In enclaves beyond the reach of Myanmar law, digital technology helps entrench transnational networks in areas controlled by armed groups.
Editor’s Note: This article is the second in a three-part series. Part 1 explored how transnational networks use digital tools to enable investors in Karen State’s gambling cities to scale up illicit activities. The final part addresses the effect gambling enclaves may have on U.S. interests in Myanmar, on China, and on Myanmar’s peace process and embryonic democracy.
On January 20, a young venture capitalist named Douglas Gan sat down in a Philippine television studio to discuss, in part, an exciting new “Smart City” project his firm had become involved in. Sporting a black hoodie over a white tee-shirt, Gan described how one of his companies, Building Cities Beyond Blockchain, was already at work in Myanmar’s Yatai New City, recording instantaneous property transfers and showing the potential of blockchain technology. It’s a start, the anchor said. Gan agreed.
There was nothing novel about Gan’s pitch. Blockchain developers often stress how their online ledgers eliminate intermediaries and transaction fees by allowing subscribers to log and verify contracts directly and instantly.
In the case of Building Cities Beyond Blockchain’s (BCB Blockchain) ledgers in Yatai New City, however, it appears that the parties cut out of transactions aren’t middlemen but rather the Myanmar authorities. As it gears up to operate on blockchain technology, Yatai New City—a $15 billion gambling-centered project under construction on the Thai border—seems primed to operate outside of Myanmar law. BCB Blockchain is central to the plan, one that implicates transnational crime networks and involves murky elements in the People’s Republic of China.
Gan and his Singapore-based business associates became involved in Yatai New City in 2019, when BCB became the exclusive blockchain partner of the city’s developer, Yatai International Holdings Group. Gan’s venture capital firm soon injected $100 million into the BCB initiative, with the stated aim of leading the creation of so-called smart cities across Southeast Asia.
Yatai New City, whose development is headed by She Zhijiang, a mysterious Chinese entrepreneur with multiple aliases, is just one of three gambling-oriented enclaves being carved out in Myanmar’s remote Karen State. While the particulars differ, in each of them a multinational collection of individuals associated with cross-border criminal schemes has joined with local armed groups to establish a base of operations beyond the reach of Myanmar’s civilian government. Their target: the $25 billion-a-year illegal online gambling market in China.
For its part, Yatai New City operates under the protection of the Karen State Border Guard Force, a paramilitary unit folded into the Myanmar armed forces. On 29,652 acres, Yatai IHG has secretly begun building a “Smart City” that hosts “technology” and “entertainment” companies in what three years ago was a rural village. Yatai IHG and its business partners make clear in promotional materials that by “Smart City” they mean a digital space impervious to law enforcement and government regulation.
Crypto Currencies
To understand blockchain, imagine an accounting ledger in which the parties to a transaction log, verify, and then file copies of an agreement with all relevant parties. It becomes difficult for anyone to dispute the transaction. Blockchain achieves this result virtually—the equivalent of a distributed ledger that can record an infinite number of transactions. Everyone with access has joint ownership of the ledger.
The technology can collaterally be used to facilitate the use of crypto or digital currencies, and Yatai New City plan calls for a digital infrastructure hosted by BCB Blockchain that can manage all its public services. According to Gan, that already includes utilities, transportation, finance, payroll, and digital payments—all of it circumventing the role of Myanmar authorities in service delivery, fee collection, and taxation.
To ease access to these multiple functions, Yatai IHG and BCB created Fincy, a global social networking and payment application rolled out in Yatai New City in April. Fincy’s dynamic financial services system includes the ability to make cross-border payments, exchange currencies and buy cryptocurrency. In addition, it makes available social networking, automated payments, city services, e-commerce, and “games and entertainment.” Its online profile says that Fincy is built on the BCB blockchain, using encryption with “no location transactions” to obfuscate the origin of a transfer and ensure absolute privacy for the planned half million residents of Yatai New City.
These developments have taken place without approval from Myanmar’s Central Bank or any government ministry. Taken together, they present a major challenge to Myanmar’s sovereign authority.
Fincy’s Future
A look of how Yatai IHG and BCB operated in Cambodia and the Philippines offers a possible preview of the longer-term objectives for this digital infrastructure, and suggests that something even more sinister may lie behind Fincy.
In the Philippines in 2018, BCB launched a new crypto-coin marked especially for the rapidly growing online gambling business. Promotional materials for the BCB Coin state that the coin has established a “strategic partnership with BB Pay … which has over 30 million users in the gambling industry in the Philippines,” and describes how “BCB Coin will establish a full ecology for the gambling sector,” called “Gamble as a Service (GaaS).” By March 2018, BCB Coin claimed to be the “leading player in cross-border payments for online gambling in Macau, Laos, Cambodia, and the Philippines.”
Yatai IHG embraced these developments in May 2018, when Yatai’s chief executive, She Zhijiang, organized a “High Level Seminar on Blockchain” in Manila. Shortly after the event, Yatai IHG introduced the BCB Coin into its entertainment business in the Philippines, consisting of a massive “entertainment venue” dubbed Yatai Spa. In June of 2018, Yatai and BCB teamed up with the Hong Kong financial services company SP Topstone Capital to roll out BCB coin and a new cryptocurrency bond in Yangon.
Later, with the creation of Fincy, Yatai and BCB managed to assemble all of these resources in a phone APP that provided Gan’s “full ecology” for gambling.
The Singaporean government granted the firm a year-long exemption under the 2019 Payment Services Regulations to engage in cross-border transactions and provide digital payments. Fincy has leveraged its temporary exemption to provide virtual exchange across 14 currencies and 12 cryptocurrencies, including BCB Coin and another Yatai-affiliate, Huobi Coin. It has also issued Union Pay and MasterCard BCB debit cards that can be used at hundreds of thousands of ATMs around the world. According to the Monetary Authority of Singapore, BCB should have filed an application for its ongoing payment services by July 28.
In June, Gan injected $11 million into Fincy’s business in Cambodia to bring its Cambodian third-party pay company, Diamond Exchange Cambodia, online through the Fincy app, and to expand its business across Southeast Asia. While BCB failed to register its business in Myanmar, it did so in Cambodia in 2019.
Chinese Banking
Considering that BCB openly promotes its role in gambling—which is illegal in China and subject to a global crackdown by Chinese law enforcement—how has Fincy managed to access the official Chinese banking system to execute cross-border transactions?
To secure Fincy exchange platforms, in March BCB signed a strategic partnership with a Beijing-based company, Chains Guard Technology, a developer of cryptocurrency wallets, blockchain, and coin mining security solutions. Chains Guard also happens to partner with several dozen cryptocurrency developers, financial services companies and exchange platforms. These relationships are the most likely channel for BCB to access WeChat and AliPay, which in turn offer access to the entire Chinese banking system.
Fincy is now officially online in Shwe Kokko, the former village where Yatai New City is taking form. Multiple outlets, including the city’s largest night club, Arch, are taking payment through Fincy—all without any approval from Myanmar’s Central Bank. Online postings show companies operating in Yatai City recruiting staff to develop “Fincy Blockchain Games,” apparently referring to online gambling applications.
Yatai IHG is not alone in this business. Wan Kuok-kui, the former 14K triad leader behind Saixigang—another of Karen State’s gambling cities—spearheaded a similar initiative in Cambodia in 2018 with the Allchain Block Chain and Hong (Triad) Coin. The White Paper for this blockchain includes a detailed discussion of how the coin enables casino transactions. Clients purchase Triad Coin with another crypto or international currency and transfer it to the casino operator in return for casino credits logged into the Allchain ledger. The player can then wager online with these credits, drawing down on the ledger for losses.
The introduction of advanced technology for financing illegal activity in semiautonomous areas controlled by corrupt armed groups raises serious concerns. Will Fincy enable these armed actors to dramatically scale up and conceal their financial dealings around money laundering, drug trafficking and arms purchases? How will it impact the war economy? What implications does it have for Myanmar and its eastern neighbors? These questions, which bear on the future of Myanmar, the region and U.S. interests in both, demand deep consideration and international attention.