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2/4)AW: 23-JAN-98 BURMA INSIDE STOR



ASIAWEEK 23 JANUARY 1998
Part 2 of 4
INSIDE STORY DRUGS:
IS MYANMAR ASIA'S FIRST NARCO-STATE ? 
COMPELLING EVIDENCE POINTS TO THAT DUBIOUS DISTINCTION
By Anthony Davis and Bruce Hawke
--------------------------------

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 produces 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
meeting flanked by bodyguards with a pistol strapped to his hip.
Uninitiated visitors to company headquarters on Botataung Pagoda Rd.
have been started 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. Lastyear Kyaw Myint tried to
railroad a job as chairman of Prime Commercial Bank, in which his
company held a controlling stake. He showed , 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
permonth -- 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 they 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 neiher
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 headqwuarters 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.
-- 
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