Financial Crime World

Mongolia’s Rush for Foreign Investment Exposes Country to Money Laundering Risks

Attracting Foreign Investment, but at What Cost?

Ulaanbaatar, Mongolia - In a bid to attract foreign investment and stimulate its economy, Mongolia has seen a surge in mining licenses granted to international companies. However, this rapid growth has also increased the risk of money laundering and terrorism financing threats.

Mining Sector: A Significant Driver of the Economy

According to government data, 19.9% of Mongolia’s territory is now open for mining exploration and extraction, with 9.5% already allocated to foreign companies. The mining sector has become a significant driver of the economy, accounting for:

  • 20% of the country’s total revenue
  • 24% of tax revenue
  • 78.4% of export revenue

High-Risk Countries Involved in Foreign Direct Investment

The majority of foreign direct investment in Mongolia comes from countries with known money laundering and terrorism financing risks, including:

  • China
  • Russia
  • South Korea
  • Japan
  • The US

These investments have led to an increase in cash transactions, making it easier for criminals to hide illegal funds.

Experts Warn of Vulnerability

Experts warn that Mongolia’s small population and financial sector make it vulnerable to external threats. “The country’s limited banking infrastructure and lack of regulation create an environment conducive to money laundering,” said a senior economist at the World Bank.

Potential Avenues for Money Laundering

Tourism, contracted labor, investment, trade, remittance, and loan movements are all potential avenues for money laundering in Mongolia. The country’s busiest border crossing points, including:

  • Zamiin-Uud
  • Altanbulag

are considered high-risk areas for money laundering and terrorism financing.

Border Crossings: A Hub for Money Laundering Activity

In 2015, over 4.8 million people crossed the Mongolian border, with citizens from China, Russia, South Korea, Japan, and the US making up a significant proportion of travelers. The same year, over 6,800 foreign workers from 78 countries were employed in Mongolia, with Chinese and Russian nationals dominating the list.

Foreign Trade: A Means to Launder Money Internationally

A study by the Asian-Pacific Group (APG) found that foreign trade is often used as a means to launder money internationally. Criminals add illegal funds to the normal price of goods or services stated in letters of credit or trade contracts, increasing the amount of payments to be transferred.

Concentration of Power: A Challenge for Financial Regulation

Mongolia’s financial sector is dominated by banking institutions, which account for 95.7% of total assets. However, this concentration of power may make it more difficult to detect and prevent money laundering activities.

Efforts to Enhance Payment System and Reduce Cash Transactions

In response to these risks, the Mongolian government has implemented measures to enhance its payment system and reduce cash transactions. The number of debit card users has increased significantly over the past five years, with nearly 2.3 million cards in circulation by 2015.

Continued Challenges Ahead

Despite these efforts, Mongolia’s risk exposure to money laundering and terrorism financing remains high. The country must continue to strengthen its financial regulations and institutions to prevent illegal activities and protect its economy.