The U.S. says Secretary of State John Kerry did not break any rules when he stayed in a glitzy hotel owned by a tycoon blacklisted because of ties to Myanmar's former military regime.

In a country where cronies own almost all the biggest and best-known firms -- including hotels in the capital Naypyitaw -- Kerry would have been hard-pressed to find anywhere else to stay during the gathering of Southeast Asian foreign ministers this past weekend.

But the decision illustrates the conundrum of American policies. Washington is eager to engage with Myanmar's new nominally civilian government, but when it comes to business, finds itself grappling with the legacy of sanctions imposed during decades of military dictatorship.

U.S. State Department spokeswoman Jen Psaki insisted Tuesday that Kerry did nothing wrong.

She said Myanmar's Foreign Ministry assigned members of his delegation to the Lake Garden Hotel. It's owned by the Max Myanmar group, which belongs to the blacklisted tycoon, Zaw Zaw.

The International Emergency Economic Powers Act, which outlines dealings with "specially designated" or "blacklisted" nationals, "includes an exemption for activities related to travel, including hotel accommodations," she added.

Though most U.S. sanctions imposed on Myanmar when it was under military rule have been lifted, American companies are still barred from doing business with individuals perceived as having profited from past or current military connections.

Removing people from the blacklist is a legal, rather than political, process today, U.S. Assistant Secretary of State Tom Malinowski insisted during a visit to the country in June. He met with a number of cronies, telling them what they would have to do. Among other things, he said, they need to demonstrate in a verifiable way that they are engaging in responsible business practices and that they have cut ties with the military-tied businesses.