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YANGON — Japanese beverage group Kirin Holdings said Friday it will commission an audit of its joint venture partner in Myanmar over allegations that the local conglomerate funds the country’s military, which has been accused of human rights abuses.

The partner, Myanma Economic Holdings, or MEHL, and another Myanmar company “are owned and influenced by senior Tatmadaw leaders,” a United Nations fact-finding mission said in an August 2019 report, using the official name for the Myanmar armed forces.

Kirin, one of Japan’s top beer companies, acquired local brewers Myanmar Brewery and Mandalay Brewery in 2015 and 2017, respectively, spending $564 million in a bet on the rapid growth of Southeast Asian emerging markets. If the allegations against MEHL are not cleared through the investigation, the Japanese firm may be forced to fundamentally rethink its business strategy for Myanmar.

In a statement Friday, Kirin said it was “exploring alternative structural options for the ownership of the Myanmar joint-ventures as part of a review of the business relationship with MEHL,” without referring to any specific options.

Cans of Myanmar Lager beer on sale in Yangon. Kirin’s brewery investment in Myanmar is a bet on Southeast Asia’s thirst for the drink. (Photo by Yuichi Nitta)

Kirin’s partnership with MEHL has put the Japanese brewer under strong pressure from global human rights groups and activists. When Kirin tried to acquire New Belgium Brewing, the fourth-largest craft beer maker in the U.S., in December 2019, an American human rights group urged the target’s shareholders to reject the proposal. Kirin eventually bought the U.S. company, but the episode underscored potential business risks for Kirin stemming from its partnership with the Myanmar conglomerate.

The Japanese company holds 51% stakes in joint ventures with MEHL, the two Myanmar breweries’ original owner, which holds the remaining 49%.

In the report, the U.N. fact-finding mission urged foreign businesses including Kirin and governments to sever ties with companies owned or controlled by the military, which is accused of carrying out mass killings of Muslim minority Rohingyas and destroying their villages.

“The revenue that these military businesses generate strengthens the Tatmadaw’s autonomy from elected civilian oversight and provides financial support for the Tatmadaw’s operations with their wide array of international human rights and humanitarian law violations,” said the Independent International Fact-Finding Mission on Myanmar, which was set up by the U.N. Human Rights Council.

In response to the report, Kirin in February asked MEHL — a sprawling conglomerate whose businesses include manufacturing, trade and natural resources — to disclose details about its finances and governance. But the Myanmar company’s response to the request has been “insufficient,” Kirin said in its statement Friday, adding that it has “not received further updates or documentation from MEHL on this matter.”

To ensure an effective inquiry, Kirin has appointed Deloitte Tohmatsu Financial Advisory “to conduct an independent review of MEHL’s financial and governance structures to determine the destination of proceeds from the joint-venture businesses … as a matter of urgency,” according to the statement.

Kirin has notified MEHL of its decision to hire Deloitte, but the Myanmar company had not said whether it will accept the audit as of Friday, according to the Japanese beverage group. MEHL declined Nikkei’s request Friday for comment on the matter, saying its director general was not available due to a meeting.

In June 2018, Amnesty International said Myanmar Brewery had made three donations in 2017 to the Myanmar military. Kirin said it did not know how one of the donations, worth $6,000, had been used. This donation was made to local authorities through MEHL. According to Kirin, the other two donations went directly to volunteers.

MEHL’s website says the company was founded in 1990 as Union of Myanmar Economic Holdings and later changed its name to the current one. It has evolved over the decades and operates through its dozens of subsidiaries in such businesses as financial services, jewelry trading, real estate development and manufacturing.

The company says its corporate mission is to meet the “welfare and social needs” of active and retired military officers and their families. But its business and financial operations are shrouded in secrecy, with little or no public disclosure of such details as how its profits are distributed.

Myanmar was denounced by the international community in 2017 for its treatment of Rohingya Muslims as the country’s security forces were accused of perpetrating a brutal campaign against the minority group in Rakhine State in western Myanmar. The U.S. and Europe imposed sanctions on officers and officials responsible for the violence, including freezing their assets.

According to Kirin’s accounting statements, Myanmar Brewery took in 452 billion kyat ($325 million) in sales in 2019, up 32.7% from the previous year, posting a profit of 179 billion kyat. The company is said to control 80% of the country’s beer market with its best-selling Myanmar Beer and other popular products.

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