Mongolia

Mongolia Corruption Report

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Corruption is a high risk for companies operating in Mongolia, stemming from political corruption and pervasive judicial corruption. Key anti-corruption legislation includes the Criminal Code and the Anti-Corruption Law, which prohibit active and passive bribery and the abuse of functions. The legislation lacks a clear definition for anti-corruption offenses and is inconsistently enforced. Facilitation payments are a grey area, and gifts are not expressly mentioned in the legislation but are likely to be considered bribery. The maximum punishment is up to ten years' imprisonment and fines. Mongolia has ratified the United Nations Convention against Corruption. 

Last updated: May 2016
GAN Integrity

Judicial System

There is a high risk of corruption in the judicial system. Corruption, nepotism and human rights violations are attributed to the judiciary being weak in Mongolia (BTI 2016). The judiciary's independence is guaranteed under the constitution; however, outside influences exist (HRR 2014). A lack of guidance, staff and resources make the judiciary susceptible to corruption, especially when large sums of money are involved (e.g., cases pitting large foreign corporations against a domestic government agency or a well-connected private Mongolian citizen) (ICS 2015). Irregular payments or bribes to obtain favorable judicial decisions are often exchanged (GCR 2015-2016).

Companies find that existing laws are not effective for making the business environment transparent and corruption-free, and the legal framework lacks efficiency when challenging regulations or settling disputes (Asia Foundation, Sep. 2015; GCR 2015-2016). Two-thirds of Mongolian survey respondents perceived their treatment by judiciary to be unfair (Asia Foundation, Jun. 2015). 

The 2015 conviction and imprisonment of three mining sector employees suggests that Mongolian courts do not fully adhere to principles of due process. Foreign investors are at risk of being coerced into settling legal disputes on disadvantageous terms, and of having their exit visa denied (ICS 2015; Forbes, Nov. 2014).

Police

There are no reports of corruption within the police. The mechanisms to investigate and punish abuse within the police force are inadequate (HRR 2014). Businesses find that the police cannot always be relied upon but report few costs due to crime and violence (GCR 2015-2016). 

Public Services

Corruption is a high risk for businesses in Mongolia when acquiring public licenses, permits or utilities. Most businesses find their operations affected by public sector corruption (Asia Foundation, Sep. 2015). Irregular payments in relation to public utilities rarely, and increasingly less citizens report direct involvement in petty corruption (GCR 2015-2016; Asia Foundation, Jun. 2015). Seven percent of surveyed Mongolians reported having paid a bribe in the past three months, these bribes were usually facilitation payments (averaging around MNT 277,000 each) (Asia Foundation, Jun. 2015). On average, one in three companies expect to give gifts or exchange informal payments to get an operating license (ES 2013). Half of surveyed companies expect bribery when getting a water connection (ES 2013).

Mongolia is vast in size, ranking among the least densely populated countries in the world (Telegraph, July 2015). This affects the delivery of public services, many of which are deficient, as many areas of the country still lack regular access to electricity (BTI 2016). For companies, obtaining electricity for a newly constructed warehouse takes on average 79 days (DB 2016). Starting a business takes only 6 days and costs significantly less than elsewhere in the region (DB 2016).

Land Administration

Mongolia's land administration carries a high corruption risk. Citizens have identified the Land Utilization Agency as the most corrupt institution in Mongolia (Asia Foundation, Jun. 2015). Investors do not consider land expropriation a problem, but there is a lack of clarity regarding the diffusion of responsibilities among the central, provincial, and municipal levels of government. This is a potential cause for the loss of property rights in Mongolia (ICS 2015). Property and contractual rights are generally recognized; however, given the judiciary's inefficiency and its vulnerability to political interference, the enforcement of rights is weak (BTI 2016). Registering property takes significantly less time compared to anywhere else in the region, and the building quality control is very high (DB 2016).

Tax Administration

There is a high risk of encountering corruption in the tax administration. Companies report that bribes in connection with annual tax payments frequently occur: 20 percent of businesses expect to give gifts in meetings with tax officials (GCR 2015-2016; ES 2013). Citizens perception of corruption in the tax administration varies significantly, but Ulaanbaatar citizens perceive a higher risk than citizens in rural areas (Asia Foundation, Jun. 2015).

In 2015, three ex-employees of the Canadian mining company, South Gobi Resources Ltd., were found guilty of tax evasion by a Mongolian court. They were sentenced to jail for five and six years respectively, while the company was fined USD 18 million (Bloomberg, Jan. 2015). The three-year investigation over alleged anti-corruption law breaches and taxation law violations was criticized for its impact on investment and for Mongolia's treatment of foreign nationals (Bloomberg, Jan. 2015). It has also put a spotlight on a legal system that makes employees liable for a company’s wrongdoing and allows authorities to prevent witnesses from leaving the country with exit visa bans (Bloomberg, Jan. 2015).

Customs Administration 

There is a high risk of corruption within the customs administration; irregular payments are common when importing and exporting goods (GETR 2014). Ten percent of companies in the trade sector encounter corruption in the course of their work (AsiaFoundation, Nov. 2015). When getting an import license, 19 percent of businesses expect to exchange informal payments to officials (ES 2013). Mongolian citizens perceive customs officials to be corrupt (Asia Foundation, Jun. 2015). Companies consider the lack of transparency and efficiency at the border administration a competitive disadvantage (GETR 2014).  

Public Procurement

Corruption is a very high risk in the public procurement sector. Most surveyed companies in Mongolia report experiencing corruption in public tendering and contracting (Asia Foundation, Nov. 2015). Bribes and irregular payments are commonly exchanged in connection with awarding public contracts and licenses: One in four companies expect to give gifts to secure a government contract (GCR 2015-2016; ES 2013). The Public Procurement Law mandates all government purchases of goods and services are to be conducted through tender selection, but often politically well-connected entities win such tenders (BTI 2016). Large infrastructure projects are especially at risk of corruption, although e-procurement (which increases transparency) is rapidly expanding (OECD, Oct. 2015).

For further information on e-procurement, companies should visit the Government Procurement Agency of Mongolia website. Companies are strongly recommended to use a specialized due diligence tool on public procurement to mitigate risks associated with public procurement in Mongolia.

Natural Resources

Mongolia's mining sector is perceived to be highly vulnerable to corruption. Most companies rate mining as among the sectors most vulnerable to corruption (Asia Foundation, Sep. 2015). Around 80 percent of FDI has been directed towards the mining industry; however, government involvement has disincentivized investors in recent years. Under the Minerals Law and the Nuclear Energy Law, the state is allowed to acquire equity stakes ranging from 34 percent up to all of certain deposits deemed strategic for the nation, which often involves the mining sector (ICS 2015). Investors question the ability of the state to deal with the conflict of interest arising from being both a regulator and an owner-operator (ICS 2015). In 2013, a criminal court revoked 106 mining licenses that had been granted by an official found guilty of corruption (ICS 2015). 

Mongolia is compliant with the Extractive Industry Transparency Initiative

Legislation

Corruption is addressed by the Anti-Corruption Law (ACL) and the Criminal Code, but the laws lack clear definitions of offenses (OECD, Oct. 2015). Enforcement is also inconsistent (ICS 2015). 

The Criminal Code of Mongolia forbids abuse of functions, money laundering and active and passive bribes of officials and providers. Punishment includes imprisonment for up to ten years and/or fines. The Criminal Code does not discern between officials in the private and public sector, so private sector bribery is criminalized through general provisions against bribery (OECD, Oct. 2015). The ACL establishes the Independent Agency Against Corruption (IAAC) as the principal agency responsible for investigating corruption cases. Gifts are largely covered under corruption-related laws, but facilitation payments remain a grey area.

The Law on Regulating Public and Private Interests in Public Services and Preventing Conflicts of Interest requires officeholders and parliament members to declare their assets to the IAAC each year (BTI 2016). Despite some high-level prosecutions, there exist barriers to effective law enforcement. Mongolia is not a party to the OECD Convention on Combating Bribery but has ratified the United Nations Convention against Corruption. 

Civil Society

Freedoms of assembly and association are provided by law and respected in practice (FitW 2015). Numerous environmental, human rights, and social welfare groups operate freely, and trade unions are independent and active (FitW 2015).

The media landscape is diverse; however, most print and broadcast outlets are affiliated with political parties and display bias (FoP 2015). Both public and private media frequently experience political pressure, and public figures or private organizations often file defamation cases against journalists (FoP 2015). Defamation is a criminal offense for which the burden of proof rests with the defendant; it is punishable by fines of between 51 to 150 times the monthly national minimum wage (roughly USD 6,000 to USD 17,000), or by jail terms of between three and six months (FoP 2015). 

Sources

Topics: East Asia & The Pacific