Mongolia failed to escape grey-listing of the Financial Action Task Force (FATF) due to “strategic deficiencies” in anti-money laundering and combating the financing of terrorism (AML/CFT).
Failing to adequately comply with the recommendations of the FATF, Iceland and Zimbabwe were also added on the watch list along with Mongolia after FATF’s meeting held in Paris last week. While Sri Lanka, Tunisia, and Ethiopia were removed from the list, Pakistan will remain on the grey list until February 2020.
“Each jurisdiction has developed an action plan with the FATF to address the most serious deficiencies,” the inter-governmental organization for AML/CFT said in a statement. “FATF welcome their high-level political commitment to this action plan.”
Mongolia entered FATF’s grey list in 2013, but narrowly slipped out of it with specific conditions as the country managed to meet some of the requirements and made specific commitments.
In 2016, FATF strongly urged Mongolia to enforce the laws with a set of recommendations. The recommendations included enhancing economic transparency, improving oversight on the financial market, and holding those who break laws accountable. Complying with the recommendation, the Mongolian government formed the National Council to Combat Money Laundering and Terrorism in April 2017.
However, failing to produce the desired outcomes, Mongolia was put under strong scrutiny from the FATF. Despite being under FATF’s enhanced monitoring and making significant progress in addressing the technical compliance deficiencies identified in its Mutual Evaluation Report (MER), Mongolia has re-entered the grey list.
According to FATF, Mongolia had upgraded on 16 out of 40 recommendations put forward by FATF and received a “C” evaluation during the international conference with Asia/ Pacific Group on Money Laundering (APG) and FATF, held in Bangkok in September. However, the jury evaluated that insufficient progress had been made to justify a re-rating of four recommendations.
These recommendations were:
• Improving the operations of state organizations working against money laundering and against the possible spread of weapons of mass destruction.
• Increasing the number of solved money-laundering cases, including number of investigations, cases transferred to prosecutors and number of cases judged by court.
• Improving confiscation methods relating to financing terrorism.
• Enhancing prevention work on financing and spreading weapons of mass destruction.
After the latest session discussing Mongolia's status, FATF reported, “In October 2019, Mongolia made a high-level political commitment to work with FATF and APG to strengthen the effectiveness of its AML/CFT regime. Since the completion of its MER in 2017, Mongolia has made progress on a number of its MER recommended actions to improve technical compliance and effectiveness, including by enhancing its money laundering and terrorist financing risk understanding, and introducing a comprehensive institutional framework to give effect to proliferation financing of targeted financial sanctions obligations, and enhancing its legal framework through legislative measures and guidance.”
Mongolia is now committed to implement an additional action plan for enhancing its AML/ CFT system, which includes the following.
1. Improving sectoral money laundering and terrorist financing risk understanding by designated non-financial business and professional supervisors, applying a risk-based approach to supervision, and applying proportionate and dissuasive sanctions for breaches of AML/CFT obligations.
2. Demonstrating increased investigations and prosecutions of different types of money laundering activity in line with identified risks.
3. Demonstrating further seizure and confiscation of falsely/non-declared currency and applying effective, proportionate and dissuasive sanctions.
4. Demonstrating cooperation and coordination between authorities to prevent sanctions evasion; and monitoring compliance by financial institutions and designated non-financial businesses and professions with their proliferation financing-related targeted financial sanctions obligations, including the application of proportionate and dissuasive sanctions.
WHAT IT MEANS TO GET
GREY-LISTED?
Analysts forecast that a placement on the grey list could put uncertainty on Mongolia’s economy and banking sector, as well as the local currency, tugrug.
Before the country was grey listed, De Facto D.Jargalsaikhan wrote in an article, “If Mongolia is added to the grey list by the end of this year, international banks will freeze the checking account at Mongolian commercial banks, which means Mongolians won’t be able to use their credit cards abroad. If this happens, people will have no choice but to carry cash when traveling. When the demand for cash suddenly increases, it will significantly depreciate the tugrug. This will lead to the exchange rate exceeding 7,000 MNT for one USD.”
Speaker of Parliament G.Zandanshatar warned earlier this month that if Mongolia is classified as a de facto money laundering country, international organizations may refuse cooperate, foreign financial institutions may pull out of the country, face severe reduction in international trade and foreign investments, Mongolian population may no longer be allowed to use their international bank cards, and overall, people of Mongolia and the nation will face the risk of financial ruin.
Mongolia's re-entry on the grey list will most likely cause setbacks in the financial sector and will require the country to take faster actions to enhance its AML/CFT regime. The decision has already upturned the currency exchange rate at Naiman Sharga, the main currency exchange center in the country.
Nevertheless, FATF didn’t put any sanctions on the country, which means Mongolia has a good chance of slipping out of the watch list provided that it adequately fulfills assigned recommendations.
