New civil society report on Mongolia: need for implementation of legislation, greater civic space and a robust asset recovery framework

1 August 2024 –

A new report by Transparency International Mongolia finds that Mongolia has many legal provisions for the prevention of corruption and asset recovery (Chapters II and V of the UNCAC), among them the new National Anti-Corruption Strategy, adopted in 2023. However, many existing laws have loopholes and lack effective implementation. Certain laws and recommendations have also been used to restrict civic space. The report is intended as a contribution to the UNCAC implementation review process in its second cycle, produced with technical and financial support from the UNCAC Coalition.

The new National Anti-Corruption Strategy covers a wide range of important objectives on preventing and criminalizing corruption. Mongolia’s recent Law on Political Parties significantly improved the previously insufficient transparency and disclosure requirements for political parties. The revised Law on Procurement in 2023 introduced an e-procurement system for all public procurement to be conducted online.

However, despite advances in passing legislation on the prevention of corruption, the lack of a whistleblower protection law still pending in Parliament exacerbates existing threats to the civic space, preventing CSOs from effectively holding their government to account. The Law on Human Rights Defenders has no proven track record of implementation, and there has been backsliding in the openness, comprehensiveness, and user-friendliness of budget documents, as well as attempts to suppress public concerns raised over the lack of public engagement in government decision-making and legislative drafting processes.

After being placed on FATF’s gray list in 2011, 2013 and 2019, Mongolia has made significant improvements in complying with anti-money laundering standards. However, additional measures and regulations are needed in relation to the identification, inspection and investigation of an excessive number of bank accounts per person, and money and asset mules, which are predominant in practice. Contrary to the UNCAC’s requirements, embezzlement, fraud, abuse of power and trading in influence are not defined in Mongolian law as corruption crimes, and the country still lacks a body in charge of handling and coordinating asset recovery matters.

The official second cycle UNCAC review process in Mongolia was scheduled for review in 2019, and the country visit was held in April 2022 with the involvement of civil society. As of May 2023, the executive summary was adopted, the full country report was published in October 2023, and the self-assessment checklist in November 2023. These documents are all available on Mongolia’s UNODC Country Profile page. Mongolia is also a signatory to the UNCAC Coalition Transparency Pledge.

For all the detailed findings, read the full civil society parallel report in English.

Main Findings

Preventive anti-corruption policies and practices

 Mongolia has adopted the necessary laws and regulations in compliance with the UNCAC but faces notable deficiencies in implementation and compliance with laws, transparency, and accountability for non-compliance. Mongolia also faces challenges in the identification and assessment of national corruption risks and lacks measures to respond to these accordingly.

Preventive anti-corruption body or bodies

Mongolia’s Independent Agency against Corruption’s (IAAC) operational autonomy is defined in the Law on Anti-Corruption. However, despite the appointment of Chief and Deputy Chief Commissioners being made via open hearings in Parliament, the selection processes are opaque, and there have been cases of spontaneous removal and appointment of Chief Commissioners in violation of the law. Whilst receiving adequate funding from the budget, the IAAC faces shortcomings, including a lack of legislative support for the IAAC through the Criminal Code to present evidence of illegal enrichment in court and a lack of technical capacity to review public officials’ assets and income declarations for irregularities.

Public sector employment

Public officials are hired and rotated within the civil service based on the Civil Service Law, which includes digital examinations for entrance and a merit-based approach for promotions. However, the training of officials has room for improvement, especially given that training does not cover issues of compliance and human rights.

Political financing

The new Law on Political Parties, effective from January 1st of 2024, introduced new rules of disclosure on semi-annual and annual financial statements to all political parties, the auditing of funds, and declaration of sources of funding and spending during election and non-election periods, improving the previously insufficient transparency and disclosure requirements for political parties. The new National Anti-Corruption Strategy also has a detailed action plan to reduce political party corruption and enhance transparency and accountability for candidates and members of national or local parliaments during and after the elections. However, accountability for non-disclosure or violation of the law is assumed by the reporting responsible person, not the political party itself.

Codes of Conduct, Conflicts of Interest, and Asset Declarations

There are strict rules preventing candidates convicted of a criminal offense from running in elections. However, the Law on Ethics of Public Officials of 2023 makes no mention of breaches of the law, implementation, assessment, or reviews by the Civil Service Council, nor by any government agency. There are no restrictions on candidates who have been punished for conflicts of interest any number of times during their tenure in public office, and no code of ethics for judges. Several major ethical breaches of judges thus remain unresolved due to the unavailability of ethical regulations for judges.

Reporting Mechanisms and Whistleblower Protection

While a Law on Human Rights Defenders was adopted in 2021, it does not cover the protection of whistleblowers and informants. The law also lacks implementation, with no record of the protection of human rights defenders. The protection mechanism and measures themselves are not clear, and there is no identified protecting body or method in the law. The Government has drafted a law to protect whistleblowers; however, this has yet to be discussed by Parliament.

Public procurement 

Mongolia revised the Law on Procurement in 2023 and developed an e-procurement system for all public procurement to be conducted online. The new Procurement Law covers both government organizations and State-Owned Enterprises (SOEs). However, the Law on State and Local Properties notes that only the shareholding of an SOE is defined as ‘state property’. This creates problems of political interest and interference in the procurement of SOEs, unfair competition in the appointment of senior-level SOE officials who handle procurement, heavy involvement of line ministries in the day-to-day operations of SOEs, and negligence in accountability due to appointees’ political affiliation and connections to politically exposed persons (PEPs).

Management of public finances

The relevant laws on the management of public finances are in place, and recently, the Parliament engaged the public in budget planning, e-consultations during budget implementation, developing half-year budget reports, and establishing the Budget Stability Council composed of academics, CSOs, and professional unions. However, there has been backsliding in the openness, comprehensiveness, and user-friendliness of budget documents. Public spending during the pandemic was completely obscured, including the spending on foreign aid, concessional loans, and the budget. There is disturbing evidence of spending from the SOEs’ funds, in addition to the state budget, without oversight or reporting.

Access to information and the participation of society

 The legal framework ensures transparency of information, so long as it is not classified as a ‘state secret’ or ‘officially sensitive’. Public hearings and discussions are mandatory prior to the adoption of laws and regulations. However, implementation here is weak. The government has attempted to suppress public concerns raised over the lack of public engagement in government decision-making and legislative drafting processes.

Judiciary and prosecution services

Judges, prosecutors, law enforcement, and central and local administrative officials are obliged to immediately report to the IAAC on any corruption-related information obtained while performing their official duties. Judges must submit asset and income declarations to the General Judiciary Council and prosecutors to the IAAC. However, there is no specific code of conduct or ethics assessment for judges since the previous one from 2014, which was based on the Bangalore Principles of Judicial Conduct, was annulled in 2021. Whilst prosecutors have a Code of Ethics and Ethics Committee, there is no record of implementation of this.

Private sector transparency

The Corporate Governance Codex was revised in 2022 and is applicable to listed companies. Since 2020, companies have been required to file their beneficial ownership information to the General State Registration Authority (GSRA) whenever there are changes. Whilst the database on beneficial owners is not open to the public, the state has publicly disclosed the legal owners’ database. However, 86% of listed companies failed to post their 2022 annual reports on their websites as required by the laws and the Codex, and no penalties were imposed by regulators.

With over 365000 citizens having the same first and last names in Mongolia, it is difficult to identify Politically Exposed Persons (PEPs) through citizens identification number, of which Mongolia does not have a separate database for the private sector to use. Banks attempt to generate their own database on beneficial owners and PEPs, to verify customer information based on external and open sources.

Measures to prevent money-laundering

Mongolia has a comprehensive domestic regulatory and supervisory regime for banks and other bodies susceptible to money laundering. The AML/CTF Law allows and ensures the collaboration of all government bodies. However, the generalization of the level of risks within one sector, identical assessment, and listing of the FATF Recommendations’ listed sectors in the National Risk Assessment led to undesired consequences in regulating major licensed sectors such as the extractive industry and procurement services, where corruption and conflict of interest are dominant. Consequently, money laundering vulnerabilities were left out without risk ratings, supervision, or regulations. Due to the lack of tailored risk assessment within the consideration of the national context of vulnerabilities, several attempts have been made to shrink the civic space by misusing the National Risk Assessment (NRA) in the name of FATF standards outside the mutual evaluation cycle, to suppress CSOs in Mongolia.

Anti-money laundering

The FIU was established in 2006 within the Central Bank of Mongolia. Risk assessment methodologies are regularly provided by the regulators, and both on-site and off-site oversight is conducted according to schedule and spontaneously by regulators, as well as when suspicions are raised. Mongolia is largely compliant with FATF Recommendations; however, additional measures and regulations are needed in relation to the identification, inspection, and investigation of an excessive number of bank accounts under one person, as well as money and asset mules. Although Suspicious Transaction Reports (STRs) and Cash Transaction Reports (CTRs) involving money mules and asset mules are delivered to the FIU, further actions to be taken are unclear and are usually neglected by the police upon delivery of such reports from the FIU.

Asset recovery

Mongolia has a legal framework for the return and disposal of confiscated property. Under the Law on Judicial Decision Implementation, a person or a legal entity that suffered a loss due to a crime may make a civil claim to court to be compensated. However, the legal framework is unclear in determining the claimant in a civil case for the restitution of losses and damages caused to the government entities. Mongolia has signed Mutual Legal Assistance Treaties (MLATs) with 23 countries, allowing Mongolia to cooperate with other States Parties for the purpose of the return and disposal of confiscated properties. However, it needs to develop a law regulating relations of line ministries and law-enforcement agencies in asset recovery to and from Mongolia, in relation to States Parties with no MLATs, communication processes with foreign agencies, and identifying asset managers for restituted and confiscated assets, including processes and management of applicable expenses.

Confiscation tools and international cooperation

Mongolian courts can order the confiscation of property of foreign origin by adjudicating an offense of money laundering if the crime is punishable by a term of imprisonment of at least one year according to the foreign country’s law. Currently, the country does not have a body in charge of handling all issues related to asset recovery.

The seizure of assets can be made based on a foreign country’s request; however, the confiscation may only take place via a judicial order, which is delivered through a validated prosecutor’s request based on a foreign MLA request. There is no restriction for  Mongolian authorities to provide MLA to foreign countries without having signed MLATs with Mongolia.

Key recommendations

In its report, Transparency International Mongolia makes several recommendations to the authorities to ensure the full implementation of the UNCAC in Mongolia, among them:

  1. Implement the National Anti-Corruption Strategy should be prioritized by all stakeholders.
  2. Revise the Criminal Code to:
    • refine definitions of corruption crimes and follow-up crimes in line with UNCAC and international standards;
    • define beneficial owners consistently across all sectors.
  3. Revise the Law on Anti-Corruption to:
    • include expenditure reports in declarations and allow inspection and investigation of both income and expenditure of public officials;
    • avail possibilities for the IAAC to inspect and investigate tax payments for investigating properties and assets.
  4. Revise the Law on Conflict of Interest to:
    • increase the cooling-off period for public officials; define Politically Exposed Persons (PEPs) under an umbrella term to include all sectors by a coalesced term, regardless of sector of applicability;
    • ensure increased concern for PEPs as vulnerable to various corruption and conflict of interest risks beyond two years;
    • restore a clause restricting the appointment of public officials with a conflict of interest;
    • restore a guarantee ensuring the budget of the IAAC shall not be less than that of the previous year;
  5. Adopt the Ethics Code for judges in compliance with the Bangalore Principles of Judicial Conduct.
  6. Improve technical assistance in identifying and developing a National Risk Assessment.
  7. Develop a consolidated list of Politically Exposed Persons available to commercial banks and non-banking financial institutions for the purpose of KYC, verifying customers, and conducting enhanced due diligence.
  8. Adopt new measures to identify, conduct inspection, investigation, and exchange of information on money mules, asset mules, and increase sanctions.
  9. Adopt the Law on Protection of Whistleblowers and ensure adequate protection mechanisms that prevent retaliation.
  10. Adopt the Law on Extractive Industry Transparency.
  11. Adopt the Law on Asset Management.
  12. Revise the Law on Public Information Transparency to list confidential information and delist open information.
  13. Revise the Law on Transparency of Public Information, the Law on State and Official Secrecy, and the Law on Personal Information Protection that restrict public access to information and ensure protection of rights to information for reporters, researchers and the public.
  14. The Parliament must restrict passing laws without public discussions and prior studies, neglecting compliance with applicable laws.
  15. The Parliament and the Government of Mongolia must stop passing restrictive laws that would significantly burden and limit legitimate activities of non-governmental organizations in Mongolia and ensure and protect the civic space by allowing consistent consultations, multi-stakeholder dialogue and public awareness campaigns while complying with international regional bodies’ standards.
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