Experts warn on black money flowing into stock market

Care needs to be taken to prevent illegal money flowing through the planned Yangon Stock Exchange, or it risks its reputation as a reliable place to do business, according to experts.

The exchange is slated to launch in October, marking Myanmar’s first modern stock market, though a number of rules governing the market are still to be released.

U Soe Thein, executive director of Asia Green Development Bank, said controlling flows of black money is one of the most important elements of the planned market, adding rules must be neither too loose nor too strict.

Domestic banks pay some attention to customers transferring or depositing over K100 million (US$967,000), but generally only report the transaction as required, he said. U Soe Thein was formerly an official with the Myanmar Securities Exchange Centre, an existing over-the-counter style market in the Myanma Economic Bank building in Yangon.

With detecting illegal money difficult in banks, it will be even more challenging on the stock market given the frequency of trading.

“[Preventing flows of black money] will be much more difficult on the stock exchange, as cash can change hands every minute or second, much more than happens in banks,” he said.

U Soe Thein added cash transactions such as salaries are often handled outside of banks in Myanmar, meaning it can be difficult to prevent illegal activity in some cases.

Myanmar is still highlighted as a jurisdiction that has not made sufficient progress in implementing its action plans on money laundering by the Financial Action Task Force (FATF), an inter-governmental body that aims to set standards and promote legal, regulatory and operational measures to combat money laundering, terrorist financing and related threats to the international financial system.

In February, the FATF said Myanmar has taken steps to improve its anti-money laundering regime, but still needs to address a number of deficiencies.

Regulations stipulate that all transfers, deposits and withdrawals of more than K100 million must be reported, as well as any unusual or suspicious movements below that amount.

Some firms attempt to circumvent the rules through measures such as breaking down large transfers into smaller amounts, which is a practice that may be extended to the stock market.

U Soe Thein said the role of securities companies is important to handle the issue on YSX – “if not, it is a big place to wash money,” he said.

A total of 57 companies have applied for underwriter, dealer, broker and service provider licences, with an announcement expected in April or May declaring which firms will be allowed to participate in these roles once the YSX opens.

Last week, U Aung Thura, chief executive officer of Thura Swiss consulting, said transparency is important so people invest in the market because they believe in the economy and market fundamentals, and do not abuse it as a place to launder money.

“We need clear rules how black money that is in Myanmar can be transformed in a legal way to white money,” he said. “This could be amnesty rules, not only set up by the government but going through parliament, through laws.”

If a firm had not previously declared tax, it could do this now, pay a penalty or a specific tax, after which the money becomes official.

Then people won’t use real estate markets, won’t use other markets, to transform black money into white money,” he said last week at a seminar.

Others say that the problem of black money at the exchange may not be an early concern, but could grow over time.

The market will be new in 2015 and will carry a number of restrictions, including not allowing foreign entities to purchase shares.

“It is easy to handle the market in the early stage,” said U Tin Myint, executive director of Myanmar Securities Exchange Centre.

With trading expected to be relatively light in the earliest days, more thorough checks can be completed if a trader cannot show the source of money.

The Myanmar Securities Exchange Centre currently has rules and officials responsible for anti-money laundering, he added.

Banking and investment consultant U George Soe Win said there are some regulations in place that need to be precisely enforced. Foreigners also will not initially be able to buy shares, though these restrictions will be gradually loosened as the market develops.

Money laundering has been a local problem for many years, and the YSX must be well-run to ensure the problem of black money does not dampen market trading.

Source: Myanmar Times

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