Financial Crime World

Mongolia’s Financial Sector Vulnerable to Money Laundering and Terrorism Funding

A recent assessment by international experts has revealed that Mongolia’s financial sector is vulnerable to money laundering and terrorist financing. The country’s banking system, which holds 95.7% of the total financial sector assets, lacks effective risk-based supervision, making it an attractive route for illicit funds.

Vulnerabilities in the Banking System

  • Bank accounts of family members are often used to receive illegal monies, which are then transferred to foreign bank accounts and offshore institutions.
  • The country’s construction industry is also vulnerable to money laundering through legal persons.

Weak Supervision of Designated Non-Financial Businesses and Professions (DNFBPs)

  • Real estate agents and notaries lack effective supervision and implementation of anti-money laundering and counter-terrorist financing measures.
  • The country’s exposure to terrorist financing threats appears limited, but experts warn that there are significant gaps in the legal framework related to terrorism financing.
  • Mongolia has limited expertise among relevant agencies and lacks oversight of the non-profit sector.

Vulnerability to Proliferation Finance (PF) Sanctions Evasion

  • An estimated 1,500 Democratic Republic of North Korea citizens work in the country’s industries.
  • There are also known legal entities operating in Mongolia with direct links to the DPRK.

Recommendations for Improvement

  • Strengthen financial sector governance and improve risk-based supervision.
  • Enhance international cooperation to combat money laundering, terrorist financing, and proliferation finance threats.
  • Establish effective national cooperation and coordination mechanisms to address these vulnerabilities.
  • Complete a comprehensive assessment of Mongolia’s ML risks and enhance understanding of TF risks.

Conclusion

The assessment highlights the need for Mongolia to take immediate action to strengthen its financial sector governance, improve risk-based supervision, and enhance international cooperation to combat money laundering, terrorist financing, and proliferation finance threats.