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Wednesday, July 6, 2011

Mongolia Briefing is a magazine and daily news service about doing business in Mongolia. We cover topics relating to the Mongolian economy, the market in Mongolia, foreign direct investment and Mongolian law and tax. It is written in-house by the foreign investment professionals at Dezan Shira & Associates

Revised Law on Combating Money Laundering and Terrorism Financing

By Elena Fehrbach

The revised version of the Law on Combating Money Laundering and Terrorism Financing has been approved by the Parliament of Mongolia. The previous version of the Law was adopted on July 8, 2006. Under this Law certain financial institutions were obliged to verify their customers with “know your customer” procedures and report certain type of transactions in case anything suspicious has been revealed. Later, the Financial Intelligence Unit has been established at the Bank of Mongolia. The key responsibility of this Unit was a collection of reported data and monitoring of subsequent implementation of the Law.

The previous version of the Law has always been considered a comprehensive regulation, however it has drawbacks, which are currently addressed in the new revised version of the Law. The new version of the Law is now applicable to a wider scope of financial institutions and wider range of reportable transactions. The new Law is now based on international best practices related to “know your customer” procedures, as it requires the ultimate beneficial owners to be reported by the reporting financial institutions. It also implies strict monitoring of transactions made by Politically- Exposed Persons.
The new Law defines “money laundering” as obtaining or holding of assets known to be illegally obtained.

New in the Law:

Politically Exposed Persons
Politically- Exposed Persons are defined in the list of high ranking “public service roles” stated in the the Law on Regulating Public and Private Interests in Public Service and Preventing Conflicts of Interest (CIL). CIL was adopted on 1 May 2012 aiming to prevent the conflict of interest between the official duties and private interests of persons having public service roles. The “private interests” refer to proprietary or any other interests of a public service official or his/her related persons that could affect the dismissal of official duties by a public service official.

The new version of the Law is also establishing the definition of an “ultimate owner”. This concept refers to an individual who indirectly manages or controls the activities of a customer, or who is an original founder of the legal entity that own a customer entity. One of the key obligations of Reporting Entities will be verification of of the ultimate owners of customers and extension of monitoring procedures for transactions that are:

  1. Made by or on behalf of Politically-Exposed Persons.
  2. Have highly fluctuating amounts.
  3. Have no economic basis.
  4. Completed through the countries that do not have proper Anti- Money Laundering Law adopted.

Reporting Entities
Reporting entities are the financial Institutions which are obliged to report to the Financial Intelligence Unit in case of suspicios transaction. Under the Law, Reporting Entities should verify the “ultinate owners” of activities. One of the differences between new and old versions of the Law is the scope of regulated financial activities that classify legal entities as Reporting Entities. The previous version of the Law has been covering banks, non-banking financial institutions, insurance companies, securities market participants, loan and savings enterprises. The new version adds to this list real estate companies, public notaries and investment funds.

The scope of obligations that Reporting Entities should fulfill is wider in the new version of the Law. Reporting Entities are obliged to perform the following:

  1. Detailed review and verification of information about customer before the monetary transaction is completed and in specific circumstances.
  2. Report these transactions on a regular basis in case the transaction amount exceed 20 million MNT.
  3. Very strict monitoring of those transactions that require high level of attention, as for example transactions completed by Politically- Exposed Persons.
  4. Development and implementation of internal programs and procedures to insure compliance with the Law.

Further, Mongolian banks have no right to open accounts in so-called “shell banks”- banks with no physical presence in the jurisdiction in which it is registered. Mongolian banks are strictly required to verify the foreign banks before opening accounts.

Regulating Authority
Financial Intelligence Unit is the authority in charge to implement the Law. According to the Law, FIU has right to monitor all the bank accounts opened at the Reporting Entities and suspend transactions that are assumed to be related to anti- money laundering operations. The suspension term could be 3 days and more based on the court order.

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