Mongolia is on the FATF List of Countries that have been identified as having strategic AML deficiencies
FATF Statement re AML Strategic Deficiencies: 24 June 2020
In October 2019, Mongolia made a high-level political commitment to work with the FATF and APG to strengthen the effectiveness of its AML/CFT regime and address any related technical deficiencies. The FATF has made the initial determination that Mongolia has substantially completed its action plan and warrants an on-site assessment to verify that the implementation of Mongolia’s AML/CFT reforms has begun and is being sustained, and that the necessary political commitment remains in place to sustain implementation in the future. Specifically, Mongolia has made the following key reforms: (1) improving sectoral ML/TF risk understanding by DNFBP supervisors, applying a risk-based approach to supervision and applying proportionate and dissuasive sanctions for breaches of AML/CFT obligations; (2) demonstrating increased investigations and prosecutions of different types of ML activity in line with identified risks; (3) demonstrating further seizure and confiscation of falsely/non-declared currency and applying effective, proportionate and dissuasive sanctions; (4) demonstrating cooperation and coordination between authorities to prevent sanctions evasion; and (5) monitoring compliance by FIs and DNFBPs with their PF-related TFS obligations, including the application of proportionate and dissuasive sanctions. The FATF will continue to monitor the COVID-19 situation and conduct an on-site visit at the earliest possible date.
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 2019. According to that Evaluation, Mongolia was deemed Compliant for 7 and Largely Compliant for 28 of the FATF 40 Recommendations.
APG Yearly Typologies Report - 2015
Emerging Trends; Declining Trends; Continuing Trends (INCSR)
- Sale of drugs and psychotropic substances, especially ice (crystal methamphetamine hydrochloride)
- Credit card fraud
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
- 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".
There are no international sanctions currently in force against this country.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 35
World Governance Indicator – Control of Corruption 40
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
Foreign direct investment in Mongolia's extractive industries – which are based on extensive deposits of copper, gold, coal, molybdenum, fluorspar, uranium, tin, and tungsten - has transformed Mongolia's landlocked economy from its traditional dependence on herding and agriculture. Exports now account for more than half of GDP. Mongolia depends on China for more than 60% of its external trade - China receives some 90% of Mongolia's exports and supplies Mongolia with more than one-third of its imports. Mongolia also relies on Russia for 90% of its energy supplies, leaving it vulnerable to price increases. Remittances from Mongolians working abroad, particularly in South Korea, are significant.
Soviet assistance, at its height one-third of GDP, disappeared almost overnight in 1990 and 1991 at the time of the dismantlement of the USSR. The following decade saw Mongolia endure both deep recession, because of political inaction, and natural disasters, as well as strong economic growth, because of market reforms and extensive privatization of the formerly state-run economy. The country opened a fledgling stock exchange in 1991. Mongolia joined the WTO in 1997 and seeks to expand its participation in regional economic and trade regimes.
Growth averaged nearly 9% per year in 2004-08 largely because of high copper prices globally and new gold production. By late 2008, Mongolia was hit by the global financial crisis and Mongolia's real economy contracted 1.3% in 2009. In early 2009, the IMF reached a $236 million Stand-by Arrangement with Mongolia and it emerged from the crisis with a stronger banking sector and better fiscal management. In October 2009, Mongolia passed long-awaited legislation on an investment agreement to develop the Oyu Tolgoi (OT) mine, among the world's largest untapped copper-gold deposits. However, a dispute with foreign investors developing OT called into question the attractiveness of Mongolia as a destination for foreign investment. This caused a severe drop in FDI, and a slowing economy, leading to the dismissal of Prime Minister ALTANKHUYAG in November 2014. The economy had grown more than 10% per year between 2011 and 2013 - largely on the strength of commodity exports and high government spending - before slowing to 7.8% in 2014 and 2.3% in 2015.
The current government has made restoring investor trust and reviving the economy its top priority, but has failed to invigorate the economy in the face of the large drop off in foreign direct investment. Mongolia's economy faces near-term economic risks from the government's loose fiscal and monetary policies, from uncertainties in foreign demand for Mongolian exports, and on Mongolia's ability to access financing. The May 2015 agreement with Rio Tinto to restart the OT mine and the subsequent $4.4 billion finance package signing in December 2015 have served to increase investor confidence but are unlikely to overcome the downward economic pressures in the short term.
Agriculture - products:
wheat, barley, vegetables, forage crops; sheep, goats, cattle, camels, horses
construction and construction materials; mining (coal, copper, molybdenum, fluorspar, tin, tungsten, gold); oil; food and beverages; processing of animal products, cashmere and natural fiber manufacturing
Exports - commodities:
copper, apparel, livestock, animal products, cashmere, wool, hides, fluorspar, other nonferrous metals, coal, crude oil
Exports - partners:
China 84%, Switzerland 9% (2015)
Imports - commodities:
machinery and equipment, fuel, cars, food products, industrial consumer goods, chemicals, building materials, cigarettes and tobacco, appliances, soap and detergent
Imports - partners:
China 39.9%, Russia 28.4%, Japan 6.4%, South Korea 6.2% (2015)
Investment Climate - US State Department
Mongolia’s tremendous mineral reserves, agricultural endowments, and proximity to the vast Asia market make it an attractive foreign direct investment (FDI) destination in the medium to long term. However, depressed global commodities markets, limited infrastructure, and the Government of Mongolia's (GOM) love-hate-love track record with regard to foreign investors and FDI in recent years make caution advisable in the short term. FDI to Mongolia continues a dramatic decline from USD 4.7 billion in 2011 to USD 232 million in 2015, a drop of 95 percent. On the other hand, Mongolia has never missed a payment on its considerable foreign debt.
Since December 2014, Prime Minister Saikhanbileg has committed his coalition government to restoring Mongolia’s battered economy. He has made renewed FDI and economic diversification the center of these efforts. Some developments are encouraging: the May 2015 signing of the Oyu Tolgoi Underground Mine Development and Financing Plan; the December 2015 Oyu Tolgoi USD 12 billion project financing agreement; and the March 2016 settlement on appeal of the USD 104 million GOM-Khan Resources Company (Canada) arbitration award.
U.S. and other foreign investors will grade the GOM that emerges from June 2016 parliamentary elections on its commitment to taking pragmatic steps to create and nurture a business-enabling environment. Any inventory of these pragmatic steps should include: (1) rooting out and destroying the virulent corruption that threatens the foundational institutions of the modern Mongolian state; (2) creating in reality the judicial independence the Mongolian constitution establishes in principle; (3) facilitating the emergence of private-sector small and medium size enterprises as the primary engine of the economic diversification; (4) more deeply establishing a fair and transparent system of taxation; (5) putting in place a more inclusive and more effective rule-making methodology for use in implementing business legislation; (6) establishing and maintaining a professional civil service; (7) modernizing traditional Mongolian business sectors such as agriculture and gold-mining; and (8) vastly improving Mongolia's physical infrastructure.
Notwithstanding this backdrop of immediate challenges, we continue to see significant longer term upside to the Mongolian investment climate. Recent legislation creates institutional frameworks for the ministries of industry and agriculture to support large-scale development of the domestic agriculture sector, the second largest contributor to GDP and employer after mining. Agriculture and animal husbandry, along with renewable energy, are sectors in which Mongolia has native advantages and which provide promise for economic diversification. While challenges exist, so too do significant opportunities for U.S. exporters of goods, services and technology.
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