Financial Crime World

Mongolia’s Fight Against Money Laundering and Terrorist Financing: A Work in Progress

Ulan Bator, Mongolia - Mongolia’s efforts to combat money laundering and terrorist financing have been hailed as “a work in progress” by international experts. While the country has made significant strides in implementing anti-money laundering (AML) and counter-terrorist financing (CFT) measures, several vulnerabilities remain.

Vulnerabilities Remain

  • Proceeds from illegal activities are mainly used to purchase real estate, vehicles, and other consumer items, as well as laundered through legal persons in the construction industry.
  • Family members’ bank accounts are often used to receive and transfer funds to foreign accounts.
  • The banking sector is seen as a key vulnerability, with 95.7% of the country’s financial assets held by banks that have only recently implemented risk-based supervision.

DNFBP Sector Lacks Adequate Coverage

  • The Designated Non-Financial Business or Profession (DNFBP) sector, which includes real estate agents and notaries, is still developing and lacks adequate coverage under Mongolia’s AML/CFT legislation.
  • Research suggests that the country has a significant illegal mining sector, with artisanal small-scale miners selling raw gold to informal dealers.

Terrorist Financing Threats

  • Mongolia’s exposure to terrorist financing (TF) threats appears limited, with no reported or identified instances of Al Qaeda, Taliban, or ISIL-related activities.
  • However, the country’s legal framework and oversight of non-profit organizations (NPOs) are seen as significant gaps in its TF defenses.

Concerns about North Korea

  • Mongolia’s relationship with North Korea is also a concern, with an estimated 1,500 citizens working in Mongolia and receiving payment via formal arrangements between Mongolia and North Korea.

Effectiveness of Measures

  • Mongolia has completed its first Money Laundering/Terrorist Financing National Risk Assessment (NRA) in 2016, but the report was criticized for lacking a comprehensive assessment of the country’s ML risk.
  • The NRA also failed to identify and analyze Mongolia’s TF threats and vulnerabilities.

Private Sector Involvement

  • Private sector involvement in the NRA process was limited, with only larger banks providing data and participating in workshops.
  • Across government agencies and the private sector, understanding of Mongolia’s ML/TF risk needs significant improvements.

Coordination Mechanisms

  • Mongolia has two national cooperation and coordination mechanisms for its AML/CFT regime, but their effectiveness is limited.
  • The country also lacks a coordinated approach to preventing financial sanctions evasion related to Iran and North Korea.

Conclusion

While Mongolia has made progress in implementing AML/CFT measures, several vulnerabilities remain. To effectively combat money laundering and terrorist financing, the country must strengthen its risk assessments, private sector involvement, and coordination mechanisms.