VZCZCXRO5952
RR RUEHLMC
DE RUEHUM #0872/01 3490711
ZNR UUUUU ZZH
R 150711Z DEC 06
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC 0605
INFO RUEHUL/AMEMBASSY SEOUL 2558
RUEHBJ/AMEMBASSY BEIJING 5331
RUEHMO/AMEMBASSY MOSCOW 1645
RUEATRS/DEPT OF TREASURY WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC 0422

UNCLAS SECTION 01 OF 03 ULAANBAATAR 000872 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
JUSTICE FOR AFMLS, OIA, AND OPDAT 
TREASURY FOR FINCEN AND EB/ESC/TFS 
STATE FOR INL, EAP/RSP, EAP/CM 
STATE FOR MCC JIM HALLMARK 
 
E.O. 12958: N/A 
TAGS: EFIN KCRM KTFN PTER MG
SUBJECT: INCSR Part 2: Financial Crimes and Money Laundering 
 
REF:  State 157136 
 
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET 
DISTRIBUTION. 
 
¶1. (U) Mongolia is not an important regional financial center nor 
considered an offshore financial center, although there are no laws 
prohibiting the establishment of offshore entities in Mongolia. 
 
¶2. (SBU) Mongolia's economy and banking system are relatively small, 
depriving the cover needed for large scale money-laundering 
activities. However, the dramatic rise in mineral prices, coupled 
with increases in foreign direct investment over the past few years 
mean more money is flowing into the country.  Mongolian police fear 
that some of this money may be "dirty," but cannot cite known 
examples.  The GOM states it is not aware of any information 
indicating the transfer by financial institutions of incomes derived 
from illegal trafficking of narcotics or generating of such income 
in the U.S.  To date, there have been no cases of known or suspected 
terrorist individuals or groups attempting to engage in transactions 
with Mongolian banks. 
 
¶3. (SBU) Although small quantities of smuggled consumer goods, 
mostly from China, are common, they are generally not believed to be 
funded by narcotics or other illicit activities.  Some goods, such 
as raw cashmere, also are smuggled out to China.  This small-scale 
smuggling trade to/from China is believed to operate on a cash 
basis.  The smuggling of gold out of the country remains 
problematic, especially after the passage of a 68% windfall profits 
tax on gold and copper in May, but there are no known cases of such 
incidences funding other criminal activity. 
 
¶4.  (SBU) According to official figures, Mongolia received US $62.6 
million in overseas cash remittances in 2003 (latest figure).  A 
significant amount of remittances, particularly from South Korea, 
are remitted through informal or "grey market" channels.  Some 
public estimates of overall remittances run as high as $250 million 
a year, although the accuracy of these guesses is unknown.  Police 
believe these informal channels are used to avoid taxation rather 
than as part of terrorism, money-laundering or narcotic trafficking 
schemes. 
 
¶5. (SBU) Though crimes related to banking activities such as bank 
fraud and counterfeiting are rare, banking officials suspect that 
such crimes are on the rise.  Counterfeiting of local currency is 
most common; however, the modest North Korean presence in Mongolia 
also makes the country potentially vulnerable to counterfeit U.S. 
currency.  In February, Mongolian authorities detained for 
examination over $1 million in U.S. and Japanese currency being 
carried into the country by a North Korean bank's couriers for 
deposit into a Mongolian bank.  Authorities did not find any 
counterfeit currency, and released the money (note: additional 
details in classified reporting).  There are no known cases of 
charities involved in money laundering.   The Secret Service 
provided counterfeit training to Mongolian law enforcement and 
banking officials in April 2006. 
 
¶6. (SBU) A Nonbank Financial Regulatory Commission (NBFRC), which 
began operations in January 2006, for the first time has begun to 
provide regulatory oversight for savings and loan and other 
non-banking financial institutions such as insurance brokers, 
Mongolia's stock market, etc.  There is currently a major 
investigation into a savings and loan/credit union bankruptcy 
scandal which resulted in losses of 60 billion tugriks (over $50 
million) for an estimated 9,000 depositors earlier this year. 
Police investigations into the scandal are ongoing and 22 civil 
lawsuits have been filed.  While charges of fraud are possible, the 
failure of the institutions is blamed on malfeasance rather than 
money laundering or narcotics involvement. 
 
¶7.  (U) Mongolia has a law on free trade zones and has designated a 
special economic zone on the border with China at the town of Zamyn 
Uud. This zone has yet to be developed commercially and is 
inactive. 
 
¶8.  (U) Major changes in Mongolia's anti-money laundering situation 
occurred in the last few months, but are not yet complete.  In July 
2006, the Government of Mongolia (GOM) passed the "Law to Combat 
Money Laundering and Terrorist Financing," which brought several 
major changes.  However, many issues have yet to be worked out 
 
ULAANBAATA 00000872  002 OF 003 
 
 
through implementing regulations, and police are at a loss to 
explain how the new law will be enforced until it can be finalized 
in the criminal code.  Amendments to the criminal code have been 
drafted, but are not yet enacted. 
 
¶9.  (U) The law states that money laundering offences apply to "all 
[related] serious crimes," except tax evasion.  There is no specific 
threshold minimum monetary amount.  The Central Bank, tax 
authorities and law enforcement agencies have the power to 
investigate, within their respective jurisdictions, transactions and 
books of banks and other financial institutions. According to 
Article 39 of the Criminal Code, officers of financial institutions 
are obligated to provide to law enforcement agencies information on 
crimes that have become known to them. 
 
¶10.  (SBU) Despite passage of the anti-money laundering and 
terrorist finance law, the GOM has yet to define terrorist financing 
in the criminal code, but the work is in draft and officials state 
it should be adopted by year's end.  This lack of criminal 
definition of terrorist financing has left many police officials 
uncertain about their role or powers in conducting terrorist finance 
or money laundering investigations, or what penalties might be 
imposed.  There is also uncertainty about the jurisdiction of the 
various agencies involved in uncovering, investigating and 
prosecuting violations of the new law. 
 
¶11.  (SBU) Mongolia created a Financial Investigation Unit (FIU) at 
the end of November 2006, as required under the new law.  Currently, 
the FIU has two investigators, with plans to introduce two more. 
The first stage will create a four person group, with plans for 
later expansion.  FIU members are predominately law, finance, and 
information technology experts.  The FIU is funded by and housed in 
Mongol Bank (the central bank), but will remain an independent 
entity.  It monitors the activities of all banks and ensures they 
operate legally.  FIU is responsible for detecting criminal 
activities within the banking sector, but investigative 
responsibilities are left to the Financial Crimes Unit of the 
Mongolian National Police, who are charged with investigating all 
financial crimes including money laundering and terrorist financing. 
 At present, the FIU lacks the capacity or know-how to tackle some 
of the more complex financial crimes.  Mongolia recognizes that FIU 
is still in its infancy and will take some time to develop fully. 
The Asian Development Bank recently began anti-money laundering 
training, and is working with the administration of Mongol Bank. 
Mongolian officials have requested anti-money laundering training 
from American experts. 
 
¶12.  (U) The AML introduces suspicious transaction reporting (STR) 
requirements. Every cash transaction of 20 million tugriks (USD 
$17,250) or more must be reported, as must any other suspicious 
activity.  The AML also provides that legal entities conducting the 
activities of banks, non bank financial institutions, commercial 
insurance companies, activities described by Article 15.3.1 of the 
Law on Special Licensing of Commercial Activities, savings and loan 
cooperatives, and their subsidiaries or branches have an obligation 
to inform relevant agencies about applicable transactions. 
Transaction records must be kept for five years. 
 
¶13.  (U) The Law on Foreign Currency Regulation (Article 17 and 
others) has provisions that regulate the flow of foreign currency 
through the Mongolian border.  Under the AML, Customs authorities 
are required to monitor cash flowing in and out of Mongolia and 
cooperate with all FIU inquiries.  Amounts over 5 million tugriks 
(US $4300) must be declared to authorities.  Border checkpoints 
maintain name lists of those who carry large amounts of cash into 
Mongolia, and require these people to report on how much cash they 
take back out of the country.  Cash couriers are subject to the same 
policies. 
 
¶14.  (SBU) The smuggling of bulk shipments of cash (U.S. dollar, 
Chinese Yuan and/or Mongolian tugriks) in and out of Mongolia is 
relatively common, especially along its southern, porous, boarder 
with China where merchants engage in "suitcase trading."  Quite a 
few cases have emerged involving Chinese traders smuggling large 
amounts of money into the country to buy iron, steel, animal parts 
and more.  In such cases, Mongolian police try to work with Chinese 
counterparts.  With the introduction of the new anti-laundering law, 
police can now investigate money-laundering or organized crime 
angles pertaining to such shipments.  Police pay attention to 
international trafficking of foreign currency or other payment 
 
ULAANBAATA 00000872  003 OF 003 
 
 
documents that have illegal origins, but there have been no 
investigations to date. 
 
¶15.  (SBU) Mongolia has been slow to establish interagency 
coordination mechanisms to help monitor international financial 
transactions.  Moreover, growing corruption, a weak legal system, an 
inability to effectively patrol its borders to detect smuggling, and 
lack of capacity to conduct transnational criminal investigations 
all hamper Mongolia's ability to fight all forms of transnational 
crime.  Police and investigators admit that they do sufficiently 
share information or cooperate with other units. 
 
¶16.  (SBU) The Foreign Currency Department of the Central Bank 
regularly distributes the lists of members of al-Qaida, the Taliban 
and other associated persons, supplied by the USG, to banks and 
financial institutions along with recommended measures. 
 
¶17.  (U) There is a system to track, identify, investigate, seize, 
confiscate or impose fines regarding assets created through grave 
crimes such as international trafficking, narcotics-related crimes 
or funding of terrorism.  These proceedings would be carried out 
according to rules provided by the Criminal Code and the Criminal 
Procedure Code.  Mongolia has the right to seize money that is 
involved in a narcotics case.  Assets confiscated or fines collected 
are transferred to the general GOM budget.  The FIU can freeze 
assets for three days and hand them over to the police for further 
investigation.  Police have all investigatory responsibilities. 
Tracing and seizing assets is the duty of the police and courts. 
 
¶18.  (SBU) The U.S. has not yet requested any laundering 
information.  In recent years, Mongolia has increased its 
participation in forums that focus on transnational criminal 
activities and, in 2004, became a member of the Asia Pacific Group 
(APG) on Money Laundering.  APG began to conduct an initial peer 
review of Mongolia's anti-money laundering regime in late 2006. 
 
¶19.  (SBU) The President of Mongolia directed the introduction of 
legal regulations combating terrorism by issuing Decree #60 in 2001 
on, "Supporting Establishment of an International Coalition Against 
Terrorism."  Accordingly, the GOM adopted Resolution #226 in 2001, 
entitled "Supporting Activities of the International Coalition 
Against Terrorism."  The resolution requires relevant agencies to 
exchange information and cooperate with their counterparts in 
coalition countries regarding terrorists, drug-trafficking and money 
laundering actions. 
 
¶20.  (SBU) Mongolia is a party to the 1988 UN Drug Convention. 
Mongolia became a party to the UN International Convention for the 
Suppression of the Financing of Terrorism on February 25, 2004.  The 
GOM ratified the UN Convention Against Corruption in October 2005. 
An anti-corruption law was passed in July 2006.  It did not define 
any new crimes, but created an independent anti-corruption agency 
with investigatory powers, and introduced a requirement for asset 
and income disclosure from all public officials.  The new agency is 
not yet in operation. 
 
Minton