Suspected drug traders have Singapo

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Subject: Suspected drug traders have Singapore connection

BUSINESS IS BLOOMING

  Is Myanmar Asia's first narco-state? Compelling evidence points to
that dubious distinction

                                            By Anthony Davis and Bruce
Hawke
                                                        ASIAWEEK
                                          January 23, 1997 Volume 24
Number 3



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 ASEAN.

HOW THE POPPIES FLOURISHED

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 drugs-related."

THE MONEY WASHING-MACHINE

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 reach.

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
Commercial.

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 want."

PAINT, WHISKY AND HEROIN

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 UNDISPUTED KING OF KOKANG

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 byÊtroops 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.

THE PRINCE OF DEATH'S PENSION PLAN

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 businessmen.

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 foreign-exchange 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.

KICKING THE HABIT GETS HARDER

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
official.

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 1990s. 

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.