By having failed to adequately comply with the recommendations of the Financial Action Task Force (FATF) on concerning anti-money laundering and counter-terrorism financing (AML/CFT) measures, Mongolia has been added to the FATF’s grey list along with Iraq and Zimbabwe on October 4, 2019. The FATF is an inter-governmental body established in 1989 to combat money laundering, terrorist financing and other related threats to the integrity of the international financial system.
Since the completion of its mutual evaluation report (MER) in 2017, Mongolia has made progress on a number of its MER recommended actions to improve technical compliance and effectiveness. Mongolia completed 35 out of 40 technical compliances and seven out of 11 indicates.
Experts who worked on assessment of Mongolia’s request for technical compliance re-ratings and the preparation considered Mongolia is risking all foreign transactions and investments, slowing down the economy and leading to further uncertainty.
Mongolia once succeeded in getting out of the grey list in 2014 after taking actions on money laundering. Mongolia has worked to address weaknesses in its technical compliance with the FATF’s standards since 2017.
After Mongolia get into the Grey list, jointly the Mongol Bank (Central Bank of Mongolia) and Mongolian government are aiming to exit from FATF grey list in 2020 by making the progress in addressing the technical compliance deficiencies identified in its MER which was adopted on July 2017.
One of the action undertaken to combat money laundering and terrorism financing is approval of Procedure on Prevention activities from Money laundering and Terrorism financing under Appendix 1 of Decree No A/26 by the President of Mongol Bank in 2019.
Mongolian legislations on the Combating money laundering and terrorism financing included following regulations:
1. International convention on the suppression of the financing of Terrorism convention (1999): The Convention was adopted without a vote by the United Nations General Assembly in New York on 9 December 1999 (resolution 54/109). It entered into force on 10 April 2002 and, as of 31 October 2008, 167 States were parties to thereto. This instrument aims to facilitate the prosecution of persons accused of involvement in the financing of terrorist activities, by obliging States parties to prosecute them or extradite them to another State that has established its jurisdiction to try them. It also requires States parties to take a number of measures to prevent and counteract the financing of terrorism. Mongolia signed on the convention on November 12, 2001, and the Convention entered into force on February 25, 2004.
2. Law of Mongolia on Combating money laundering and terrorism financing (2013): Mongolia adopted the comprehensive law on combatting money laundering and terrorism financing under International convention on the suppression of the financing of terrorism on 8 July, 2006. On 31 May 2013, the Parliament of Mongolia approved a revised version of the Law of Mongolia on Combatting money laundering and terrorism financing. Mongolia has two national cooperation and coordination mechanisms for its AML/CFT regime. The National Cooperation Council is responsible for ensuring the implementation of the Law on Combating Money Laundering and Terrorism Financing, while the National Counter Terrorism Coordinative Council is mandated to coordinate the implementation and monitoring of the money laundering and terrorism financing.
The Revised Law introduces new concepts including politically-exposed persons, "ultimate (beneficial) owner" and "shell banks". Further it expands the definition of money laundering, so that obtaining or holding of assets known to be illegally obtained will be deemed money laundering in 2018.
Financial institutions that are subject to reporting obligations under the Revised Law ("Reporting Entities") to verify the beneficial owners of their customers. In particularly, legal and business consulting service providers are obliged to undertake a client identification procedure and to report transactions exceeding a certain threshold to the Financial Intelligence Unit of Mongol Bank. Generally, banking and financial institutions are required to report on transactions above MNT 20 million (app USD7,283) to the Financial Intelligence Unit within 5 days after occurrence of such transactions. However, the regulations broadened the scope of the reporting entities, where legal and/or business consultancy service providers which undertake the following transactions on its client's behalf (with a certain threshold) are also included.
3. Procedure on Prevention activities from Money laundering and Terrorism financing under Appendix 1 of Decree No A/26 by the President of Mongol Bank(2019): The revised edition of law of Mongolia on combatting money laundering and terrorism financing introduced many changings on the old regulations in 2018-2019 and introduced the new procedure on Prevention activities from Money laundering and Terrorism financing in 2019(hereinafter "Procedure"). In overall, following key changes introduced by the resolution.
Reporting entities: The Law of Mongolia on Combatting Money laundering and Terrorism financing imposed reporting and "know your costumer" verification obligations on certain regulated financial institutions such as banks, non-banking financial institutions, securities market participants, insurance companies and savings and loan cooperatives.
Under the Procedure, the reporting entities broadened as banks, financial institutions, insurance companies, licensed security market entities, natural persons or legal persons conducting pawnbroker activities, savings and credit cooperatives and natural or legal persons conducting foreign currency exchange activities etc. These legal entities should report to the Financial Information Unit about any transactions that they suspect of money laundering or financing of terrorism or any cash transactions of 20 million tugrugs (or equivalent foreign currency).
State authority: In accordance with Law on Combating money laundering and financing of terrorism, the Financial Information Unit (FIU) was established and built the foundation of combating money laundering and financing of terrorism. The core functions of FIU is to receive reports of suspicious transactions from financial institutions, other natural persons and entities, to analyze them, and to disclose the results to local law-enforcement organizations and foreign FIUs to combat money laundering. This law is chiefly based upon the FATF Recommendations (49 recommendations). According to the law, the FIU was established within the structure of the Bank of Mongolia. The creation of FIU is divided into three types based on its structure and function including the law-enforcement (law-enforcement-type FIU), the administrative (administrative-type FIU) and the judicial (judicial- or mixed-type FIU).
- Law-enforcement-type FIU conducts operations that are in compliance of the Egmont principles and usually a part of an investigation, police agency which is responsible for undercover operations and investigations.
- Administrative-type FIU performs its duties in compliance with Egmont principles within the structure of Central bank, financial supervisory committee or works as an independent FIU. This type of FIU typically enforces compliance with preventive measures for the banks and financial institutions although does not have the functions concerning investigation and undercover operations.
- Judicial and mixed-type FIU conducts all the above-mentioned operations, additionally carries out confiscation and seizing within the structure of the judicial or prosecutorial authority.
The FIU is performing its activities for ensuring the implementation of the international principles and standards pursuant to the Law on Combating Money Laundering and Financing of Terrorism.
Conclusion: The Procedure expands scope and nature of the existing AML/CFT regime with increased reporting requirements and investigative authority. This is reflected in the introduction of concepts that are known in most AML/CFT regimes, specified as regulations on reporting entities. With the reporting entities, the Financial Intelligence Unit ("FIU") at the Mongol Bank will be promoted by certain institutions to implement AML/CFT legislation and to investigate suspicious transactions. The adoption of the Revised Law and Procedure are positive step towards Mongolia having a comprehensive and effective AML/CFT regime that according to the international conventions and standards.
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