This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 11 RANGOON 001623 
 
SIPDIS 
 
STATE FOR INL/AAE, EAP/BCLTV, L/LEI; JUSTICE FOR OIA, 
AFMLS, NDDS; TREASURY FOR FINCEN; DEA FOR OILS AND OFFICE 
OF DIVERSION CONTROL 
 
E.O. 12958: N/A 
TAGS: EFIN KCRM PTER BM TAGS
SUBJECT: BURMA: 2003-2004 INTERNATIONAL NARCOTICS CONTROL 
STRATEGY REPORT (INCSR) 
 
REF: A. STATE 328024 
 
     ¶B. STATE 324347 
 
¶I. Summary 
 
¶1.  Burma is the world's second largest producer of illicit 
opium and the second largest cultivator of opium poppy.  The 
gap between Burma and the number one producer of illicit 
opium and number one cultivator of poppy, Afghanistan, 
increased considerably in 2003.  Burma remains the primary 
source of amphetamine-type stimulants (ATS) in Asia, 
producing hundreds of millions of tablets annually. Although 
still a major producer of illicit opium, Burma's overall 
production in 2003 declined substantially for the seventh 
straight year. According to the joint U.S./Burma opium yield 
survey, opium production in Burma totaled no more than 484 
metric tons in 2003, down more than 23 percent from a year 
earlier, and a fraction of the 2,560 metric tons produced in 
Burma in 1996. Burma's opium is grown predominantly in Shan 
State, in areas controlled by former insurgent groups. Since 
the mid-1990s, however, the government has elicited 
"opium-free" pledges from each cease-fire group and, as these 
pledges have come due, has stepped up law enforcement 
activities in areas controlled by these groups. The ethnic Wa 
group in northeastern Shan State has pledged to end opium 
production and trafficking at the end of the 2005 poppy 
harvest, but the government has done little to curb its 
current cultivation and production activities. Wa cultivators 
now account for approximately 52 percent of Burma's total 
poppy crop.  Major Wa traffickers continue to operate with 
apparent impunity, and United Wa State Army (UWSA) 
involvement in methamphetamine production and trafficking 
remains a serious concern. During the 2003 drug certification 
process, the USG determined that Burma had "failed 
demonstrably" to meet its international counternarcotics 
obligations. 
 
¶2.  Over the past several years, the Burmese government has 
extended significantly its counternarcotics cooperation with 
other states. In 2001, it signed counternarcotics (Memoranda 
of Understanding) MOUs with both China and Thailand, and has 
joined with China in annual joint operations in the northern 
and eastern Shan State, which resulted in the destruction of 
several major drug trafficking rings, including a group that 
the Chinese called one of the largest "armed drug smuggling 
groups in the Golden Triangle area."  Cooperation with 
Thailand increased considerably in 2003 as the Thai 
government pursued an aggressive domestic "drug-free" policy. 
 The Thai Prime Minister and other cabinet-level officials 
visited Burma in 2003 to discuss counterdrug cooperation with 
senior leaders of the Burmese military government. 
 
¶3.  The Burmese government released long-awaited money 
laundering regulations in December 2003.  These regulations 
are designed to allow implementation of a 2002 money 
laundering law which, in response to rising international 
concerns regarding the quality of its anti-money laundering 
regime, criminalized money laundering in connection with 
virtually every type of major criminal activity.   The new 
regulations lay out eleven predicate offenses including 
involvement in narcotics, human and arms trafficking, 
smuggling, counterfeiting, hijacking, cyber crime, illegal 
operation of a financial institution, and "offenses committed 
by acts of terrorism."  Money laundering is punishable by 
imprisonment and the regulations will be applied 
retroactively to June 2002. 
 
¶4.  Burma is a party to the 1961 UN Single Convention, the 
1971 UN Convention on Psychotropic Substances, and the 1988 
UN Drug Convention. 
 
II. Status of Country 
 
¶5.  Burma is the world's second largest producer of illicit 
opium.  However, eradication efforts, enforcement of 
poppy-free zones, alternative development, and a shift toward 
synthetic drugs have combined to depress cultivation levels 
for the past three years.  2003 was the first year that 
weather was not a major factor in the declining poppy 
cultivation trend.  According to the joint U.S./Burma opium 
yield survey, the total land area under poppy cultivation in 
Burma was 47,130 hectares in 2003, a 39 percent decrease from 
the 77,700 hectares under cultivation in 2002. Estimated 
opium production in Burma totaled approximately 484 metric 
tons in 2003, a 23 percent decrease from 630 metric tons in 
2002, and less than one fifth of the 2,560 metric tons 
produced in Burma in 1996 (a 71 percent decline in eight 
years).  Although climate was not a factor in declining 
cultivation in 2003, improved weather conditions during 
critical growth periods did improve yields for the region's 
poppy farmers. In 2003, yields rose to 10.3 
kilograms/hectare, a substantial increase from the previous 
year (estimated at 8.1 kilograms/hectare) and a return to the 
robust yields of the early and mid-1990s though still less 
than the peak level recorded in 1996. 
 
¶6.  Burma also plays a major role in the regional traffic in 
amphetamine-type stimulants (ATS).  Drug gangs based in the 
Burma/China and Burma/Thailand border areas annually produce 
several hundred million methamphetamine tablets for markets 
in Thailand, China, and India on the basis of precursors 
imported from neighboring states.  Burma itself does not have 
a chemical industry and does not produce any of the 
precursors for methamphetamine or other artificial drugs. In 
2003 there were troubling signs that a nascent domestic 
market for ATS began to emerge in Burma, although 
deteriorating economic conditions will likely stifle 
significant growth in consumption.  During the first ten 
months of 2003, ATS seizures totaled less than 4 million 
tablets, a decline from previous modest levels of 
approximately 10 million tablets seized per year. Aside from 
these seizures, the government did not take significant steps 
to stop ATS production and trafficking.  Opium, heroin, and 
ATS are produced predominantly in Shan State, in areas 
controlled by former insurgent groups. Starting in 1989, the 
Burmese government negotiated a series of individual 
cease-fire agreements, allowing each group limited autonomy 
and a measure of development assistance in return for peace. 
Initially, these agreements permitted the former insurgents 
to continue their narcotics production and trafficking 
activities in relative freedom. Since the mid-1990s, however, 
the Burmese government has elicited "opium-free" pledges from 
each cease-fire group and, as these pledges have come due, 
has stepped up law-enforcement activities in the respective 
cease-fire territories.  Although virtually the entire opium 
crop is cultivated in the eastern Shan State, there is also 
minor and widely scattered cultivation in the States of Chin, 
Kachin, and Kayah and in Sagaing Division. 
 
¶7.  In 2003, the Burmese government continued its 
counternarcotics activities, primarily poppy crop 
eradication, in the Kokang region of northeastern Shan State 
controlled by Peng Jiasheng's Myanmar National Democratic 
Alliance Army (MNDAA), which had pledged to be opium-free by 
¶2000. The government applied only modest pressure on the Wa 
in 2003, claiming it cannot crack down faster because the 
Wa's opium-free pledge does not come due until the end of the 
2005 poppy harvest.  Premature action against the Wa, the 
government claims, would jeopardize Burma's national 
security, as the UWSA is a formidable military force.  Under 
the terms of the cease-fire agreements, the Wa and other 
groups involved in the drug trade are largely immune from 
government action. For instance, Burmese troops cannot enter 
Wa territory without permission from the UWSA and the GOB is 
unwilling to risk confronting the Wa, a potent organization 
with a well-manned and well-trained military force.. 
However, the government continued a more aggressive stance on 
its own travel in Wa territory, merely informing UWSA 
officials of such visits rather than seeking advance 
permission. Nevertheless, the government has yet to put 
significant pressure on the Wa to stop illicit drug 
production or trafficking. 
 
¶8.  UNODC and joint USG/GOB 2003 opium poppy survey results 
demonstrated partially effective enforcement of poppy-free 
zones, but may also indicate a shift toward synthetic drugs. 
Substitute crops and alternative development projects that 
would provide farmers economically viable alternatives to 
poppy cultivation have not replaced opium production and its 
profitability.  For regions to become truly drug free, the 
government must make a considerable commitment, assisted 
where possible by the international community, to undertake 
an extensive range of counternarcotics actions, including 
crop eradication, effective law enforcement, and alternative 
development. The government must foster cooperation between 
the government and the ethnic groups involved in drug 
production and trafficking, including the Wa, to eliminate 
poppy cultivation and opium production. 
 
¶9.  The GOB must also address the explosion of ATS that has 
flooded Thailand and is trafficked to other countries in the 
region. A domestic market for the consumption of ATS also 
emerged in Burma, a disturbing trend that, although less 
significant that other societal woes, could prove to be a 
destabilizing factor in the long-term.  The UNODC estimated 
that in 2003 there were at least 15,000 regular ATS users in 
Burma. The GOB must make a firm commitment and a concerted 
effort to stop production of ATS by gaining support and 
cooperation from the ethnic groups, including the Wa, 
involved in ATS, as well as through closing production labs 
and preventing the diversion of precursor chemicals needed to 
produce synthetic drugs.  No ATS labs were reported destroyed 
in 2003. 
 
¶10.  Burma has a small, but growing drug abuse problem. While 
the government maintains that there are only about 70,000 
registered addicts in Burma, surveys conducted by UNODC, 
among others, suggest that the addict population could be as 
high as 300,000 (i.e. still less than 1 percent of the 
population), with opium the major source of addiction 
(135,000 regular users of heroin, including up to 30,000 
intravenous drug users).  Recreational use of illicit drugs, 
including ATS, is on the rise.  There is also a growing 
HIV/AIDS epidemic, linked in part to intravenous drug use. 
According to surveys, 57 percent of all intravenous drug 
users in Burma have tested positive for the HIV/AIDS virus. 
Infection rates are highest in Burma's ethnic regions, and 
specifically among mining communities in those areas, where 
opium, heroin, and ATS are readily available. 
 
¶11.  Money laundering is also an area of concern. In November 
2003 the Financial Action Task Force (FATF) called upon 
member countries to impose countermeasures against Burma for 
its failure to pass a mutual legal assistance law and its 
failure to issue regulations to accompany the "Control of 
Money Laundering Law" passed in 2002.  Burma responded by 
releasing new money laundering regulations on December 5, 
2003, but has yet to address the mutual legal assistance law 
issue. 
 
III. Country Actions Against Drugs in 2003 
 
 
¶12.  Policy Initiatives. Burma's official 15-year 
counternarcotics plan calls for the eradication of all 
narcotics production and trafficking by 2014, one year ahead 
of an ASEAN-wide plan of action that calls for the region to 
be drug-free by 2015 . The plan is to proceed by stages, with 
eradication efforts coupled to alternative development 
programs in individual townships, predominantly in Shan 
State.  Altogether, the GOB identified 54 townships for the 
programs and targeted  25 of them during the first five years 
of the program. 
 
¶13.  The government has received limited international 
assistance in support of these efforts. The most significant 
multilateral effort is the UN Office of Drugs and Crime's 
(UNODC) Wa Alternative Development Project (WADP), which is 
financed by the United States, Japan, and Germany. A 
five-year, $12.1 million program, this supply-reduction 
project encourages alternative development in a small portion 
of the territory controlled by the United Wa State Army. 
UNODC extended the project from 2003 until 2005 and expanded 
the number of villages targeted for community development 
work from 4 to 16.  Also in 2003, the UNODC and the Japanese 
government announced plans to establish an intervention in 
the Wa and Kokang areas (dubbed "KOWI") aimed at supporting 
the humanitarian needs of farmers who have abandoned poppy 
cultivation.  A joint humanitarian assessment, consisting of 
UN agencies and NGOs, traveled to the Kokang and Wa areas 
earlier in the year and concluded that farmers had lost up to 
70 percent of their income and were increasingly susceptible 
to disease, internal displacement, and food insecurity. 
Several international NGOs have partnered with the UNODC, and 
Japan and Italy were early donors. 
 
¶14.  Bilateral counternarcotics projects include a small, 
U.S.-financed project in northern Shan State (Project Old 
Soldier) and a substantial Japanese effort to establish 
buckwheat as a cash crop in the Kokang and Mong Ko regions of 
northeastern Shan State. The Thai government has since 2001 
extended its own alternative development projects across the 
border into the Wa-controlled Southern Military Region of 
Shan State. 
 
¶15.  Burma hosted several multilateral counterdrug meetings 
in 2003, including a precursor control meeting in January 
with India, China, and UNODC; a precursor control meeting in 
July with India, China, Thailand and Laos; and, in October, 
the law enforcement task force of the ASEAN and China 
Cooperative Operations in Response to Dangerous Drugs 
(ACCORD).  Burma also participated in a Mekong fact-finding 
survey in July with China, Laos, and Thailand and a precursor 
control meeting in Thailand that included India, China, Laos, 
and Thailand.  The five countries agreed on cross-border 
cooperation to stop the flow of precursor chemicals among the 
countries of the Mekong river sub-region. 
 
¶16.  The Government of Burma supported a UNODC effort in 2001 
to form a "Civil Society Initiative" (CSI) to conduct 
awareness activities and programs regarding the dangers of 
drug abuse and HIV/AIDs.  The CSI, which partnered with NGOs 
and local celebrities, held a successful anti-drug concert 
and marathon in 2002.  However, the GOB failed to support a 
two-day anti-drug music festival in 2003, which was 
subsequently canceled. 
 
¶17.  Narcotics Seizures:   Summary statistics provided by 
Burmese drug officials indicate that during the first ten 
months of 2003 Burmese police, army, and the Customs Service 
together seized approximately 1,247 kilograms of raw opium, 
488 kilograms of heroin, 78 kilograms of marijuana, 102 
kilograms of methamphetamine powder, 156 kilograms of 
morphine, and 4.5 million methamphetamine pills.  This 
compares with seizures during all of 2002 of 1,631 kilograms 
of raw opium, 285 kilograms of heroin, and 8.8 million 
methamphetamine pills.   Heroin seizures, almost double the 
previous year, were at the highest levels since 1997. 
Seizures of ATS in 2003 continued a downward trend and may be 
related to adjustments in trafficking patterns or to 
Thailand's aggressive 2003 "drug free" policy, which greatly 
reduced the market for Burma-produced ATS, at least in the 
short-term.  The relatively tiny amount of ATS seized (less 
than 4 million tablets) had no effect on the scope of the 
growing problem. 
 
¶18.  The Ministry of Health identifies 25 substances as 
precursor chemicals and prohibits their import, sale, or use 
in Burma.  Seizures of precursor chemicals declined 
substantially during the first ten months of 2003 and 
included 266 kilos of ephedrine, 2,540 liters of acetic 
anhydride, and 37,557 liters of other precursor chemicals. In 
2002, the first year the GOB issued a notification 
identifying illegal precursor chemicals, the totals were 
substantially higher: 3,922 kilos of ephedrine, 12,318 liters 
of acetic anhydride, and 174,191 liters of other chemicals. 
 
¶19. Major cases in 2003: 
 
-- In cooperation with the United States Drug Enforcement 
Administration (DEA), police in India, China, Canada, and 
Burma contributed to the arrest of a total of thirty 
narcotics suspects in all five countries and the seizure of 
approximately 36 kilograms of heroin and one ATS laboratory. 
-- In cooperation with China, Burmese police contributed to a 
series of arrests and seizures throughout 2003 along the 
Chinese border.  Since 2001, Burma has turned over 22 
fugitives to China, including members of one group (Tan Xiao 
Lin and company), which China described as the "largest armed 
drug-trafficking gang in the Golden Triangle." 
 
-- During a nine-day operation at the end of March near 
Taunggyi in western Shan State, Burmese authorities seized 
68.6 kilograms of morphine, 42 kilograms of opium, 720 liters 
of precursor chemicals, and a cache of weapons and ammunition. 
 
-- On February 1, 2003, Burmese authorities located and 
dismantled a clandestine heroin refinery near Kutkai 
township.  A search of the site revealed 404 liters of ethyl 
alcohol and other precursors and drug production 
paraphernalia. 
 
-- On July  17, 2003, Burmese authorities located and 
dismantled a clandestine heroin refinery near Kutkai 
township.  A search of the site revealed 6 kilograms of 
morphine, 86.2 liters of ether, 229.64 liters of other 
precursor chemicals, and several weapons. 
 
-- On July 19, 2003, Burmese authorities located and 
dismantled a clandestine heroin refinery near Theinni 
township.  A search of the site revealed 10.28 kilograms of 
opium, 5.6 kilograms of heroin, 141.96 kilograms of poppy 
seeds, and 1,795.7 liters of precursor chemicals. 
Authorities arrested five suspects. 
 
-- On July 31, 2003, Burmese authorities located and 
dismantled a clandestine heroin refinery near Kutkai 
township.  A search of the site resulted in the seizure of 
36.4 kilograms of opium, 62.45 kilograms of heroin, 2352.6 
liters of ether, 3102.6 liters of chloroform, and a cache of 
weapons and ammunition. 
 
-- On August 1, 2003, Burmese authorities in Mandalay seized 
approximately 153 kilograms of ephedrine and arrested two 
suspects. 
 
-- On August 21, 2003, Burmese authorities seized 
approximately 529,800 methamphetamine tablets, a cache of 
weapons, and ammunition and arrested one suspect. 
 
-  On August 24, 2003 Burmese police cooperated with Thai 
authorities in Chiang Mai, Thailand on the seizure of 500,000 
methamphetamine tablets, four firearms, and three suspects 
(the three suspected drug traffickers died while in 
detention). 
 
¶20.  Arrests and Prosecutions:  In 2003, Burma arrested 3,336 
suspects on drug related charges, according to official 
statistics.  In addition, the GOB arrested nine United W 
State Army (UWSA) officers in August 2003. 
 
¶21.  Refineries. The government dismantled 7 heroin labs 
through the first ten months of 2003, compared to 17 from the 
entire previous year.  The GOB destroyed no meth labs in 
2003, although 6 were destroyed in 2002. 
 
¶22.  Eradication. The government eradicated more than 21,000 
hectares (51,892 acres) of opium poppy over the past three 
crop years.  However, only 683 hectares were destroyed during 
the 2002/03 crop year, a mere fraction of the 10,466 hectares 
destroyed during the 2001/02 crop year and the 10,568 
hectares destroyed during the 2000/01 crop year. 
Nonetheless, overall eradication accounts for almost 
one-third of the reduction in area under poppy cultivation 
since 2001.  In addition, during the first ten months of 2003 
the government burned 164,000 kilos of poppy seeds capable of 
seeding more than 40,570 hectares (100,250 acres). The 
destruction of those seeds, together with law enforcement 
actions, reduced the area under opium cultivation by more 
than one third in 2003. 
Law Enforcement Measures. The Central Committee for Drug 
Abuse Control (CCDAC)--which is comprised of personnel from 
various security services, including the police, customs, 
military intelligence, and the army-leads drug-enforcement 
efforts in Burma.  CCDAC now has 18 drug-enforcement task 
forces around the country, with most located in major cities 
and along key transit routes near Burma's borders with China, 
India, and Thailand.  As is the case with most Burmese 
government entities, CCDAC suffers badly from a lack of 
adequate resources to support its law-enforcement mission. 
 
¶23.  Burma's 1993 Narcotic Drugs and Psychotropic Substances 
Law provide the legal framework for the country's law 
enforcement efforts. As demanded by the 1988 UN Drug 
Convention, that law contains legal tools for addressing 
narcotics-related money laundering, the seizure of 
drug-related assets, and the prosecution of drug conspiracy 
cases.  The State Peace and Development Council passed a 
broader "Control of Money Laundering Law" in 2002 and in 
December 2003 issued regulations to implement the law. 
 
¶24.  In November 2003, the Financial Action Task Force (FATF) 
called upon member countries to impose countermeasures 
against Burma for its failure, among other shortcomings, to 
issue regulations to implement its 2002 money laundering 
statute or to pass a mutual legal assistance law.  With 
assistance from UNODC, the Burmese government is in the 
process of drafting a legal assistance law and, if passed and 
enacted, could create a framework for judicial and law 
enforcement cooperation across borders in the prosecution of 
money laundering and other cases. 
 
¶25.  In 2002, the government, having established a police and 
military intelligence presence in the ethnic Wa territories, 
demanded that the Wa, the Kokang Chinese, and other 
cease-fire groups issue new counternarcotics decrees. Those 
decrees outlawed participation in any aspect of the narcotics 
trade. The GOB also demanded and received cooperation from 
the UWSA in bringing to heel several major fugitives wanted 
by China. In addition, it has closed down the liaison offices 
of armed groups like the UWSA, and of companies associated 
with those groups in Tachileik, Myawaddy, and other towns on 
the Thai/Burmese border.  In December 2003, the GOB announced 
an investigation of two private banks associated with the Wa 
(Asia Wealth and Myanmar Mayflower), identified by the United 
States as entities of "primary money laundering concern." 
 
¶26.  The GOB continued efforts to hold cease-fire groups to 
their pledges to end opium production in their territories. U 
Sai Lin's Special Region No. 4 around Mong La has been 
opium-free since 1997 and the Wa are maintaining their pledge 
to eliminate opium by the end of the 2005 harvest.  However, 
according to the 2003 joint U.S./Burma opium yield survey, 
poppy cultivation increased in the Wa Special Region by over 
5,500 hectares and the area now accounts for 52 percent of 
Burma's total poppy crop.  The Kokang Chinese missed their 
opium-free target (scheduled for the year 2000), and extended 
their deadline to 2003.  Although much of the opium crop has 
now been eliminated, the Kokang paid a heavy price in terms 
of increased attention from both the Burmese and the Chinese 
police. Several of the ethnic trafficking armies also control 
amphetamine production labs and extensive trafficking 
operations. These remain largely intact and are a major 
factor in amphetamine trafficking in Southeast Asia and 
beyond. 
 
¶27.  The government continued its crackdown begun in 2001 on 
the array of militias (some government-sponsored village 
defense forces, and others the remnants of former insurgent 
bands) that the government had previously allowed to 
cultivate opium in the Kutkai-Lashio region of northern Shan 
State. According to military intelligence officials, with 
peace now prevailing in most of the countryside and the 
government no longer in need of the local security services 
these groups provided, steps are now being taken to slowly 
scale back their privileges, including the right to grow and 
traffic in opium. 
 
¶28.  In 2003, for the third-consecutive year, Burma's opium 
poppy crop declined.  The latest crop was 36 percent below 
the previous year's level and the smallest crop in ten years. 
 According to USG imagery-based estimates, about 47,130 
hectares of crop was cultivated during the 2002-2003 growing 
seasons, down from 77,700 in 2001-2002.  2003 was also the 
first year that weather was not a major factor accelerating 
the drop in cultivation level.  Sources of the large decline 
included law enforcement, a conscious shift away from opium 
to synthetic drugs by the region's drug lords, and localized 
alternative development success. 
 
¶29.  Corruption. There is no reliable evidence that senior 
officials in the Burmese Government are directly involved in 
the drug trade. However, lower level officials, particularly 
army and police personnel posted in outlying areas, have been 
prosecuted for drug abuse and/or narcotics-related 
corruption. According to the Burmese government, over 200 
police officials and 48 Burmese Army personnel were punished 
for narcotics-related corruption or drug abuse between 1995 
and 2003.  Of the 200 police officers, 130 were imprisoned, 
16 were dismissed from the service, 7 were forced to retire, 
and 47 were demoted. No Burma Army officer over the rank of 
full Colonel has ever been prosecuted for drug offenses in 
Burma. This fact, the prominent role in Burma of notorious 
narcotics traffickers (e.g. the Lo Hsing Han clan, Khun Sa, 
Wei Hsueh Kang, etc.), and the continuance of large-scale 
narcotics trafficking over years of intrusive military rule 
have given rise to speculation that some senior military 
leaders protect or are otherwise involved with narcotics 
traffickers. 
 
¶30.  Agreements and Treaties. Burma is a party to the 1961 UN 
Single Convention, the 1971 UN Convention on Psychotropic 
Substances, and the 1988 UN Drug Convention. In September 
2003 the amended 1971 UN Protocol on Psychotropic Substances 
took effect in Burma.  In addition, Burma is also one of six 
nations (Burma, Cambodia, China, Laos, Thailand, Vietnam) 
that are parties to UNODC's sub-regional action plan for 
controlling precursor chemicals and reducing illicit 
narcotics production and trafficking in the highlands of 
Southeast Asia. 
In 2003, the Chinese and Thai governments stepped up 
bilateral counterdrug cooperation efforts with Burma and, 
with the GOB, established joint Border Liaison Offices (BLO) 
along their respective borders to facilitate the sharing of 
intelligence. 
 
¶31.  Cooperation with Thailand in particular increased 
considerably in 2003 as the Thai government pursued an 
aggressive domestic "drug-free" policy.  Thai cabinet-level 
officials visited Burma several times during the year to 
discuss counterdrug cooperation with senior leaders of the 
Burmese military government.  Burma's 2001 MOU with Thailand 
commits both countries to closer police cooperation in 
narcotics control and they subsequently established joint 
"narcotics suppression coordination stations" in the Chiang 
Rai/Tachileik, Mae Sot/Myawaddy, and Ranong/Kawthoung border 
areas. In addition, Thailand implemented a 20 million baht 
(about $440,000) new alternative development program in the 
Southern Military Region of Shan State, which is now occupied 
by the United Wa State Army. In December, the Burmese and 
Thai Prime Ministers met in Shan State to review the project 
and to discuss counternarcotics cooperation, 
 
¶32.  While not formally funding alternative development 
programs, the Chinese government has encouraged investment in 
many projects in the Wa area, particularly in commercial 
enterprises such as tea plantations and pig farms and has 
assisted in marketing those products in China through 
relaxation of duty taxes. 
 
¶33.  Cultivation and Production. According to the 2003 
U.S./Burma Joint Opium Yield Survey, opium production 
declined in Burma for the seventh straight year. The survey 
found that the maximum potential yield for opium in Burma in 
2003 totaled 484 metric tons, down 146 metric tons (or 
approximately 23 percent) from 2002. Over the past seven 
years, opium production in Burma has declined by more than 81 
percent, from an estimated 2,560 metric tons in the peak year 
of 1996 to 484 metric tons in 2003. The area under 
cultivation has dropped by almost two-thirds, from 163,100 
hectares in 1996 to approximately 47,130 hectares in 2003. 
Yields have similarly been reduced, from an estimated 17 
kilograms per hectare in 1996 to about 10.3 kilograms per 
hectare in 2003.  However, the 2003 opium/hectare yield rate 
increased by about 18 percent from the previous year, 
reflecting favorable weather and more intense cultivation in 
Wa areas. 
 
¶34.  Results from a UNODC-sponsored census survey throughout 
Shan State in 2003 largely corroborated the results of the 
U.S./Burma Joint Opium Yield Survey.  According to UNODC, the 
area under poppy cultivation in 2003 declined by 23 percent 
from the previous year and by 62 percent since 1996. For its 
2003-04 opium survey, the UNODC's Illicit Crop Monitoring 
Program (ICMP) will be extended to cover areas in Kachin and 
Chin States and Sagaing Division, in addition to the entire 
Shan State. 
 
¶35.  Drug Flow/Transit. Most ATS and heroin in Burma is 
produced in small, mobile labs located in the Burma/China and 
Burma/Thailand border areas, primarily in territories 
controlled by active or former insurgent groups. A growing 
amount of methamphetamine is reportedly produced in labs 
co-located with heroin refineries in areas controlled by the 
United Wa State Army (UWSA), the Kokang Chinese, and the Shan 
State Army-South (SSA-S). Heroin and methamphetamine produced 
by these groups are trafficked primarily through China, 
Thailand, India and, to a lesser extent, Laos,  Bangladesh, 
and Burma itself. 
 
¶36.  Precursors for refining these narcotic drugs are 
primarily produced in India, China, and Thailand. Burma does 
not have a chemical industry and does not produce ephedrine, 
acetic anhydride, or any of the other chemicals required for 
the narcotics trade. Similarly, the major markets for all of 
these narcotic drugs lie in neighboring states. However, 
there were signs in 2003 that Burma's small domestic market 
for drug consumption grew, especially the consumption of ATS. 
 
 
¶37.  Demand Reduction. The overall level of drug abuse is low 
in Burma compared with neighboring countries. According to 
the GOB, there are only about 70,000 "officially registered" 
drug abusers in Burma.  This is undoubtedly an underestimate, 
and even the UNODC estimates that there may be no more than 
300,000 people (still less than 1 percent of the population) 
who abuse drugs in Burma. Most, particularly among the older 
generation, use opium, but use of heroin and synthetic drugs 
is rising, particularly in urban and mining areas.  NGOs and 
community leaders reported growing numbers of disaffected 
youth using heroin and ATS, particularly in ethnic minority 
areas. 
 
¶38.  Burmese demand reduction programs are in part coercive 
and in part voluntary. Addicts are required to register with 
the GOB and can be prosecuted if they fail to register and 
accept treatment. Altogether, more than 21,000 addicts were 
prosecuted for failing to register between 1994 and 2003 
Demand reduction programs and facilities are strictly 
limited, however. There are six major drug treatment centers 
under the Ministry of Health, 49 other smaller detox centers, 
and eight rehabilitation centers which, together, have 
reportedly provided treatment to about 55,000 addicts (UPDATE 
to include 2003 figures) over the past ten years. There are 
also a variety of narcotics awareness programs conducted 
through the public school system. According to UNODC, 
approximately 1,200 high school teachers participated in 
seminars, training programs, and workshops connected with 
these programs in 2001. In addition, the government has 
established demand reduction programs in cooperation with 
NGOs. These include programs with CARE Myanmar, World 
Concern, and Population Services International (PSI), all of 
which focus on injecting drug use as a factor in the spread 
of HIV/AIDS. 
 
IV. U.S. Policy Initiatives and Programs 
 
¶39.  Policy and Programs. The USG has suspended direct 
counternarcotics assistance to Burma since 1988, when the 
Burmese military began its suppression of the pro-democracy 
movement. The USG now engages the Burmese government in 
regard to narcotics control only on a very limited level. 
DEA, through the U.S. Embassy in Rangoon, shares drug-related 
intelligence with the GOB and conducts joint drug-enforcement 
investigations with Burmese counternarcotics authorities. 
Other U.S. agencies conducted opium yield surveys in the 
mountainous regions of the Shan State in 1993 and 1995 and 
annually from 1997 through 2003 with essential assistance 
provided by Burmese counterparts. These surveys give both 
governments an accurate understanding of the scope, 
magnitude, and changing geographic distribution of Burma's 
opium crop. 
 
¶40.  The U.S. Government regularly urges the Burmese 
government to take additional steps to curb narcotics 
production and trafficking. Specifically, the USG has 
encouraged the Burmese government to: 
 
-- Comply with the provisions of UN Drug Conventions by 
taking demonstrable and verifiable actions against high level 
drug traffickers and their organizations; 
 
-- Increase opium eradication and significantly increase 
seizure rates for opium, heroin, and methamphetamines; 
control the diversion of precursor chemicals; and destroy 
significantly more heroin and methamphetamine laboratories; 
 
-- Continue cooperation with China and Thailand and expand 
cooperation to other neighboring countries such as India; 
 
-- Enforce existing money laundering laws, including asset 
forfeiture provisions, and fully implement and enforce 
Burma's new money laundering legislation; 
 
-- Prosecute drug-related corruption, especially corrupt 
government and military officials who facilitate drug 
trafficking and money laundering; and 
 
-- Expand demand reduction, prevention, and drug treatment 
programs to reduce drug use and control the spread of 
HIV/AIDS. 
 
¶41.  The Road Ahead. The Burmese government has committed 
itself in recent years to expanded counternarcotics measures 
and has made significant gains in reducing opium poppy 
cultivation and opium production. The GOB has enlisted major 
regional allies (particularly China and Thailand) in this 
fight, and has built up the capacity to identify and punish 
drug traffickers and major trafficking organizations, even 
within the context of very limited resources. Based on 
experience in dealing with significant narcotics-trafficking 
problems elsewhere in the world, the USG recognizes that 
large-scale and long-term international aid-including 
development assistance and law-enforcement aid-would help 
curb drug production and trafficking in Burma. However, 
recurring human rights problems have limited international 
support of all kinds, including support for Burma's law 
enforcement efforts. 
 
¶42.  The USG believes that the Government of Burma should 
continue to reduce opium cultivation and production, combat 
corruption, enforce its narcotics and money-laundering 
legislation, and deal with drug abuse. Its efforts to date 
have produced measurable results. The USG strongly urges the 
GOB to sustain and intensify those efforts so that its 
counternarcotics efforts are commensurate with the scope of 
the problem. The USG also urges the GOB to take efforts to 
combat the production and trafficking of ATS and to stem the 
growth of a domestic market for the consumption ATS before 
this problem becomes more significant. Burma should expand 
its law-enforcement campaign to the most prominent 
trafficking groups and their leaders. In addition, the USG 
encourages the GOB to continue its expanded efforts to 
cooperate with other countries in the region. Continued and 
intensified, these efforts could lead to a sustained 
reduction in all forms of narcotics production and 
trafficking from an area that has been one of the world's 
major drug trafficking centers. 
 
¶43. Statistical information: Tables e-mailed to INL/AAE and 
EAP/BCLTV on 12/19/03. 
 
Financial Crimes/Money Laundering 
 
Suspicious activity reports: 
 
¶44.  Burma. (For UPDATE in Washington). An analysis by FinCEN 
of the Suspicious Activity Reporting System, for the period 
January 1, 2002 to October 31, 2002, revealed that there were 
eight SARs that could be linked to transactions associated 
with Burma. Most of the reported activity involved suspicious 
wire transfer activity to or from Burma or involved a citizen 
of Burma. SARs reported wire transfers originating in Tokyo, 
Hong Kong, and Singapore flowing into the United States and 
sent by individuals using Burmese passports for 
identification. Banks identified the activity as suspicious 
due to a lack of information linking the activity to 
legitimate funds. Additional activity reported on the SARs 
included structured cash deposits made by Burmese citizens in 
an apparent attempt to avoid BSA filing requirements. 
 
¶45.  Burma. Renamed the Union of Myanmar by its ruling junta, 
Burma has a mixed economy with substantial state-controlled 
activity--mainly in energy, heavy industry, and forestry--and 
with private activity dominant in agriculture, light 
industry, and transport. Burma's economy continues to be 
vulnerable to drug money laundering due to its 
under-regulated financial system, weak anti-money laundering 
regime, and policies that facilitate the funneling of drug 
money into commercial enterprises and infrastructure 
investment. 
 
¶46.  On November 3, 2003, the Financial Action Task Force 
(FATF) called upon member countries, including the United 
States, to impose countermeasures against Burma for its 
failure to pass a mutual legal assistance law and to issue 
regulations to accompany the June 2002 "Control of Money 
Laundering Law" (State Peace and Development Council Law No. 
6/2002).  The United States took immediate action on FATF's 
request, issuing on November 18 two proposed rules that would 
declare Burma, and two private banks (Asia Wealth and Myanmar 
Mayflower) entities of "primary money laundering concern." 
 
¶47.  When adopted, the rules, to be issued pursuant to the 
2001 USA PATRIOT Act, will "prohibit covered financial 
institutions from establishing, maintaining, administering, 
or managing in the United States any correspondent or 
payable-through account for, or on behalf of", the two named 
banks or any other Burmese financial institution.  The rules 
will also prohibit any correspondent account maintained for 
any foreign bank if the account is used to provide banking 
services indirectly to the two named banks or any other 
Burmese financial institution.  The U.S. Treasury Department, 
under existing sanctions, already advises U.S. financial 
institutions to give enhanced scrutiny to all financial 
transactions relating to Burma. 
 
¶48.  Unexpectedly, and perhaps in response to FATF pressure, 
the Burmese government released the long-awaited money 
laundering regulations on December 5, 2003.  The regulations 
track closely with the 2002 law and, on paper, create many of 
the tools necessary for gains in addressing money laundering. 
 The regulations lay out eleven predicate offenses including 
narcotics activities, human and arms trafficking, smuggling, 
counterfeiting, hijacking, cyber crime, illegally operating a 
financial institution, and "offenses committed by acts of 
terrorism." 
 
¶49.  Burma's 1993 Narcotics Drugs and Psychotropic Substances 
Law only criminalized narcotics-related money laundering. 
The December 2003 regulations are more comprehensive and 
reprise the 1993 law's requirement of suspicious transaction 
reporting for banks, realtors, and customs officials.  The 
new regulations also impose severe penalties for 
transgressors of the law, but do not yet set a threshold 
limit or include a specific timetable for required submission 
of suspicious transaction reports (STRs), beyond "without 
delay."    Money laundering is punishable by imprisonment, 
and the regulations will be applied retroactively to June 
2002 once threshold amounts are established. 
 
¶50.  The 2003 money-laundering regulations task the 
government's Central Control Board on Money Laundering to 
form the Burmese Financial Intelligence Unit (FIU), which may 
conduct investigations into money laundering cases based on 
STRs.  The Central Control Board, chaired by the Minister for 
Home Affairs, will enforce the legislation.  The Board will 
set policy, direct the Investigation Body (that performs 
money laundering investigations and conducts seizures), 
direct the Preliminary Scrutiny Body (that ensures due 
process and finalizes the case), cooperate with other 
international money laundering groups, and organize 
investigation teams.  The legislation provides full access to 
all financial records for investigators from the FIU.  The 
UNODC is assisting the Burmese government in its efforts to 
draft a mutual legal assistance framework. 
 
¶51.  Burma is an observer jurisdiction to the Asia/Pacific 
Group on Money Laundering and a party to the 1988 UN Drug 
Convention.  Over the past several years, the Government of 
Burma (GOB) has significantly extended its counternarcotics 
cooperation with other states.  The GOB has bilateral drug 
control agreements with India, Bangladesh, Vietnam, Russia, 
Laos, the Philippines, China, and Thailand.  In 2002-2003, 
Burma expanded cooperation with Thailand and China to jointly 
combat trafficking in drugs and precursor chemicals in 
northern and eastern Shan State.  Burma has signed, but not 
yet ratified, the UN International Convention for the 
Suppression of the Financing of Terrorism (CONFIRM).  Burma 
has not signed or ratified the UN Convention against 
Transnational Organized Crime, which entered into force on 
September 29, 2003.  Currently, Burma does not provide 
significant mutual legal assistance or cooperation to 
overseas jurisdictions in the investigation and prosecution 
of serious crimes. 
 
¶52.  Burma must increase the regulation and oversight of its 
banking system, and end policies that facilitate the 
investment of drug money in the legitimate economy.  Burma 
should ensure its money laundering law is enforced fairly and 
thoroughly.  The GOB should also criminalize the financing 
and support of terrorism.  Burma should provide the necessary 
resources to the administrative and judicial authorities that 
supervise the financial sector and enforce the financial 
regulations to successfully fight money laundering. 
McMullen