The following section outlines, in broad strokes, the value chain that enables the Myanmar army’s in-country weapon production. It identifies, along five key points of the value chain, some of the companies that appear to play a key role in the supply of products needed to sustain weapon production and/or that are instrumental in the brokering of such deals for the DDI.

The value chain that enables the DDI’s arms manufacturing is a highly complex, multi-layered network consisting of a very large number of material suppliers, manufacturers and distributors. Such material suppliers, manufacturers and distributors include both State-owned and private companies that are domiciled in, or under the jurisdiction of, a large number of States. For example, while some of the imports of needed products may be procured directly by the DDI (with the DDI listed as the consignee), Myanmar’s military also relies on civilian front companies (at times several layers of such companies)¹⁰¹ that are domiciled in Myanmar or legally incorporated elsewhere as a means to evade sanctions by masking the true end-recipient of orders.¹⁰² In addition, some of the companies with whom the DDI does business are part of highly complex networks. By way of illustration, for its arms manufacturing the DDI is known to closely collaborate with NORINCO – formally known as China North Industries Group, a Chinese State-owned company – that consists of at least 46 member units, all of which have several subordinate companies, joint ventures and associate companies¹⁰³ and whose representatives and agents in Myanmar change on a regular basis.¹⁰⁴

Licensed Production and Transfers of Technology

Some of the weapons in the DDI’s current production lines appear to be manufactured under licence. For many of the weapons being made at KaPaSa factories, however, the licensing situation is unclear, and production is likely taking place without a valid licence.

As has been noted elsewhere, both licensed and unlicensed production imply the acquisition of production technology by an entity (such as the DDI) that did not previously have such technology.¹⁰⁵ In the most general sense, licensed production is a partnership between an owner of intellectual property (the licensor or licence-grantor) and an entity who is authorised to use such intellectual property rights under certain conditions (the licensee or licence-holder). Put differently, in a licensed production agreement, the licensee – in the case of Myanmar, the DDI – is manufacturing a specific weapon for which it has been given production rights under certain conditions, while the licensor retains the ownership of the intellectual property that is necessary for the production. In some cases, the transfer of production technology to make a specific weapon may have been done without the consent of the owner of the intellectual property; this may be the case, for example, where an entity that is not the original owner of the intellectual property has acquired the needed technology and know-how to produce a specific weapon and then transfers this technology and know-how to another entity without the approval, and perhaps even without the knowledge, of the original owner.

According to information received by SAC-M, some of the weapons currently being produced at KaPaSa factories under licence (including expired licences) reportedly include:

• A wide range of small arms such as assault rifles, sniper rifles, light-machine guns and sub-machine guns. In relation to small arms manufacture in general, it has been observed that Myanmar’s military has produced arms under licence, or in cooperation with a foreign country, on almost every major project¹⁰⁶ since the 1950s. Less information is available on whether production of associated ammunition is produced under licence, although close observers have noted that this is unlikely the case as, in general, licensed production of small arms ammunition is rare.¹⁰⁷
• Belt-fed heavy machine guns (locally referred to as the MA-16), originally developed and manufactured by Chartered Industries of Singapore (currently ST Kinetics) as the STK-50MG.
• The 2SIU self-propelled howitzer through a Transfer of Technology (ToT) agreement with Ukraine-based arms companies.
• The SA-16 man-portable air defence system, allegedly manufactured in Myanmar with the technical assistance of North Korea.
• The QJG-02 (known by its export version as the Type CS/LM2): a Chinese anti-aircraft heavy machine gun.
• KS-1B: a Chinese short-to-medium range surface-to-air missile system,¹⁰⁸ with the ToT agreement reportedly limiting local manufacture in Myanmar to a total of twelve batteries.
• Military trucks, including the HOWO model through transfer rights by Chinese company Sinotruck.
• Two different models of UAVs, both of Chinese origin and locally produced in Myanmar.

It should be noted, however, that licensed production agreements tend to be shrouded in secrecy and any information about such deals and their content is extremely difficult to obtain. Where licensed production does take place, the contracts permitting such production may have contained specific legal provisions that restricted the production to a certain period of time or to a total number of weapons that can be produced (beyond which further production would be considered illegal). Even where such limits may have been included in contracts, once the technology has been transferred the DDI can, and likely does, continue production despite the fact that the licence may no longer be valid.

In the case of Myanmar, licensed and unlicensed production has typically implied that the DDI has obtained technology and know-how through various types of ToT deals, including:

• Know-how contracts in which the owner of the technology transfers the know-how to the DDI, either in a tangible form (such as, for example, by sharing documents, blueprints of machines or products, technical datasheets, manuals and so forth) or in an intangible form (such as, for example, by offering training to KaPaSa staff or inviting KaPaSa staff to observe the production of a specific weapon in the country where the owner has production sites, or through conversations between engineers associated with the owner and KaPaSa engineers).
• Acquisition of equipment and other capital goods where the technology owner transfers tools, equipment and machinery, entire production lines or components of parts for assembly through a sale or as a donation, the latter often taking place as a means for the technology owner to gain political or economic quid pro quo. Such donations can imply that the donor of the equipment and other capital goods receives, in turn, political support, for example in the context of voting for UN resolutions, or that the donation is done in exchange for obtaining commercial contracts or preferential access to the market in Myanmar.
• Joint venture agreements in which the technology owner enters into a commercial partnership with the DDI or other military-run businesses.
• Turn-key project where the owner hands over an entire industrial plant or production line that operates according to agreed standards.

In the case of KaPaSa production, all these types of technology transfers have been observed (see box 2 below). For example, the DDI has received, from various companies, entire weapon production plants (including a small arms manufacturing plant from Singapore based Chartered Industries of Singapore, currently known as ST Kinetics). In the case of small arms manufacturing, the DDI has reportedly also benefited from direct support from engineers associated with the owner of the original technology (in this case, engineers associated with Israel Military Industries Ltd., IMI), while joint venture models have been tried and tested with the German company FRITZ WERNER (as Myanmar-FRITZ WERNER Industries). Licensed production deals have also implied that KaPaSa staff, typically at the managerial level, have received regular training from the licensor to ensure smooth production.¹⁰⁹ Lastly, there are reports that some of the ToT deals for weapon manufacturing in Myanmar have involved the owner supplying the DDI with needed blueprints, prototypes, drawings and materials receiving, in turn, commercial contracts worth large sums of money (as evidenced by criminal convictions in South Korea of representatives of, among others, Daewoo, currently POSCO International Corporation).

Beyond ToT deals, close observers have also highlighted the DDI’s use of reverse engineering for the development and modernisation for the KaPaSa factories’ production lines. Reverse engineering involves deconstructing a specific item to extract design information and seeking to reproduce the design in actual or improved form. The Myanmar military’s Electrical and Mechanical Engineering Corps (EMEC) appears to use reverse engineering where the licence has been denied by the owner or where the DDI has not been able to obtain the needed technological know-how through other means.

Without imports of significant quantities of specialised parts and components, the DDI’s in-country manufacturing of a variety of weapons is unlikely to function effectively.

Raw Materials

There is no readily available list of the types of raw materials¹³² that are required for the DDI’s sustained production of various types of weapons produced at KaPaSa factories, although, according to information obtained by SAC-M, the DDI currently relies on various types of military-grade steel for the manufacturing of items such as sound suppressors for the MA-3 assault rifle (AISI-321 stainless steel), 105 mm howitzer artillery shells (AISI 1050 hot rolled carbon steel) and magazine rounds for the MA-2 MK II light machine gun (1.2714 tool steel).¹³³

In general, the major metallic and non-metallic material groups that are used in the weapon manufacturing sector include steel, aluminium, titanium, copper, cupronickel, tungsten, composites and ceramics. These materials are used in combination with other materials, such as cobalt antimony, nickel, vanadium, zinc, chromium, germanium, molybdenum, borates and lithium, to form specialised alloys.¹³⁴ The alloys then undergo special treatment, such as forging and casting,¹³⁵ with a view to making them stronger, lighter and more blast resistant, and are then machined into the desired shapes and sizes. For licensed production of weapons, the specification, composition and method of production – in addition to the physical and chemical properties of any raw materials needed for production – are typically provided by the designer of the equipment (most often the technology owner). Consequently, for raw materials, the KaPaSa value chain involves various stages, including the extraction and supply of a wide range of raw materials, refining and processing (alloying or composite production) and conversion into semi-finished and finished products, and a significant number of DDI-approved material suppliers¹³⁶ are likely to be involved in each of these stages.

Due to the large diversity of potential raw materials and the lack of visibility in the value chain, it is challenging to draw any precise conclusions about the sourcing of raw materials for KaPaSa production. The research conducted by SAC-M on the DDI’s raw material demands has been pursued along two different, but interlinked, tracks: in-country production of raw materials and imports of raw materials that feed KaPaSa production.

In relation to the in-country production of military-grade raw materials, a few observations can be made:

• Myanmar is a mineral-rich country, and it remains a leading supplier of minerals and ores – including crucial rare earth metals – for many of the strategic material groups used in the weapon manufacturing sector. However, these types of primary concentrates are typically sourced by, and processed in, China rather than the Myanmar military.¹³⁷
• As part of the Myanmar military’s quest for self-sufficiency in weapon production, the DDI has sought to progressively increase its stockpiles of strategic raw materials to ensure adequate and uninterrupted supply; this appears to be a particularly important endeavour for the DDI in light of current and potential future sanctions that could further prevent it accessing critical materials for its weapon manufacturing. However, SAC-M has not been able to verify what these stockpiles include, nor assess the size of the stockpiles and the rate at which the DDI uses the materials. This has prevented an assessment of how a lack of access to critical materials would affect KaPaSa production rates.
• In addition to efforts to stockpile strategic raw materials, the DDI has sought to modernise Myanmar’s iron and steel mills (with Ywama and Pyin Oo Lwin being notable examples) to produce high quality and hardened steel for military production purposes. Such efforts appear to continue and will likely have taken renewed importance after the 2021 attempted coup. Recent MOD and DDI procurement documents obtained by SAC-M confirm that the DDI is seeking to invest in strengthening iron and steel production capacity at the mill located in Pyin Oo Lwin.
• The DDI’s efforts to bolster the domestic production of steel for arms manufacturing is also demonstrated by the participation of representatives of the Myanmar-based company Suntac Technologies (also known as Suntac Group of Companies) at the Myanmar-Czech Republic’s B2B dialogue in Prague in the Czech Republic in June 2019.¹³⁸ According to the list of participants and meeting requests for this dialogue, focusing on strengthening economic links and business opportunities, the two Suntac Technologies representatives – U Sitt Taing Aung, the owner of the company and current president of Myanmar’s steel association, as well as managing director Ye Phone Hlaing – describe their company’s business products as, among others, steel pipes, steel plates, sheets and coil. For the 2019 visit to the Czech Republic, the company representatives specifically requested to meet potential partners in the Czech Republic with expertise in steel manufacturing and the defence sector. Of particular interest is also the fact that, according to the information provided for the meeting requests, U Sitt Taing Aung is listed as also representing Mottama Holdings Limited. Registered with a principal corporate address in Yangon,¹³⁹ Mottama Holdings Limited is one of the largest conglomerates in Myanmar specialising in industries such as construction, manufacturing, trading, hospitality, property development and logistics. According to information received by SAC-M in November 2022, Mottama Holdings Limited also serves as the new intermediary for business between the DDI and Chinese arms industry company NORINCO, the latter playing an instrumental role in providing a variety of critical supplies to the arms manufacturing sector in Myanmar. Until 2013, Mottama Holdings was known as Asia Metal Company which was sanctioned for its alleged involvement in weapon deals between Myanmar and North Korea. Asia Metal Company was also sanctioned by the United States in 2013 for constructing buildings and supplying construction materials for a DDI factory. SAC-M has not been able to, at this stage, verify what types of companies or steel plants, if any, the representatives of Suntac Technologies visited in the Czech Republic in 2019 nor any potential outcomes of such visits.
• Some of the KaPaSa factories (and associated sub-factories) appear to have, as their sole purpose, the processing and refining of raw materials for military production. At present, according to information shared with SAC-M, the DDI can produce both aluminium and steel for weapon production. Aluminium and steel production reportedly takes place at KaPaSa 24¹⁴⁰ and at KaPaSa 6; KaPaSa 24 also has the capacity to melt down weapon parts that have not passed quality control,¹⁴¹ while KaPaSa 6 benefits from the outputs of an iron and steel mill that has been established with Chinese assistance.¹⁴²
• Close observers have noted that the current quality of some of the raw materials used by the DDI to manufacture weapons – notably high-grade steel – does not seem to meet the necessary standard for manufacturing effective weapons. This appears to be the case with some of the weapons belonging to the MA-family of small arms, in particular many of which have had some of their key components reinforced to compensate for the poor quality of the raw materials used. Due to the poor quality of current raw materials used,¹⁴³ the DDI may be looking for new supplies, in-country or elsewhere.
• Chinese investment in the Letpadaung copper mine, which is jointly operated by Wanbao Mining (a subsidiary of Chinese State-owned company NORINCO) and the military conglomerate MEHL has also reportedly generated the supply of important quantities of copper¹⁴⁴ to the DDI in the past.¹⁴⁵ At present it is not known whether outputs from this mine still feed KaPaSa production. Individuals formerly associated with the Myanmar armed forces have reported that copper and brass is supplied to the factories from central storage units in Yangon (KaHtaPa),¹⁴⁶ suggesting that these materials may be imported, in full or in part, to meet the DDI’s needs.

In relation to the DDI’s potential dependencies on imports of raw materials for weapon manufacturing, the following observations can be made:

• While the DDI can rely, to an unknown extent, on domestically sourced iron, steel, aluminium and potentially other essential military-grade materials such as copper and brass, it is also dependent on imports of raw materials – in elementary, composite, cast and forged forms – to sustain its weapon production. The DDI’s import-need for raw materials is confirmed by leaked MOD and DDI procurement documents.
• While the types of raw materials are not specified in the procurement documents, local sources with knowledge about the inner functioning of the KaPaSa factories have confirmed that the DDI is likely complementing in-country production of iron, steel and aluminium with imports.¹⁴⁷
• As has already been noted, Chinese State-owned company NORINCO appears to be playing an important role for the DDI’s imports of raw materials for KaPaSa production. This likely implies that much of the imported raw material comes from China. According to information received by SAC-M, Chinese-origin raw materials do not enter Myanmar through land border trading routes, such as the northern Shan state border trading town Muse, but come by sea via Singapore.¹⁴⁸
• According to information received, raw materials, including iron, copper, aluminium, chromium and high-grade steel, are also being supplied to the DDI by companies legally domiciled in India and Japan.
• The fact that the DDI imports raw materials (rather than relying entirely on domestically sourced materials) may indicate that:
• the cost of domestically sourcing materials is higher than importing;
• Myanmar lacks the necessary technical expertise to validate the quality of domestically sourced materials for weapon manufacturing;¹⁴⁹ and/or
• the use of materials from already established import sources is more convenient.

Image of PDF-captured materials. In April 2022, resistance forces seized materials for the production of 60 mm and 81mm mortar shells in an ambush on a military junta convoy. The parts were likely being transported to KaPaSa 24 to be melted down after having failed quality control.

Additional research is needed to gain a better understanding of the origins of the raw materials that enable KaPaSa production. Such research should focus on mapping the extent to which Myanmar’s military can realistically produce the raw materials needed for in-country weapon production, any ongoing or planned efforts to develop domestic raw material production and the companies – including foreign companies – that are involved in such undertakings. Additional research is also needed to uncover the extent to which the DDI relies on imports of raw materials (in elemental, alloyed or composite forms), where these materials come from, and through which companies.

Parts and Components

Modern weapons cannot be made or maintained without parts and components, many of which are technically challenging to manufacture or may not be cost-efficient to produce in-country. As a result, weapon manufacturing companies often rely on imports of finished parts and components – ready to be used in certain weapons – from sources in many different countries.¹⁵⁰ This holds true for the DDI: experts with knowledge about the Myanmar military’s arms production capabilities concur that significant quantities of specialised parts and components are likely imported and that, without these types of imports, the DDI’s in-country manufacturing of a variety of weapons is unlikely to function effectively. The DDI’s ability to purchase specialised parts and components internationally remains essential for it to maintain sustained weapon production.

According to information obtained by SAC-M:

• While much of the raw materials used to manufacture missiles comes from Myanmar, several (unspecified) sub-components have their origins in China.¹⁵¹
• The manufacture of modern armoured fighting vehicles at Heavy Industry Number 11 reportedly relies on a large proportion of components and parts from China.¹⁵² By way of illustration, the local manufacture of the BMP amphibious tracked infantry fighting vehicle uses Chinese-origin mission system architecture, turrets and engines, all of which are reportedly purchased by the DDI from NORINCO.¹⁵³
• Reportedly, the DDI also purchased landmine-production equipment from China for the local manufacture of the POMZ-2 (MM1) fragmentation mines and PMN blast mines (MM2) in the 1990s. The transfer of technology reportedly included an agreement for the continuous purchase of components for the landmines from China and Chinese technical assistance for their manufacturing.¹⁵⁴ SAC-M has not been able to verify, at this stage, whether this arrangement is continuing.
• The DDI has been importing fuses for unspecified end-uses from the Indian Ministry of Defence. In 2022, fuses for 84 mm recoilless rifles were purchased by the DDI through a Myanmar-registered civilian front company (Creative Exploration Ltd.)¹⁵⁵ from India-based company Sandeep Metalcraft.¹⁵⁶ Sandeep Metalcraft is registered as an official vendor of India’s Ministry of Defence.¹⁵⁷ Between 2019 and 2021 important amounts of cast boosters, detonating caps, igniters and electric detonators were also shipped to Myanmar by companies registered in India with the DDI listed as the buyer.¹⁵⁸ In addition, in July 2022, Justice for Myanmar reported that Indian company Sandeep Metalcraft had exported type 447 time mechanical fuses to a military crony company in Myanmar for 84 mm artillery commonly used with Carl Gustaf recoilless rifles. Saab, the Swedish manufacturer of Carl Gustaf rifles, did not respond to Justice for Myanmar’s requests for information on whether these fuses would require a Saab licence to be produced, and whether Saab’s licensed production agreements with Indian companies prohibited or restricted onward exports from India to other countries.¹⁵⁹

By way of conclusion, SAC-M’s research into the DDI’s imports of parts and components suggests that China, through NORINCO, remains a key trading partner for the DDI. Nevertheless, as has been observed by individuals formerly associated with Myanmar’s armed forces and KaPaSa factories specifically, the DDI has expressed its discontent with the quality of Chinese equipment, spare parts and services and is likely looking elsewhere for supplies. Additional research is needed to establish not only the extent to which the DDI continues to rely on Chinese parts and components for its arms manufacturing, but also what suppliers may be sought out and from where to replace, or complement, Chinese suppliers of parts and components used in production at KaPaSa factories.

Taiwan functions as an important transit point for the DDI’s purchase of high precision CNC machines, including from European manufacturers, for KaPaSa arms manufacturing.

End-Items

End-items refers to devices that increase the effectiveness or usefulness of a weapon but that are not, generally speaking, essential for its basic intended use.¹⁶⁰ For small arms and light weapons, for example, some common end-items include sound suppressors, weapon sights (including optical and thermal), foregrips, flashlights and under-barrel grenade launchers (the latter also qualifying as a weapon in its own right).¹⁶¹

In the case of KaPaSa production, weapon sights such as optics are particularly interesting and a potential critical import dependency for the DDI. This is because weapon sights are typically both expensive and technically challenging to manufacture; domestic production requires both high level machinery and technicians. Importing optics is likely to be more cost-efficient than setting up domestic production. While interviews with experts indicate that the DDI can produce an unknown amount of telescopic sights in-country (such as, for example, magnifying optical sights for the MA-10 rocket-propelled grenade launcher),¹⁶² it also imports important quantities of sights for its small arms and light weapons manufacturing.

According to information received by SAC-M:

• The standard issue telescopic sight that is fitted to the MA sniper rifle (MA-S) is the PSO-1, manufactured in Russia by a Novosibirsk instrument-making factory (NPZ Optics State Plant). At this stage, SAC-M has not been able to verify whether this implies a direct deal with the NPZ Optics State Plant or whether the DDI is able to obtain PSO-1 scopes from third parties.
• Depending on the battle conditions, the Myanmar army is also known to equip its sniper rifles with other types of accessory weapon sights. Such sights have been imported from companies domiciled in India. For example, in 2022, Indian company Tonbo Imaging has shipped Ek long- range thermal imagining sights.¹⁶³ These types of sights have been designed and optimised for assault rifles and sniper rifles and allow soldiers to “see around corners and shoot targets without entering the line of fire.”¹⁶⁴ In June 2021, Indian company Bharat Electronics Ltd. also shipped multi-purpose reflex weapon sights, with the DDI listed as the consignee.¹⁶⁵

The military’s potential import dependency for weapon sights may increase in the future, as experts on small arms design and manufacturing in Myanmar concur that the direction that the DDI’s small arms design is likely taking is the increased use of additional sights. In relation to small arms and light weapons in particular, further research is needed to assess the DDI’s current ability to manufacture high-quality sights from where the DDI is purchasing sights and to where the DDI may turn for additional supplies in the future. Beyond weapon sights, additional research should also seek to identify other critical end-item dependencies, including, but not limited to, KaPaSa-produced small arms and light weapons.

Machinery and Technology

Automated machining is critical for weapon manufacturing at scale and modern CNC machines (such as milling and grinding machines, lathes and electro-discharge machines) play a critical role. In simple terms, a CNC machine is a computer-controlled carving machine that follows pre-programmed codes that instruct the machine on how to perform a number of functions that are necessary to produce a certain product, including how to move, with which cutting tool and at what feed-rate and spindle-speed. The cutter in the machine’s spindle will carve through the material – for example, steel alloys for firearms – and will create the intended shapes. The code that the CNC machine depends on to function is programmed with specific software programmes; the codes made with these programmes are uploaded into the CNC machine along with all the cutting tools, raw materials and work holding needed to keep the material in place during the process.

In the weapon manufacturing industry, CNC machining is an important labour-saving system for manufacturing accurate and cost-effective parts, and is often used to make key components. Their high precision, versatility, and compatibility with a wide range of materials make CNC machines ideal for fabricating weapons such as small arms and light weapons, in addition to missiles and components for other military systems, such as aircraft parts, detection systems and radar technology, combat vehicles and naval ships. Because of their potential military end-use, CNC machines and associated software programmes are covered by dual-use goods regulations, such as the Wassenaar Arrangement and the EU Dual-Use Goods Regulation.¹⁶⁶

Leaked budget documents from the MOD and the DDI (2016-2021), obtained by SAC-M, contain regular references to purchases of CNC machines and associated spare parts. Information received by SAC-M suggests that CNC machines (lathes, milling, grinding and electro discharge machines) from manufacturers in Austria, Germany, Japan, Taiwan and the US are currently in use at KaPaSa factories. According to individuals with first-hand experience of KaPaSa factories, some of these machines may have been bought in 2005-2006 through intermediary sales agents.

In relation to the military end-use of CNC machines in Myanmar, previous research by the Institute for Science and International Security is illustrative of the DDI’s techniques to evade sanctions and to bypass dual-use goods regulations that would prohibit the sale of CNC machines for military end-use to Myanmar:¹⁶⁷

“According to a European intelligence official, in 2006 and 2007 Burma made a series of procurements of extremely high precision, expensive dual-use industrial equipment, including computer-numerically controlled (CNC) machine tools, from companies located in Switzerland, Germany, and Japan…The equipment was ordered by an agency of the Burmese government ostensibly responsible for technical education programs in the country, the Department of Technical and Vocational Education (DTVE) under the Ministry of Science and Technology. However, the equipment is too sophisticated for normal teaching and student endeavors…It is unclear if the procurements in Europe were legal —though if the equipment were ultimately used in a military or nuclear program, these procurements should be against the law in most European countries. The procurement route and the export’s legality are unknown for the equipment sent from Japan to Burma. Upon closer examination by European officials, the declared end use of the computer-numerically controlled (CNC) machine tools did not look credible. According to one European intelligence official, the declared end use had too many inconsistencies to believe what was claimed. Some of the CNC equipment was very large, with a base of about eight meters, and declared for use in manufacturing sophisticated locomotive diesel engine parts. But designs of parts given to suppliers appeared incomplete; they were missing key tolerances. Officials suspected that the designs were phony and the equipment would actually be used to manufacture other parts. In addition, the quality and price of the equipment is beyond what Burma would be expected to purchase or need, given its relatively primitive diesel locomotive manufacturing base and its modest plans for expanding this manufacturing capability. European intelligence services yielded that the equipment was multi-purpose, running the gamut of possible uses, including turbines in aircraft, high-technology civilian manufacturing, missile parts, or nuclear component manufacturing. The equipment appeared oversized for gas centrifuge manufacturing. It could still be used to make centrifuge parts, but it is uneconomical to buy such large equipment for this end use. In addition, the equipment appeared too precise for missile manufacturing, but it could still be dedicated to such a purpose.”¹⁶⁸

Some of the CNC machines highlighted in the research by the Institute for Science and International Security may have ended up in use at KaPaSa factories (including, but not limited to, for the manufacturing of missile parts). In addition, the way they were obtained may be indicative of the role of other Myanmar-military controlled government departments and units, such as the Department of Technical and Vocational Education (DTVE) under the Ministry of Science and Technology, for the purchase of CNC machines for use in KaPaSa production.

According to information received by SAC-M from credible sources, Myanmar-based company Mottama Holdings Limited, acting as an intermediary between the DDI and Chinese arms industry company NORINCO, plays a pivotal role for the DDI’s purchases of high-precision CNC machines for KaPaSa factories. In particular, Mottama Holdings Limited appears to assist the DDI with obtaining critical maintenance for its CNC machines. For example, according to information received, several CNC machines manufactured and sold by Austrian company GFM Steyr are currently in use at KaPaSa factories, including for manufacturing gun barrels. As a means of evading EU sanctions and dual-use goods export controls applicable to Myanmar, Mottama Holdings reportedly ships the GFM Steyr machines to Taiwan and engages GFM Steyr’s technicians to assist with technical updates and maintenance, after which the machines are shipped back to Myanmar and the DDI. It is not known if the GFM Steyr technicians are aware of the end-use of the machines they are working on when performing this type of maintenance in Taiwan.

Mottama Holdings Limited is also reportedly the importer, for the DDI, of high precision CNC machines from Germany, including from German CNC manufacturing company DMG MORI, with purchases taking place in Taiwan. In the absence of sanctions on Myanmar, Taiwan appears to be the preferred transit point for the DDI’s CNC machines as well as the preferred location for the performance of technical maintenance on these machines.

In order to perform their functions, CNC machines rely on specific software programmes. SAC-M has identified software programmes made by German, Israeli and French companies that are currently being used at KaPaSa factories and associated research institutes. These software programmes have been used to draw, design, and test the design and manufacturing of sound suppressors and 30-round magazines for small arms made in Myanmar, and to record the performance of locally manufactured antennas for UAV control systems.

Additional research is needed to uncover how the DDI obtained these CNC machines and how associated software programmes have ended up at KaPaSa factories and whether necessary export controls have been applied for and, if obtained, on what grounds. Additional research is also needed to identify what due diligence the companies concerned have exercised in relation to the export of their CNC machines in use at KaPaSa factories, and in particular what measures the companies have taken to prevent or mitigate the risk of harmful end-use, including through diversion. It would also seem appropriate for companies to hinder any further purchases by the DDI or associated entities and companies of spare parts for, and to refrain from any maintenance repairs to, the CNC machines already acquired.

Conclusions and Recommendations

Since the 1990s, a succession of arms embargoes and sanctions have been imposed on Myanmar’s military by foreign governments. These types of measures have principally sought to prohibit the trade of military or dual-use goods that may be used by the military for internal repression. Important as they may be, these measures have not been fully effective in preventing the military from committing atrocities against the civilian population. On the one hand, this failure stems from the fact that several UN member states continue to sell weapons to the military. An equally important factor, however, is the fact that Myanmar’s armed forces can produce, in-country, a variety of weapons that are being used to target civilians.

However, even if the military has invested significantly in strengthening and modernising its domestic weapon production, it continues to be reliant on external supplies to keep this production running. SAC-M has sought to uncover information about transfers of technology to the Directorate of Defence Industries, the principal organisation in Myanmar overseeing the army’s weapon production, and to identify some of the suppliers of products – including raw materials, parts and components, end-items as well as machinery and technology – that the DDI needs to sustain its weapon production. SAC-M has identified companies whose products are currently being used at KaPaSa factories to manufacture weapons, as well as civilian front companies for Myanmar’s armed forces that play a role in brokering deals for the DDI to obtain the materials it needs. These companies and their home States are listed in an annex to the present report.

While it is clear that the military must be held accountable for the grave violations of human rights and humanitarian law that it has committed and that it continues to commit, this report also emphasises that action must be taken by companies and States. This is not only morally imperative – it is also a requirement under international human rights law and international humanitarian law, and is reflected in arms transfer agreements, dual-use goods regimes and other restrictive measures that currently apply in relation to Myanmar, its armed forces and associated front and crony companies.

Based on SAC-M’s research, the extent to which the companies identified in this report have met their duty to respect human rights, including by conducting robust due diligence, is unclear. It is also unclear whether their home States can be considered to have met their obligation to protect against human rights violation and abuse, including by applying appropriate export controls.

Companies identified in the report should immediately stop doing business with the Myanmar military’s Directorate of Defence Industries and associated companies, and they should investigate how their products have ended up in use at KaPaSa factories. Beyond this, companies should also take steps to prevent future harmful end-use of their products by the DDI through robust due diligence to identify, prevent and mitigate the risk of harm associated with the sale/licensing and deployment of their products in Myanmar. For the harms that have already been suffered by civilians in Myanmar as a result of this business, companies should provide for, or cooperate in, the remediation of such harms, including by collaborating with any future administrative or criminal proceedings. SAC-M recommends that the home States identified in this report investigate and, as relevant, initiate administrative and/or legal proceedings against the companies whose sub-components, end-items, machinery and technology are relied upon by the Myanmar military’s Directorate of Defence Industries at KaPaSa factories. States should also adopt targeted sanctions against the KaPaSa, its leadership, and its network of brokers that have been identified in this report.

This report merely scratches the surface of a highly complex, multi-layered network of a large numbers of licensors, material suppliers, manufacturers and distributors – both State-owned and private companies that are domiciled in, or under the jurisdiction of, a large number of States – that feed the KaPaSa factories’ production. The report does not undertake the immense task of mapping out the Myanmar military’s weapon manufacturing industrial base and associated value chains in their entirety, although undertaking such an endeavour is a key recommendation of this report. Additional, longer-term research is needed to identify critical supplies with a view to disrupting the DDI’s in-country weapon production. SAC-M encourages all parties with relevant information to bring this forward and invites them to do so by using the dedicated email address established to this end.¹⁶⁹

The Special Advisory Council for Myanmar is a group of independent international experts who came together in response to the military’s attempted coup of February 2021 in Myanmar, to support the peoples of Myanmar in their fight for human rights, peace, democracy, justice and accountability.

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Footnotes:

¹⁰¹ For an overview of the companies that continue to broker arms deals for the military, see Justice for Myanmar press release of 11 July 2022, “EXPOSED: 116 companies that have brokered arms & equipment for the Myanmar military.”

¹⁰² Other commonly used sanction evasion techniques include the deliberate mislabeling of exports to the DDI. In the case of FRITZ WERNER Industries, for example, machinery supplied to the DDI for the manufacturing of weapons and ammunition was often labelled “agricultural” or “industrial” machinery.

¹⁰³ See International Peace Service Information Service & Omega Research Foundation, 2016, “Working Paper 2: China North Industries Corporation.” Available at: https://ipisresearch.be/publication/working-paper-2-china-north-industries-corporation/ (Accessed 10 January 2023).

¹⁰⁴ The Myanmar agent for NORINCO is said to be the chairman of Myanmar company Mottama Holdings Limited, U Yan Hoe, who replaced the former NORINCO agent Dr Tun Min Latt.

¹⁰⁵ This section draws from Sulashvili, B., G., “Small Arms Survey, 2007, 1: Multiplying the sources – licensed and unlicensed military production.” Available at: https://www.smallarmssurvey.org/sites/default/files/resources/Small-Arms-Survey-2007-Chapter-01-O-EN.pdf (Accessed 10 January 2023).

¹⁰⁶ Vining, M., 2019, ‘State SALW production and Transfers in Myanmar,’ unpublished background paper, Geneva: Small Arms Survey.

¹⁰⁷ Licensed production of small arms ammunition is rare because the product is of limited complexity and, therefore, research and development costs are low.

¹⁰⁸ Reportedly, the KS-1B missile produced in Myanmar is a tailored version of the KS-1A air-defence systems, with the modifications made based on a request by the DDI.

¹⁰⁹ Interview with #V4, 30 July 2022.

¹¹⁰ Vining, M., “Seeking supplies: developments of small arms production and industry in Myanmar,” Small Arms Survey, 4 August 2020.

¹¹¹ Selth A., 2000, “Landmines in Burma – the Military Dimension,” Canberra Strategic and Defence Studies Centre.

¹¹² Selth A., 2000, “Landmines in Burma – the Military Dimension,” Canberra Strategic and Defence Studies Centre.

¹¹³ Smith, M., 1991, “The Burmese way to rack and ruin,” Index for Censorship 10/1991.

¹¹⁴ There are unverified reports that following its privatization in 1989, Fritz Werner Industries has continued to provide support, including machinery, for arms production facilities in Myanmar and that this support continues to this day. Soe San Aung, ‘Interview: “The military coup was not supposed to happen”,’ Radio Free Asia, 28 April 2021. Available at: https://www.rfa.org/english/news/myanmar/military-officer-04282021135407.html (Accessed 10 January 2023).

¹¹⁵ The following list is illustrative only, and should not be read as a comprehensive list of foreign State collaboration on neither KaPaSa factories nor their production lines.

¹¹⁶ Vining, M., “Seeking supplies: developments of small arms production and industry in Myanmar,” Small Arms Survey, 4 August 2020.

¹¹⁷ Interview with #X2, 12 April 2022.

¹¹⁸ The documents reveal that one of the main aims of Israel was to win Burmese support in international forums, in exchange for its arms support, reported Haaretz. See Mack, E., “Israel Saw Brutal Myanmar Regimes as a Business Opportunity, Documents Reveal,” Haaretz, 6 October 2022. Available at: https://www.haaretz.com/israel-news/2022-10-06/ty-article-magazine/.highlight/israel-saw-brutal-myanmar-regimes-as-a-business-opportunity-documents-reveal/00000183-adbd-d5eb-a3af-fdbfb0c30000 (Accessed 16 January 2023).

¹¹⁹ Parameswaran, P., “Why are old Myanmar-Israel Military Links under new scrutiny?” The Diplomat, 11 June 2019. Available at: https://thediplomat.com/2019/06/why-are-old-myanmar-israel-military-links-under-new-scrutiny/ (Accessed 16 January 2023).

¹²⁰ Vining, M., “Seeking supplies: developments of small arms production and industry in Myanmar,” Small Arms Survey, 4 August 2020.

¹²¹ Selth, A., 2000, “Burma’s Secret Military Partners,” Canberra Papers on Strategy and Defence No. 136, pg. 37. Available at: https://sdsc.bellschool.anu.edu.au/experts-publications/publications/3114/burmas-secret-military-partners (Accessed 16 January 2023).

¹²² Selth, A., 2000, “Burma’s Secret Military Partners,” Canberra Papers on Strategy and Defence No. 136, pg. 37.

¹²³ According to information shared with SAC-M, some of the factories that were initially located in Yangon have later been moved, these factories potentially being of modular design to render such transfers possible.

¹²⁴ Lwin, M., “Regime Goal: the strongest army in southeast Asia,” The Irrawaddy, 20 August 2009. Available at: https://www2.irrawaddy.com/article.php?art_id=16613&page=1 (Accessed 16 January 2023).

¹²⁵ “Foreign Economic Trends Report: Burma,” p.21, quoted by Selth, A., 2000, “Burma’s Secret Military Partners,” Canberra Papers on Strategy and Defence No. 136, pg. 20.

¹²⁶ Lwin, M., “Regime Goal: the strongest army in southeast Asia,” The Irrawaddy, 20 August 2009.

¹²⁷ According to the South Korean prosecutor, from 2002 to 2006 executives from Daewoo International and other companies sold military equipment as well as blueprints for weapons technology to Myanmar through a code-named weapons supply scheme referred to as the “Axle Project”. More specifically, the public prosecutor’s office in Seoul is reported to have accused Daewoo of acting as an export agent for a South Korean defense company by sending military hardware to Myanmar, reportedly in exchange for valuable commercial contracts in the gas sector. While representatives of the company claimed in an interview that the exported goods were lathes and press machines, the public prosecutor’s office was quoted as describing the goods as detonating devices for artillery shells, as well as unspecified “cannon weapons”. The illegal arms transfers to Myanmar by POSCO International have reportedly continued since then. See Justice for Myanmar, “Justice for Myanmar and Korean civil society in support of democracy in Myanmar call for swift indictment over transfer of US$42M Korean Warship,” 19 October 2021. Available at: https://www.justiceformyanmar.org/stories/justice-for-myanmar-and-korean-civil-society-in-support-of-democracy-in-myanmar-call-for-swift-indictment-over-transfer-of-us-42m-korean-warship (Accessed 16 January 2023).

¹²⁸ For example, in May 2022 Russian truck company Kamaz visited Myanmar and indicated a forthcoming deal, to be signed in June 2022, with the army to set up local production of military trucks in Myanmar.

¹²⁹ In 2021, Justice for Myanmar reported on a joint project by the Directorate of Defence Industries, Ukrainian state-owned arms conglomerate, Ukroboronprom, the state-owned arms trade company, Ukrspecexport, and Myanmar Chemical and Machinery (MCM), a private Myanmar arms broker, to establish local production of BTR-4 carriers, MMT-40 light tanks and 2SIU self-propelled howitzers. The agreement on the plant follows a 2018 agreement on military-technical cooperation negotiated between Ukraine and Myanmar defense ministries that includes, among other, research and development of arms and the production of conventional weapons.

¹³⁰ According to information received by the Special Advisory Council for Myanmar, a high-level visit by a Tatmadaw delegation led by the Min Aung Hlaing to India in 2019 included discussions over the potential development of industrial technologies and advancement of defense equipment production.

¹³¹ Reportedly, following the 2021 attempted military coup in Myanmar, Pakistan sensed an opportunity to expand defense partnership with Myanmar, and has acted on this under the guidance of China. See, for example, Chaudhury D.R., “Myanmar and Pakistan in Arms Deal, Guided by China’,” the Economic Times, 11 February 2022. Available at: https://economictimes.indiatimes.com/news/defence/myanmar-and-pakistan-in-arms-deal-guided-by-china/articleshow/89491351.cms (Accessed 16 January 2023).

¹³² The descriptive part on the use of raw materials in the military manufacturing sector draws from KPMG’s brief of September 2020, “Military Materials: Challenges and opportunities.” Available at: https://assets.kpmg/content/dam/kpmg/in/pdf/2021/03/military-materials-challenges-and-opportunities.pdf (Accessed at 10 January 2023).

¹³³ Documents obtained from the Myanmar Defence Services Academy, on file with SAC-M.

¹³⁴ The military manufacturing sector largely relies on the same types of materials that are also used in the civilian sector. At the same time, the materials that feed military end-production typically require a higher purity and special compositions of the alloys to be fit for military end-use purpose. Put differently, the “defence industry” – in Myanmar as well as elsewhere – makes use of commodities or have technical needs that require processes, facilities, equipment and specification that go far beyond those of the civilian market.

¹³⁵ Cast and forged products are critical to the military industry, and they are used for almost all military platforms, components, machine tools and other production equipment.

¹³⁶ For manufacturers to be able to qualify as raw material suppliers for weapon manufacturing application, having a robust quality management system that conforms with the requirement of the sector is imperative. In addition to the common certifications (for example, AS 9100, ISO 9001 and ISO/IEC 17025), suppliers also need to have their system audited and approved by the original equipment manufacturer to become an approved source of raw material. In Myanmar, additional approvals from the DDI may also be required.

¹³⁷ China’s real strength is not only sourcing primary concentrates but also refining them for industrial use. Mines all over the world deliver their rare earth oxides to China for processing. The fact that China imports 50% of its concentrates from Myanmar underscores this assessment. See Ecker, C., “The Scramble to Secure Rare Earth Elements,” Mine Spider, 23 March 2021. Available at: https://www.minespider.com/blog/the-scramble-to-secure-rare-earth-elements (Accessed 10 January 2023).

¹³⁸ Specifically, in June 2019, Aung San Suu Kyi under the NLD Government visited, as part of her tour to Central Europe, the Czech Republic. In the context of this visit, a bilateral Czech-Myanmar economic forum – the B2B dialogue – gathering business leaders from the two countries took place. SAC M has obtained, and has on file, the list of Myanmar business leaders, including from Mottama Holdings and Suntac Technologies, that attended this forum and their meeting requests.

¹³⁹ Mottama Holdings Limited’s registered corporate address in Yangon is located in close proximity to the alleged location of the DDI’s storage units (KaHtaPa) at Inya Lake and next to the former offices of Myanmar-FRITZ WERNER Industries, the German-Myanmar joint venture that until 1989 reportedly provided “heavy machinery” – a common euphemism for arms manufacturing equipment – to the Myanmar military and the DDI. Mottama Holdings also share offices with POSCO International Corporation of South Korea, which in addition to FRITZ WERNER played an important role for transfers of technology to the DDI and its arms manufacturing in the mid 2000s (then as Daewoo International).

¹⁴⁰ Interview with #V4, 12 July 2022.

¹⁴¹ See, for example, Min Min and Nyein Swe, “Resistance forces seize materials to build weapons, military responds with airstrikes,” Myanmar Now, 8 April 2022.

¹⁴² Lintner, B., 23 March 2022, Asia Times, ‘Myanmar-North Korea on a new missile making mission.’ The existence of an iron and steel plant associated with KaPaSa 6 has also been confirmed through interviews with #V4, #V11 and #V20 in June and August 2022.

¹⁴³ Interview with #V11, 8 August 2022.

¹⁴⁴ Copper is often used to manufacture ammunition – because copper has a higher melting point, greater specific heat capacity and higher hardness, copper-jacketed bullets allow greater muzzle velocities.

¹⁴⁵ Amnesty International, 10 February 2015, “Open for business? Corporate crime and abuses at Myanmar copper mine.” Available at: https://www.amnesty.org/en/documents/asa16/0003/2015/en/ (Accessed 10 January 2023).

¹⁴⁶ Interviews with #V4, #V11 and #V20 18 June 2022.

¹⁴⁷ Interviews with #V20, April 2022 and July 2022.

¹⁴⁸ See also, Soe San Aung, ‘Interview: “The military coup was not supposed to happen”,’ Radio Free Asia, 28 April 2021. Available at: https://www.rfa.org/english/news/myanmar/military-officer-04282021135407.html (Accessed 10 January 2023).

¹⁴⁹ In the case of steel, for example, in 2020 Myanmar remained the only ASEAN country not to have set quality standards for iron and steel, either locally produced and imported.

¹⁵⁰ In the case of small arms, for example, some of the common sub-components include the gun-barrel, triggers and springs, while common components for associated ammunition include bi-metallic strips and propellant powder.

¹⁵¹ Lintner, B., “Myanmar-North Korea on a new missile making mission,” Asia Times, 23 March 2022.

¹⁵² Interviews with #V4, #V11 and #V20 on 6 August 2022.

¹⁵³ Interviews with #V4, #V11 and #V20 on 6 August 2022.

¹⁵⁴ Human Rights Watch, 1999, ‘Landmine Monitor Report 1999: “Toward a Mine-Free World,”’ country profile on Burma. Available at:
https://www.hrw.org/legacy/pubweb/pubscat/spring00pcwd-03.htm (Accessed 10 January 2023)

¹⁵⁵ Formerly mySpace International or My Space International Company Limited.

¹⁵⁶ “India supplying fuses to Myanmar military, deepening complicity in its atrocity crimes,” Justice for Myanmar, 15 July 2022. Available
at: https://www.justiceformyanmar.org/stories/india-supplying-fuzes-to-myanmar-military-deepening-complicity-in-its-atrocity-crimes (Accessed 10 January 2023).

¹⁵⁷ “India supplying fuses to Myanmar military, deepening complicity in its atrocity crimes,” Justice for Myanmar, 15 July 2022.

¹⁵⁸ “India supplying fuses to Myanmar military, deepening complicity in its atrocity crimes,” Justice for Myanmar, 15 July 2022.

¹⁵⁹ “India supplying fuses to Myanmar military, deepening complicity in its atrocity crimes,” Justice for Myanmar, 15 July 2022. Sweden has investigated the diversion of earlier transfers of Carl Gustaf rifles from India to Myanmar, circumventing the EU arms embargo. The Swedish anti-tank rifles that ended up in use by the Myanmar army were originally exported to India. In 2012, Sweden asked India to explain how Swedish weapons had ended up in Myanmar.

¹⁶⁰ Grzybowski, Marsh, and Schroeder, 2012, p. 245 quoted in Small Arms Survey, Graduate Institute of International and Development Studies, Geneva 2018. “An introductory guide to the Identification of Small Arms, Light Weapons and Associated Ammunition,” p. 127. Available at: https://www.smallarmssurvey.org/resource/introductory-guide-identification-small-arms-light-weapons-and-associated-ammunition (Accessed 15 January 2023).

¹⁶¹ Small Arms Survey, Graduate Institute of International and Development Studies, Geneva 2018. An introductory guide to the Identification of Small Arms, Light Weapons and Associated Ammunition, pg. 127.

¹⁶² This is also confirmed by the DDI’s showcasing of the optic for the MA-10 at the Defense & Security 2019 arms salon in Thailand.

¹⁶³ Information shared with SAC-M by Justice for Myanmar in May 2022.

¹⁶⁴ Tonbo Imaging product description of Ek thermal sight.

¹⁶⁵ Shipment records obtained in collaboration with Justice for Myanmar, on file with SAC-M.

¹⁶⁶ These regulations apply for exports of CNC machines meeting certain criteria, notably their ability to simultaneously operate with a defined number of axes (typically four or more).

¹⁶⁷ David Albright, Paul Brannan, Robert Kelley and Andrea Scheel Stricker, “Burma: A Nuclear Wannabe; Suspicious Links to North Korea; High-Tech Procurements and Enigmatic Facilities,” ISIS, 2010. Available at: https://isis-online.org/isis-reports/detail/burma-a-nuclear-wanabee-suspicious-links-to-north-korea-high-tech-procureme/33 (Accessed 10 January 2023).

¹⁶⁸ David Albright, Paul Brannan, Robert Kelley and Andrea Scheel Stricker, “Burma: A Nuclear Wannabe; Suspicious Links to North Korea; High-Tech Procurements and Enigmatic Facilities,” ISIS, 2010.

¹⁶⁹ Information can be communicated to the following email address: [email protected]. Other secure methods of communication are available on request.