Cursed Treasure? The corruption behind Myanmar's $31 billion Jade industry

On the second of July 2020 after heavy rainfall a landslide engulfed Hpakant, the world’s largest jade mine, situated in Myanmar’s northernmost state of Kachin. 162 miners, labourers and locals, who regularly scavenged the mines’ waste piles for precious gemstones, were killed alongside a further 54 people who were evacuated to hospital.

This tragic incident is far from the first crisis faced by those living and working in the vicinity of the jade industry. Communities have “spiralled into almost complete squalor” since the arrival of mining companies in the 1990s, with drug addiction, poverty, environmental degradation and endemic HIV and malaria in the region. This harsh reality stands in stark contrast to the immense wealth which is generated in Kachin province.

A 12-month study by Global Witness found that the total value of jade exports from Myanmar in 2014 was likely to have been $31 billion, which equates to 48% of the country’s official GDP. This treasure is clearly not shared with the Kachin population and has not translated into government expenditure on public resources, exemplified by the tiny, 50 cent per person, government healthcare expenditure. So where does the money go?

Jade and the Generals

Upon independence from the British Empire in 1948, the democratic Union of Burma was born, with Prime Minister U Nu at the head of a multi-party parliament. However, over the next decade the central government gradually lost control of its border regions where ethnic groups, who did not identify with the majority Burmese state, sought independence.

Kachin Province, which lies in the far north of the country, became independent in all but name; ruled by an ethnic militia group known as the Kachin Independence Army (KIA) . During this time the lucrative jade mines funded the KIA’s armed struggle.

By 1962, as the Union seemed at the brink of collapse, a military coup under the guise of a socialist opposition party seized control, utilising violence and oppression to bring the peripheries back into step with the centre. Between 1962 and 2015 the military retained its control of the government. From there the military expanded into all levels of the country's bureaucracy and business, until most positions in the public and private sphere were held by generals and retired military personnel. A political system based on patronage and loyalty, rather than elections or merit, was forged.

This system in Myanmar led to a stifling of civil society, independent media and institutions such as the police and judiciary. Furthermore, the political environment is deeply suspicious of interference by international organisations. As a result Myanmar has a distinct lack of scrutiny and, therefore, a vulnerability to corrupt practices such as cronyism, bribery, tax evasion and money laundering which are all widely practised by the military elite.

How this systemic corruption plays out in the jade industry was exposed by Global Witness in 2015. On paper there is a strict legal process by which interested parties can acquire the required licence. Sealed bids are assessed by a committee composed of the Minister, Deputy Minister and the Managing Directors of the Ministry of Mines. This committee's decision is then subjected to scrutiny by nine further senior government officials, including the Deputy Minister of Home Affairs and the Deputy Attorney General. However, in practise this process is much less transparent, and the only factors which truly affect companies' bids are high-level connections and bribery. There is in fact an informal institution of bribery which any potential bidder is forced to navigate in order to access a jade mining licence. The bidder must bribe: local officials to conduct legally required land surveys of the potential mine; township officials to ensure their support; and finally regional military officials to secure safety from militias, cartels or the army itself. Traversing this expensive landscape is not even a sure way of gaining the licence, as family ties or friendship with high ranking military figures is a further informal requirement. One businessman in the jade industry explained that “if an army figure is involved in the company (...), there is a 90% chance that they will get it” (Global Witness). Companies without military connections can enlist the support of an army general, or the son of a general, to act as a broker. These brokers of course require substantial bribes, either directly with cash or with part ownership of the mining company that hired them.

The net result of this corruption is firstly huge wealth being accrued by government and military officials collecting bribes, and secondly, a near monopoly of licensing by those in the military elite or with strong ties to it. The largest share of jade mines are licenced to Myanmar Economic Holdings Limited and Myanmar Economic Corporation, which are both directly owned and controlled by the army. Even more shockingly, despite there being 937 official licence holders, industry sources suggest all these companies can be traced back to 10-15 owners, including the infamous retired senior General Than Shwe who ruled in the country between 1992 and 2011.

Tax Evasion and Smuggling

So we know who collects the immense profit from Myanmar’s jade trade, but why does this not translate into wealth for the country as a whole? The trick is tax evasion. The Natural Resource Governance Institute estimates that Myanmar only collects taxes on 2-5% of the revenue made from jade production and export, which results in major shortfalls in Myanmar’s budget. Official tax rates for jade in Myanmar are prohibitively high, with double and triple rates for precious stones. The stones are first taxed by the government at 30% of their value, and then taxed a further 30% before they cross the border to China, the destination of most of Myanmar’s jade. As a result companies are motivated to repeatedly under-report and undervalue their production in order to maintain high profit margins. This systemic evasion is enabled by the same corrupt network which controls the distribution of mining licences, therefore, by either knowing or bribing the officials responsible for tax collection, any scrutiny of the product can be completely avoided. In many situations the tax collectors owe their jobs to the owners of the jade, so it is unsurprising that they let so much slide.

Beyond cronyistic bureaucrats, jade exporters can completely avoid paying taxes on their product by sending it through the long established smuggling routes between northern Myanmar and China. This is a process which involves minimal risk as the borders are policed by the military, who are embedded in the corruption. Jade smugglers barely need to hide their goods from the border guards, after all they probably share a mutual boss.

Lifting the Curse?

With the election of Nobel Peace Prize winner Aung San Suu Kyi as State Councillor in 2015, following Myanmar's first contested election in over 25 years, the country appeared set for anti-corruption reform. Holding just under 80% of the seats in Parliament, the National League for Democracy (NLD) won a landslide victory and therefore held a powerful mandate, Ostwald and Schuler argue their victory was fuelled by voters “dissatisfaction with decades of corrupt, inefficient, abusive rule by the military”. With both a popular leader and the political will for reform, to many it appeared that Myanmar’s relationship with corruption was changing course for the better. This improvement has arguably begun to materialise after a chain of new laws, high-profile arrests and sackings, Myanmar moved up from 132nd to 130th on TI’s CPI between 2018 and 2019. This success has been accredited to the work of the Anti-Corruption Commission which was established in 2014 but was not empowered until 2015.

However, the ACC’s chances of future success appear limited, due to its lack of funding and operational opaqueness. Outside observers have no clue as to what the ACC is working on or trying to achieve, or where its limited funding is going. Something that is public however is who runs the Commission: two retired generals. One politician likened this to “appointing the head prostitute as the chairman of the commission for the elimination for prostitution”(quoted in Quah, 2016). This brings me to the heart of why anti-corruption measures in Myanmar will continue to fail: the government has been unable to exorcise the influence of the institutionally corrupt military, which is guaranteed autonomy and protection from civilian prosecution by the 2008 constitution. Rather than fighting the corrupt institutions created by the military the civilian government appears to have been assimilated into it. This can be evidenced by returning to the case of jade mining. In 2018 a NGO reported that mining companies were paying substantial bribes to local and government officials in order to gain support and undertake projects, in much the same way as Global Witness had found in 2015 (Menarndt, 2019).

It seems as though a change of government was not enough to exorcise Myanmar's corrupt institutions and networks, as the influence of the military has not been purged. In order for the people of Kachin province to see any return from the wealth beneath their feet much more reform is needed, reform which Aung San Suu Kyi seems unable, or unwilling, to institute.

References

Global Witness. (2015). ‘Jade: Myanmar’s “Big State Secret”’. United Kingdom

Menarndt, A. (2019). ‘Jade and Gem Smuggling Costs Myanmar Billions’. The Diplomat: Tokyo

Quah, J. (2016). ‘Minimising corruption in Myanmar: an impossible dream?’. Asian Education and Development Studies. 5(2). Pp. 175-194

Transparency International. (2020) ‘Corruption Perceptions Index 2019’. Available at: https://www.transparency.org/en/cpi/2019/analysis