Financial Crime World

Mongolia’s First National Risk Assessment: Combatting Money Laundering and Terrorism Financing

Ulaanbaatar, October 2016

Mongolia, with a total economy of $11.8 billion in 2015, is increasingly vulnerable to external money laundering and terrorism financing due to its booming mining sector. This article presents Mongolia’s economic environment and financing sector vulnerabilities, the financial sector’s exposure, the legal framework and institutional cooperation, and money laundering threats and vulnerabilities.

Mongolia’s Economic Environment and Financing Sector Vulnerabilities

  • Mongolia’s mining sector accounted for 70% of industrial output, 20% of total revenue, and 24% of tax revenue in 2015.
  • The industry grants mining licenses on 19.9% of the total territory, making it an attractive target for foreign investors and organized crime.
  • Economic instability, low per capita income, and a significant shadow economy contribute to the prevalence of crimes such as theft, robbery, tax evasion, and environmental damage.
  • Researchers suggest that a more robust payment system and lower cash settlements could reduce the risk of money laundering.

The Financial Sector’s Exposure

  • Mongolia’s financial sector consists mainly of banks and is the most vulnerable sector to money laundering.
  • Transactions involving foreign trade and cross-border activities are prone to money laundering.
  • The mining sector, which is highly exposed to foreign trade, has been identified as a major risk.
  • Mongolia has made progress in combating money laundering and terrorism financing through its AML/CFT (Anti-Money Laundering and Combating the Financing of Terrorism) Law.
  • Mongolia is a member of international organizations like the FATF (Financial Action Task Force) and APG (Asia-Pacific Group on Money Laundering).
  • Mongolia has formed institutions such as the Financial Information Unit (FIU) and joined organizations like the National Cooperation Council in Combating ML/TF (NCC).

Money Laundering Threats and Vulnerabilities

Corruption

  • Corruption remains a significant threat in Mongolia due to weak governance and a lack of transparency.

Predicate crimes

  • Predicate crimes such as fraud, tax evasion, and environmental damage create opportunities for money laundering and terrorism financing.

Transportation of illegal funds

  • The risks are highest at certain border crossing points like Zamiin-Uud and Altaibulag, where funds may be transported in cash across borders.

Risk Evaluation

  • Four crimes with the highest risk potential have been identified: fraud, crimes against the environment, tax evasion, and corruption.
  • There is a need to focus on detecting latent assets and improving the expertise of crime investigators.

Next Steps

  • A strategy to mitigate risks and an action plan to implement measures will be formulated.
  • Steps include: strengthening AML/CFT regulations, improving institutional cooperation, allocating resources, and public awareness campaigns.

By addressing these vulnerabilities, Mongolia can strengthen its efforts to combat money laundering and terrorism financing.