FATF Status

Mongolia is no longer on the FATF List of Countries that have been identified as having strategic AML deficiencies

FATF Statement re AML Strategic Deficiencies:   23 October 2020

The FATF welcomes Mongolia’s significant progress in improving its AML/CFT regime. Mongolia has strengthened the effectiveness of its AML/CFT regime and addressed related technical deficiencies to meet the commitments in its action plan regarding the strategic deficiencies that the FATF identified in October 2019. Mongolia is therefore no longer subject to the FATF’s increased monitoring process. Mongolia will continue to work with the APG to improve further its AML/CFT regime.

Compliance with FATF Recommendations

The last follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Mongolia was undertaken in 2023. According to that Evaluation, Mongolia was deemed Compliant for 9 and Largely Compliant for 31 of the FATF 40 Recommendations. It remains Highly effective for 0 and Substantially Effective for 0 of the Effectiveness  & Technical Compliance ratings.

APG Yearly Typologies Report  -  2015

Emerging Trends; Declining Trends; Continuing Trends (INCSR)

Emerging trends:

-         Sale of drugs and psychotropic substances, especially ice (crystal methamphetamine hydrochloride)
-         Credit card fraud

Declining trends:

Currently, declining trends are not identified by the Mongolian Police. However, due to increased inspections and reporting requirements from the Financial Information Unit, offenders may choose methods other than banking and financial institutions to launder proceeds of crime and illicit activities

Continuing trends:

-         Association of ML with corruption, embezzlement, bribery of state funds
-        Real estate purchase of valuable assets in foreign countries, especially luxury houses, apartments, vehicles in Korea, Hong Kong, Japan, USA.
-         ML through establishing legal entity and building service sector real estate in Mongolia (e.g. involving a Korean organized crime group)
Cash couriers/currency smuggling (concealment) to exchange currencies in Mongolia as government control of currency exchange bureaus is not enforced to the full-extent
-         Trade-related ML through invoice manipulation, trade mispricing in purchase of goods from abroad, either through legal persons or state institutions responsible for purchase of public goods
-         Use of gatekeepers/professional services: accountants, bankers, companies, company service providers
-         Wire transfer
-         Use of shell companies
-         Use of offshore banks/companies
-         Use of credit cards
-         Use of family members, third parties
-         Identity fraud and use of false identification
-         Use of foreign bank accounts

US Department of State Money Laundering assessment (INCSR)

Mongolia was deemed a Jurisdiction of Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -

Mongolia is not a regional financial center. There are few reported financial and economic crimes, although numbers have increased in the last five years. Mongolia is vulnerable to low- grade transnational crime due to the current level of tourism, investment, and remittances from abroad; however, the overall rate of these crimes has not increased. The risk of domestic corruption remains significant as Mongolia’s rapid economic growth continues.

Mongolia’s limited capacity to monitor its extensive borders with Russia and China is a liability in the fight against smuggling and narcotics trafficking, but drug use and trafficking remain limited and unsophisticated. There is a black market for smuggled goods which appears largely tied to tax avoidance. There are no indications international narcotics traffickers exploit the banking system, and no instances of terrorism financing have been reported.
 

EU Tax Blacklist

Mongolia was removed from EU Tax Blacklist on 23 January 2018 following "commitments made at a high political level to remedy EU concerns". 

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                          33

World Governance Indicator – Control of Corruption             33

Corruption is a high risk for companies operating in Mongolia, stemming from political corruption and pervasive judicial corruption. Key anti-corruption legislation includes the Criminal Code and the Anti-Corruption Law, which prohibit active and passive bribery and the abuse of functions. The legislation lacks a clear definition for anti-corruption offenses and is inconsistently enforced. Facilitation payments are a grey area, and gifts are not expressly mentioned in the legislation but are likely to be considered bribery. The maximum punishment is up to ten years' imprisonment and fines. Mongolia has ratified the United Nations Convention against Corruption. For further information - GAN Integrity Business Anti-Corruption Portal

Mongolia’s frontier market and vast mineral reserves represent potentially lucrative opportunities for investors but vulnerability to external economic and financial shocks, ineffective dispute resolution, and lack of input from stakeholders during rulemaking warrant caution.  Mongolia imposes few market-access barriers, and investors face few investment restrictions, enjoying mostly unfettered market access.  Franchises such as fast food and convenience stores, outperforming expectations, suggest that investors can bring successful international business models to Mongolia.  The cashmere-apparel and agricultural sectors also show strong promise.  However, investing into politically sensitive sectors, including mining, carry higher risk.

Mongolia attracts investor attention but has trouble converting interest into investment. Unless and until Mongolia embraces a stable business environment that transparently creates and predictably implements laws and regulations, investors will likely find Mongolia too risky and opt for more competitive countries.  An essential step to mitigate these risks is for Mongolia to implement the U.S.-Mongolia Agreement on Transparency in Matters Related to International Trade and Investment (known as the Transparency Agreement), which requires a public-comment period before new laws and regulations become final.  Mongolia has implemented some of this agreement but is over five years behind full implementation of public-notice commitments.  Parliament, however, with its D-Parliament online platform, is leading the way in increasing public engagement and engaging the public in the rulemaking process, offering a model for the government.

Government and parliament continue to address threats to judicial independence by implementing 2019 constitutional amendments and 2020 statutory judicial reforms that have improved transparency and reduced political influence in the appointment and removal of judges.  Investors, however, continue to cite long delays in reaching court judgments, followed by similarly long delays in enforcing decisions, as well as reports that administrative inspection bodies, such as the tax authority, sometimes fail to act on politically sensitive decisions or cases involving politically exposed Mongolians.  Businesses note substantial and unpredictable regulatory burdens at all levels; and cite an excessively slow tax dispute resolution process as an indirect expropriation risk. Investors are particularly concerned about a tax process that they believe effectively lets officials issue excessive, confiscatory tax assessments to coerce settlements. Finally, the perception that the government favors its own state-owned entities over private sector companies discourages existing investors from expanding, and new investors from coming.  More positively, parliament has streamlined procedures for, and reduced the required number of, permits and licenses while the Government has moved delivery of most services onto digital platforms, increasing efficiency of its business registration processes.

COVID-19’s aftermath and Russia’s invasion of Ukraine stressed Mongolia’s economy.  In late 2021, Mongolia’s parliament passed its New Recovery Policy, a 10-year development plan to increase national productivity by improving transport logistics, energy production, industrialization, urban and rural infrastructure, and green development.  This program depends on restoring market access for mining exports, the primary revenue source. Relaxation of PRC border restrictions in late 2022 has eased bottlenecks along the Mongolia-China border, increasing export revenues and relieving near term fiscal and balance-of-payments risks.  Meanwhile, Russia’s unprovoked invasion of Ukraine, prompting unprecedented international sanctions on Russia, continues to contribute to uncertainty about access to critical imports, such as petroleum products, electricity, and such key commodities as wheat and fertilizer.

Country Links

Mongolia Financial Information Unit (FIU-Mongolia)

Financial Regulatory Commission of Mongolia :: FRC.mn

Bank of Mongolia