30 July, 2012


Legal News & Analysis – Asia Pacific – Mongolia


In recent years, foreign direct investment in Mongolia has surged, particularly in the energy and natural resources sector, rising from approximately US$2 million in 1992 to over US$1.4 billion in 2010. At the same time, Mongolia has undertaken widespread economic reform to privatise government enterprises.
Corruption is, however, pervasive in Mongolia and represents a key threat to its economic growth. In Transparency International’s latest Corruption Perceptions Index, the country scored very poorly and was ranked alongside Tanzania, Mozambique, Guyana and Ethiopia. Many attribute Mongolia’s problems in this area to the country’s rapid transition to democracy and market economy which have placed huge demands on a regime that lacks the resources, checks and balances to prevent corruption.
That said, Mongolia’s Independent Authority against Corruption (the “IAAC”) has begun to increase its public profile in recent years. Established in 2006, it now has approximately 90 staff members and an annual budget of nearly US$1.65 million. It has recently undertaken a number of high profile investigations and is currently prosecuting former President Nambaryn Enkbayar in a case which is being watched closely around the world.
Recent international corruption cases
UTStarcom, Inc
No multinational has been charged with violations of the FCPA for operations in Mongolia since 2009. The most recent case concerned UTStarcom, a NASDAQ-listed, Fortune 1000 company that provides interactive protocol-based network products for telecommunications corporations. On 31 December 2009, UTStarcom settled FCPA charges with US authorities, agreeing to pay a criminal fine of US$1.5 million to the SEC and an additional US$1.5 million to the DOJ.
According to the charges, between 2002 and 2007, UTStarcom made payments to sham consultants in Mongolia knowing that they would pay bribes to foreign government officials on UTStarcom’s behalf. The unlawful payments took the form of a US$1.5 million “licensing fee” that in fact, had a fair market value of only US$50,000. The DOJ became aware of the conduct after it was notified of the allegations by the US Embassy in Mongolia in 2005.
Recent domestic corruption cases
Ex-President arrested on graft charges
In April 2012, Nambaryn Enkbayar, the President of Mongolia from 2005 until 2009, was arrested on corruption charges. The timing of the arrest, which came shortly after Enkbayar released classified transcripts of a national security council meeting that supposedly shed light on corruption in connection with the country’s 2008 elections, has engendered speculation abroad that the arrest was politically motivated. Enkbayar, who has subsequently been charged by the IAAC, claims that that the allegations have been made as a means to bar him from participating in the country’s June 2012 parliamentary elections. Although Enkbayar’s June trial date has been postponed, Mongolia’s General Election Commission voted to reject Enkbayar’s candidacy for the 28 June elections amid the pending corruption charges.
Investigation into the conduct of government officials
On 22 March 2012, a member of the Mongolian Parliament and the Head of the Democratic Union of Mongolia, submitted an application to the IAAC, requesting an investigation into the conduct of several government officials. In a potentially related matter, the former chairman of the Mongolian Mineral Resources Authority and an advisor to Prime Minister Batbold, was arrested in May 2012 on corruption charges relating to the issuance of mining permits. The investigation is ongoing.
Recent developments in domestic anti-corruption legislation
New conflict of interest law
On 19 January, 2012, Mongolia’s Parliament passed the Law on Preventing Conflict of Interest in Public Service, which introduced restrictions on the private holdings of public officials. Under the regime, public officials are required to report all business holdings to the IAAC. The Law could have significant consequences as many members of Parliament reportedly have extensive business holdings.


For further information, please contact:


Kyle Wombolt, Partner, Herbert Smith


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