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Mongolia’s Financial Sector Exposed to Money Laundering and Terrorist Financing Risks

Ulaanbaatar, Mongolia - A Recent Assessment Reveals Vulnerabilities

A recent assessment has revealed that Mongolia’s financial sector is vulnerable to money laundering (ML) and terrorist financing (TF) risks. The country’s banking sector, which holds 95.7% of the total financial sector assets, lacks robust anti-money laundering (AML) and counter-terrorist financing (CFT) measures.

Vulnerabilities in the Banking Sector

Proceeds from illegal activities are mainly used to purchase real estate, vehicles, and other consumer items in Mongolia.
Some funds are laundered through legal persons, including construction companies.
Bank accounts of family members are used to receive and transfer money to foreign bank accounts and offshore financial institutions.

Key Vulnerabilities in the Non-Bank Sector

The non-bank sector, which includes a large variety of institutions and financial services, is subject to negligible rules-based AML/CFT supervision.
Mongolia’s DNFBP (designated non-financial businesses and professions) sector, including real estate agents and notaries, is still developing, with significant scope deficiencies in its coverage under the country’s AML/CFT legislation.

Real Estate Sector Unregulated

The real estate sector is unregulated, with some businesses offering discounts on property purchases using cash.
There are also significant gaps in the oversight of non-profit organizations (NPOs).

Limited Experience in Dealing with Terrorist Financing Risks

Mongolia has no reported instances of Al-Qaeda, Taliban, or ISIL-related activities, and it has not been identified as a major source or route jurisdiction for foreign terrorist fighters (FTF).
However, the country’s legal framework lacks expertise in dealing with TF risks.

Mongolia appears to have exposure to PF-related sanctions evasion, with approximately 1,500 Democratic Republic of North Korea citizens working in the country.
There are also known legal entities operating in Mongolia with direct links to the DPRK.

Recommendations for Improvement

Strengthen AML/CFT measures
Improve understanding of ML and TF risks
Enhance financial intelligence capabilities
Increase private sector involvement in the AML/CFT regime
National cooperation and coordination mechanisms for AML/CFT regime need improvement

Sources:

Anti-money laundering and counter-terrorist financing measures in Mongolia - 2017
APG (Asia-Pacific Group on Money Laundering)