Myanmar authorities, alarmed by the surging growth of autonomous zones where criminal interests operate under the protection of domestic militias, are moving to curb the influence of Chinese transnational crime groups in those areas and impose the rule of law.
Last month, the government asked the army to begin enforcing national law in the enclaves, starting with one that’s twice the size of Manhattan in the town of Shwe Kokko. A multi-billion-dollar gambling-centered city is under development there by a Chinese fugitive. Shwe Kokko also serves as the headquarters of the project’s protector and business partner, the Karen Border Guard Force (BGF), an armed militia of former insurgents now under the loose authority of Myanmar’s military. The army sent troops into Myawaddy, another Karen town that’s home to at least 18 casinos, and expelled nearly a thousand undocumented Chinese workers running the facilities.
The pressure on the Shwe Kokko development and similar ventures in Myawaddy on the Thai border came after State Counselor Aung San Suu Kyi formed a special commission in June to address the threat they pose to the country’s sovereignty, security, and democratic reforms. The military is now seeking to exercise its authority over the Karen BGF by forcing the resignation of the group’s commanders. While one BGF leader tied to a major illegal gambling operation did step down, a broader solution under consideration would have the BGF leadership agree to bring all of their activity under national laws and regulations.
However, as the Myanmar authorities struggle to curb the explosion of illegal activity in Shwe Kokko, they are touching only the surface of Myanmar’s illicit war economy. A complex set of political, legal, and security issues underlies another much older (and long ignored) enclave system that has quietly developed along the border with China since the 1990s. Since 2017, a key militia behind these developments, the Kokang BGF, has built an alliance with its Karen counterpart. Tackling the alliance and the deep penetration of the Chinese criminal networks behind the two groups will require a cooperative effort between Myanmar’s military and civilian leaders and significant support from governments across the region.
Reach of Criminal Networks
While Myanmar is currently the center of the action for Chinese criminal groups, their networks stretch well beyond it. Organizations involved in illicit activities have gained a firm foothold throughout much of Southeast Asia and are working to corrupt local governments and economies. (These developments will be explored further in a second article.)
Unfortunately, the military’s move against the Karen BGF appears to have contributed to a broader escalation of violence in Karen state, bringing open warfare back to the area after five years of peace and displacing thousands of civilians.
In late December, the army began shelling a strategic transport corridor controlled by the Karen National Liberation Army (KNLA), a 2015 signatory to the Nationwide Cease-fire Agreement (NCA). It’s true that the KNLA, which under its cease-fire agreement does not report to the military, is involved in the Karen BGF’s illicit businesses, and some members of its leadership back yet another key casino project. But local Karen groups have told USIP they believe the Tatmadaw, as the military is known, is using the crackdown on Shwe Kokko as an excuse to gain control of the entire Karen-Thai border area. They contend that the Tatmadaw’s real motive for escalation is to grab a larger share of gambling proceeds. The military, they say, has yet to deal with the legacy of its own illicit business networks.
A Gambling Empire
How did Myanmar arrive at this point? A unique blend of military, political, economic and geographic forces have conspired to make the struggling democracy particularly vulnerable.
The seeds of the Shwe Kokko and Myawaddy developments were planted in 2009 when Chit Thu, the head of a faction of the insurgent Democratic Karen Buddhist Army, agreed to convert his small anti-government unit into a Border Guard Force under the authority of the Tatmadaw. In return, the group was granted autonomous authority over a large swath of land on Myanmar’s border with Thailand.
Since 2014, he has used the area’s autonomous status to build an unregulated gambling empire. Luring large investments by kingpins in various transnational Chinese criminal networks, the aim was to profit from China’s illegal $145 billion a year online gambling habit. Gambling was also illegal in Myanmar, with regulation approved only in 2019.
As U Sein Bo, a lawmaker from Karen State noted, “Locals do not really support the project. Most of them want the project suspended permanently if it involves casino businesses. They are disgusted by the proliferation of Chinese language sign-boards in the town.”
The government took notice of these developments over the past year as investigative reports by the local press and USIP made clear the threat they posed to Myanmar’s sovereignty and stability. Officials were particularly alarmed to learn Chinese investors had introduced technology for unregulated international money transfers, raising the possibility that wholesale money-laundering could undermine the country’s banking system. They became aware that thousands of undocumented Chinese were pouring through BGF and KNLA-controlled border crossings into Shwe Kokko and Myawaddy to run the gambling facilities.
Seeing how Chinese crime networks were spreading throughout Southeast Asia—and claiming their activity formed part of China’s Belt and Road Initiative—both the Myanmar and Chinese governments began to act. Myanmar authorities expelled thousands of illegal Chinese workers from the gambling business in Karen State and began investigating Chit Thu’s empire. The Chinese government publicly disassociated the networks from the Belt and Road Initiative and Chinese courts began hearing cases related to one of Chit Thu’s key investors. Another major investor, a notorious Chinese triad leader, was sanctioned by the U.S. government.
Armed Groups on China’s Border
But Chit Thu’s force is just one of more than a half-dozen BGFs and non-state armed groups involved in illegal gaming tied to Chinese customers. In the case of the Kokang BGF on the Chinese border, the families of its leadership maintain a near monopoly over casinos that bring in hundreds of millions of dollars a year. Adjacent to China’s Yunnan province, the Kokang region offers easy access to Chinese gamblers and is rife with Chinese criminal activity, including hostage-taking and gang violence.
In Kokang, the political and economic leadership of the so-called Self-Administered Zone (SAZ) has built its entire power structure on gambling and related activity. The leading Bai and Liu families, who established the Kokang BGF and SAZ under Bai Suocheng’s 2009 agreement with the Tatmadaw, control two large companies, Baisheng Group and Fully Light Group. These companies in turn operate a network of casinos in Kokang with large real estate projects and assets valued at billions of dollars. Their empire includes casinos in Karen State and Cambodia’s Sihanoukville.
The Bai and Liu families also dominate the Kokang SAZ government, including three seats in the Shan State Parliament as members of the military-aligned Union Solidarity and Development Party (USDP). The two families use their government positions to protect and legitimize their business empires and have even established a gaming board, through which they “regulate” their casino empires. While the Kokang area they essentially control is ridden with Chinese criminal activity, the Liu and Bai families present themselves as legitimate business people.
The Kokang BGF is watching the developments in Karen State closely. Not only could the course of events there set a precedent for government action, but more immediately, they could threaten the Liu family’s investments in the Karen BGF controlled areas. In 2018, the business units of the two BGF militias established a joint business in Myawaddy—the Eastern Complex—giving the Kokang a significant stake in Chit Thu’s business empire.
Chinese Court Convictions
Kokang connections to Chinese criminal networks also run deep. Chinese court records document hundreds of criminal convictions related to illegal casinos, fraud, kidnapping, drugs, and weapons in the Kokang SAZ. Indeed, given its operations in both legal and illegal sectors across Myanmar and, since 2018, internationally, the Kokang play a pivotal role in importing Chinese criminals and laundering profits through Myanmar’s banking sector and even into Cambodia.
A complex set of historical political, legal, and security issues underly the Kokang-Karen BGF alliance and the deep penetration of the Chinese criminal networks it works with.
Clearly, the simple solution would be to bring all the non-state armed forces with autonomy over territory under national law. But that overlooks the origins of their status that reaches back into decades of military government and extends into the present through constitutional and regulatory mechanisms established by the military.
The Kokang SAZ, for example, is mandated by the military’s 2008 constitution, as are at least two other militia-ruled gambling enclaves on the China border. Other non-state armed groups, like the Karen BGF, received their autonomous authority through post-2008 agreements with the military. Changing their status would probably require legislative action or constitutional amendment.
Still, considering the threat that external influence in autonomous zones create for the country’s security and sovereignty, inaction is not really an alternative. Myanmar’s future stability, economic welfare, and independence may hang on the ability of civilian and military leaders to forge a new understanding on the need for armed forces of all kinds to abide by the nation’s legal system.