Mongolia’s Legal Arrangements Limit Foreign Trust Structures

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Mongolia has been found to have a legal framework that does not allow for the formation of foreign trusts with similar structures or functions, despite efforts to combat money laundering and terrorist financing (ML/TF).

Overview of the Situation

According to an international organization’s assessment, foreign trusts are not a significant feature in Mongolia’s economy. There is no evidence suggesting that designated non-financial businesses and professions (DNFBPs) are involved in such activities.

Money Laundering and Terrorist Financing Threats

The report highlighted several vulnerabilities related to ML/TF:

• Limited expertise among relevant agencies
• Significant gaps in the legal framework related to terrorist financing
• Lack of oversight of non-profit organizations (NPOs)
• Negligible implementation of terrorist financing regulations in DNFBPs

Sanctions Evasion

Mongolia has exposure to sanctions evasion related to prohibited financial activities, particularly with regards to North Korea and Iran. There are approximately 1,500 Democratic Republic of North Korea citizens working in Mongolia, who are paid via formal arrangements between Mongolia and North Korea.

Conclusion and Recommendations

The report concluded that Mongolia’s overall level of effectiveness and technical compliance is limited due to inadequate risk assessments, coordination, and policy setting. To effectively combat ML/TF threats, the country needs to:

• Improve its understanding of ML/TF risks and vulnerabilities across government agencies and the private sector
• Strengthen its legal framework
• Increase coordination among government agencies

The international organization emphasized that Mongolia’s financial intelligence, including the Financial Intelligence Unit (FIU), is being used to a limited extent to combat ML/TF.