72 (4) on fine for noncompliance — If a company carries on business without complying with the requirements of this section, it shall be liable to a fine not exceeding MMK 50 for every day it carries on business.
- Section 86A(1) — If any person who is an undischarged insolvent acts as a director or a managing agent or a manager of the company, he shall be liable to imprisonment.
- Section 86E — No director or a firm whose such director is a partner, or a private company whose such director is a director shall, without the consent of the company through a general meeting, hold any office of profit under the company except for that of a managing director or manager or a legal or technical advisor or banker.
- Section 217 — All cost, charges and expenses properly incurred in the winding up, including the remuneration of the liquidator, shall, subject to the rights of secured creditors, if any, be payable out of the assets of the company in priority to all other claims.
- Section 236 — If any director, manager, officer or contributor of any company being wound up destroys, mutilates, alters or falsifies or fraudulently discloses any books, papers or securities, or makes, or is privy to the making of, any false or fraudulent entry in any register, book of account or document belonging to the company with intent to defraud or deceive any person, he shall be liable to imprisonment and the company shall also be liable to a fine.
- Section 247 A (1) Surrendering permit granted — Every foreign company or a company carrying on international trade shall surrender the permit granted to it under Section 27A within one month after the commencement of the winding up. Penalties are provided in Section 247(2).
Corporate liability under the Myanmar Investment Law (2016)
Prior to the Myanmar Investment Law (2016), all foreign investments were dealt with under the Foreign Investment Law of 1989 and Foreign Investment Law of 2012 with regard to corporate liability. Now, the new Myanmar Investment Law (2016) is being operated by the Myanmar Investment Commission since 1 April 2017.
Since 2010, a lot of corporate liability awareness has been introduced, and the public has since become aware of corporate liabilities. The investment law provides for certain provisions on liability for noncompliance. Breach of or noncompliance with the Myanmar Investment Law shall be subject to administrative actions by the Myanmar Investment Commission. These sanctions include: (i) blacklisting the business organization; (ii) revoking tax exemption and privileges given under the Myanmar Investment Commission permit; and (iii) revoking that permit. Noncompliance with environmental conservation measures shall be subject to administrative actions by the Environmental Conservation Committee who holds the operational authority to impose fines to the company and revoke its environmental permission. The class of persons who are liable will include: (i) directors or managers who represent a company; or (ii) individual shareholders who are subject to the direction and supervision of the above managers and directors.
Actions and Liabilities under the Anti-Corruption Law
The Anti-Corruption Law (2013) expressly defines bribery as an act of promising, offering, discussing or giving to an authorized official, directly or indirectly, an undue advantage for the official himself or another person or entity, in order that the official acts or refrains from acting in the exercise of his official duties, in order for the bribing entity or individual to obtain or retain business or other undue advantage. Corruption cases will be treated as cognizable offenses and cases in connection with bribery or becoming rich with bribery shall be acted on under this law although there are provisions under other existing laws. Under Section 62, companies or corporations and financial institutions that are not in compliance with the provisions of this law and do not allow the commission’s inspection of their books and accounts, which is provided for under this law, shall be dealt with by having the relevant person liable to imprisonment and the corporate entity liable to fines.
Breach of the Anti-Corruption Law shall cause corporate liability, giving rise to: (i) criminal actions against a convicted person; and (ii) administrative actions against a company, entity or association, such as pecuniary sanctions or restraining measures, since Myanmar laws state that a company can sue and be sued at the competent Myanmar court.
It may be noted that all offenses listed under the Penal Code, except those relating to bribery in connection with elections, can possibly be committed by public servants. However, in theory, the person offering the gratification could be convicted of abetting the public servant in the crime. The Anti-Corruption Law has addressed to punish both the public servant and the person who has offered bribe on behalf of its company. When an employee of a company is convicted of giving bribery, such company in which the convicted person is affiliated may be liable to pay penalties.
2. Type of crimes/administrative offenses from which, according to the legislature, corporate liability may arise
When an employee of a company has committed an offense under any existing laws, either criminal or civil, while working under the name of the company or company’s business, that corporate entity may be liable for the offense committed. The crimes include the following:
- Corruption-related crimes — Corruption and bribery (Penal Code, Sections 161 to 165, Offenses by or relating to Public Servants); offenses relating to election (Penal Code, Section 171B)
- Contempt of the lawful authority of public servant (Penal Code, Sections 172 to 190); embezzlement and misappropriation — criminal misappropriation of property (Penal Code, Section 403); breach of trust (Penal Code, Sections 405 to 409); receiving of stolen property (Penal Code, Section 410)
- Cheating (Penal Code, Section 415 to 420); fraudulent deeds and dispositions of property (Penal Code, Sections 421 to 424); mischief (Penal Code, Section 440)
- Counterfeiting and related crimes — Forgery and making false documents (Penal Code, Section 463); making false document (Penal Code, Sections 464 to 477)
- Using false trademark; property mark (Penal Code, Section 480 to 482) (Merchandise Mark Act, Section 6)
- Counterfeiting a trademark or property mark (Penal Code, Sections 483 to 488)
- Crimes against industry and trade — Harming the freedom of industry and trade (Competition Law, Section 13, 15); unlawful competition with threat or violence (Competition Law, Section 17); fraud against industries (Penal Code, Section 486); fraudulent use of false instrument for weighing (Penal Code, Sections 264 and 265); being in possession of and selling of goods with false weight and measure (Penal Code, Section 266 & 267); sale of non-genuine food as genuine (Merchandise Mark Act, Sections 8 and 9); adulteration of food or drink intended for sale (Penal Code, Section 272); sale of industrial products with untruthful marks (Merchandise Mark Act, Section 7 and Penal Code, Sections 480 to 482); breach of contracts of service: breach of contract to attend on and supply wants of helpless person (Penal Code, Section 491)
- Breach of contracts — Contract made fraud and misrepresentation (Contract Act 1872, Sections 17 and 18); claim for damages (Specific Relief Act, Section 54)
- Defamation — Defamation by words, conduct and publication (Penal Code, Sections 499 to 502)
- Copying from an IT or telematic system; unlawful possession and diffusion of IT or telematic system access codes (Telecommunication Law, Sections 15 to 18); interception, impediment or unlawful interruption of IT or telematic communications (Telecommunication Law, Section 27)
- Market manipulation crimes — Unfair competition and market manipulation (Competition Law, Sections 13, 14 and 39); market control in telecommunication (Telecommunication Law, Section 35 to 37) and (Competition Law, Section 15)
- Crimes on safety at the workplace — Violations to the provisions for safe and healthy workplace, cleanness, ventilation and temperature (Factory Act, Sections 13 to 22) and safety measures in the workplace (Factory Act, Sections 23 to 28); serious or extremely serious negligent injury (Factory Act, Sections 52 and 53); acts committed in violation of workman’s safety regulations (Factory Act, Sections 85 and 86)
- Money laundering-related crimes — Opening a shell bank (Anti-Money Laundering Law, Sections 30 and 45); money laundering (Anti-Money Laundering Law, Section 5)
- Corporate crimes — False statements and missing to record debenture in corporate records (Companies Act, Section 122); false statements, missing information of charge and mortgage to record in corporate records (Companies Act, Section 123) False statements in mandatory prospectus (Companies Act, Section 100); failure to register and record share capital and any allotment of share contributions (Companies Act, Section 104); failure to issue certificate of share allotment of the company (Companies Act, Section 108); acting as director while insolvent (Companies Act, Section 86-A); acting in other position for interest (Companies Act, Section 86-E); environmental crimes (Environmental Conservation Law, Sections 20 to 25); absence of waste management (Environmental Conservation Law, Section 15 and Environmental Conservation Rule, Article 69); breach of the duties of communication, keeping of mandatory registers and forms on environmental matters (Environmental Conservation Law, Sections 21 and 22); violation of the rules on termination and reduction of the usage of substances that damage the environmental (Environmental Conservation Law, Section 25); pollution of the environment (Environmental Conservation Law, Sections 14 and 15 and Environmental Impact Assessment Procedure, Sections 102 to 105); punishment for not providing pollution control and environmental impact assessment (Environmental Impact Assessment Procedure, Articles 125 to 127)
- Residual crimes — Abetment (Penal Code, Sections 107 to 111); criminal conspiracy (Penal Code, Section 416); kidnapping (Penal Code, Section 359); acts for the purpose of illegally trafficking drugs or narcotic substances (Narcotic Drugs and Psychotropic Substances Law, Section 16); counterfeiting currency note and bank notes (Penal Code, Section 489); false evidence; issuing or signing false certificates (Penal Code, Sections 191 to 200); offenses against the state (Penal Code, Section 121 to 130); terrorist crimes and crimes aimed at subverting the public tranquility (Penal Code, Sections 141 to 160); kidnapping, abduction, slavery and forced labor (Penal Code, Sections 359 to 374); forgery (Penal Code, Section 463)
3. Identification of companies and entities to which liability may apply
Corporate liability applies to all companies, associations and entities in Myanmar that are not in compliance with the provisions of existing laws, rules and regulations.
4. Corporate liability for crimes committed abroad by representatives or subsidiaries
While the General Penal Code extends to crimes committed abroad by a citizen of Myanmar, it is silent on corporate liability for crimes committed abroad by companies in Myanmar. In cases where a specific law provides that the offender be prosecuted upon request for special cases, such as for example, in the case of a money laundering crime, the entity or person shall be prosecuted only if such request is made.
5. Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)
The Companies Act currently in force does not provide for corporate liability after acquisitions, mergers and demergers. As a general practice, the successors take on the corporate liabilities of the former corporation. There is no specific rule governing company liability in cases of transformation, merger, demerger and transfer or contribution of business as a going concern. In practice, the following apply:
- Transformation of a local company to a foreign company — The Companies Act currently in force allows the transformation of a local company to a foreign company or a joint venture with a foreign company provided that new entity registration documents are filed with the DICA.
- Joint venture company — The company resulting from the share transfer to a foreign company is treated as a foreign joint venture company, and it may be liable for any crimes committed by the former companies.
- Transfers of business as a going concern — The general practice is that a company can sue and be sued as a corporate legal entity. In such a case, the successor company will be liable to pay debt and account payable. In the absence of an express provision, the successor may be released from this liability by way of a business purchase contract.
II. Applicable sanctions
1. Type of sanctions applicable to the company
If a company is found liable for any serious crimes as committed by the top management or an individual under top management’s control on behalf of the company, courts in Myanmar may apply the following measures to the company:
- Restraining measures
- Compulsory winding up by order of the court upon creditors’ claims
- Temporary injunction
As an additional sanction, courts may order perpetual injunction against a liable company to which a restraining measure has been applied under the Civil Procedure Code.
2. Pecuniary fines
Pecuniary fines are imposed depending on the type of crimes provided under the specific laws, and the company will be solely responsible for the payment of any pecuniary fines applied under the relevant order issued by the courts.
3.Confiscation of goods and materials related to the crime
Criminal courts shall always order the confiscation of goods and materials producing the goods, as well as the property of the company if the company obtained the property as a result of the crime. The police are instructed to confiscate the properties related to the crime.
Under the Sea Customs Act 1878 and Land Customs Act 1924, the customs officers shall confiscate all counterfeits and unlawful goods, particularly goods imported into Myanmar without the proper import permit.
2. Interim measures, cease and desist orders, bans and confiscatory measures
If a company is found liable for any crimes, violation of interim measures, cease and desist orders, bans and confiscatory measures indicated in paragraph II, a) and c) would apply.
3. Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime
Under the Companies Act, directors have unlimited liability and are therefore liable for not having adopted measures to prevent the commission of crimes. Moreover, as they are accountable to the company, they must refund the economic damages suffered by the company.
III. Judicial proceedings to determine corporate liability
1. Court competent to decide the liability of and penalties applicable to the company
According to the Penal Code, Criminal Procedure Code, Civil Procedure Code and other specific laws, all judges are competent to decide on a company’s liability cases and on cases of personal liability of individuals charged with a crime. The court applies to legal entities the same procedural rules applicable to individuals.
2. Possibility of the application of interim measures
During investigations in the trial, the judge, upon the prosecutor’s request, can impose interim measures on the company for a term of six months to one year, depending on the case, if the following circumstances are all met:
- There is substantial evidence to prove the company’s liability.
- There are specific and grounded elements that lead the judge to believe that the company will commit the same type of crime and dispose the property.
Interim measures correspond to restraining measures (see paragraph II above), and the judge has the power to apply the most adequate and proportional measure to the concrete charge.
Interim measures can be suspended by the judge if the responding company performs any of the following:
- entirely compensates the damage and eliminates the crime’s outcomes (or it effectively tried to)
- implements actions to prevent the crime that has been committed
- makes available the profit in order to have it confiscated
If the judge approves the request, suspension is granted on bail.
The judge can always order the seizure of property or things that could be confiscated. This seizure may have heavy economic consequences for the company, such as goods, stocks or money deposits.
A company can always appeal a court’s decision.
3. Persistence of corporate liability if the crime is extinguished
Both the Criminal and Civil Procedure Codes do not include provisions that specify whether or not the company’s liability persists, and therefore, it is assumed that it is extinguished when the crime is extinguished due to various reasons.
IV. Corporate liability in multinational groups
1. Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the company in Myanmar
There is no law provision that clarifies whether or not, and if yes, upon which particular conditions, a parent company may be held criminally liable in relation to offenses committed by any of the local company’s top management or individuals under the top management’s supervision and control.
In the absence of any specific provisions on this matter, the liability of the parent company in a group of companies will be considered on a case-by-case basis and not inferred through abstract generalizations.
2. Basis of liability and applicable sanctions
Applying the abovementioned theory in the case of a group of companies, should one of the offenses against a relevant law be committed by individuals of a local company in Myanmar, the parent company may be held liable only under the following conditions:
- An individual from the parent company contributed to the commission of the offenses.
- The individual involved holds a top management office within the parent company or is under the top management’s supervision and control within the parent company.
- An individual from the parent company contributed to the commission of the offense on behalf or for the benefit of the parent company itself and the holding.
As to the sanctions, see paragraph II above.
V. Significant case law concerning corporate liability arising from crimes and draft laws under discussion
1. Significant cases
There is no reported case law directly relevant to corporate liability issues. However, there are recent cases under the Foreign Investment Law and some ongoing issues under the Environmental Conservation Law (2013), such as one where the Myanmar Investment Commission has changed the location of one land development project.
In this case, the Myanmar Investment Commission has given Marga Landmark its approval to build its mixed-use project on a new site. However, in 2015, this Hong Kong-based developer’s project was suspended as the initial location was deemed too close to Shwedagon Pagoda.
The project will now be relocated to a 17.7 acre site at the corner of Kabar Aye Pagoda Road and Kanbe Road in Yankin township, according to a notice published by the Directorate of Investment and Company Administration.
The debate on the protection of Yangon’s heritage has intensified as foreign investors flock to the city to develop high-rise projects. In the absence of zoning rules, civil society groups launched protests and filed complaints to flag up projects they deem inappropriate. Now, the new Myanmar Investment Law has addressed some zoning system issues to grant tax incentives for investing in least developed areas.
Another known case is the Irrawaddy River Dam project, which was also suspended for construction because of protests raised by the public.
There is also the case of the Lapadaung Copper Mine conducted by Myanmar Wanbao Mining Company Ltd., a Chinese company in Monywa, Saging Division. The project was accused of noncompliance with the standard environmental measures. There have been investigations relating to those issues but it is still an ongoing concern of the state.
Another case was a coal-fired power plant project in Irrawaddy region, which has been considered cancelled because of environmental concerns raised in protest and other related issues. In February 2017, the Ministry of Natural Resources and Environmental Conservation announced that coal power projects will no longer be approved due to environmental concerns, and any existing factories that violate regulations relating to the burning of coal will be shut down.
2. Proposed or contemplated new legislation
The Myanmar government has drafted a number of new laws relating to corporate liability. The new Companies Law and Occupational Safety and Health Law have been published for consultation and are now being finalized by the Union Attorney General Office. Both are expected to be enacted in 2017.