VZCZCXRO0211
PP RUEHLMC
DE RUEHUM #0537/01 1980725
ZNR UUUUU ZZH
P 170725Z JUL 06
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC PRIORITY 0123
INFO RUEHUL/AMEMBASSY SEOUL 2347
RUEHBJ/AMEMBASSY BEIJING 5113
RUEHOT/AMEMBASSY OTTAWA 0333
RUEHMO/AMEMBASSY MOSCOW 1545
RUCPODC/USDOC WASHDC 1066
RUEATRS/DEPT OF TREASURY WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RHEFHLC/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC 0313
RHHMUNA/USPACOM HONOLULU HI
RUEKJCS/SECDEF WASHDC

UNCLAS SECTION 01 OF 02 ULAANBAATAR 000537 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV EMIN EINV SNAR KCRM EFIN ECON MG
SUBJECT: Mongolia's Parliament Passes Tax, Anti-Money- 
Laundering, Minerals, and Anti-Corruption Laws 
 
Ref: Ulaanbaatar 380 
 
¶1.  SUMMARY:  Prior to the July 11-14 Naadam national 
day holiday, the State Great Hural (SGH - Parliament) 
passed three major pieces of legislation: an anti- 
corruption law; an anti-money laundering law; and 
amendments to the minerals law.  The bills culminated a 
busy spring session for the legislature.  At the end of 
June, the SGH passed several tax bills that will 
significantly change Mongolia's tax regime.  END 
SUMMARY. 
 
LAWS NOW UNDERGOING EDITING, PRESIDENT'S REVIEW 
--------------------------------------------- -- 
 
¶2.  With the exception of the tax legislation 
(comprising four bills, affecting corporate, personal, 
value added, and excise taxes), final texts of the laws 
are not yet available.  As well as last minute changes 
which may have been made to bills in the hectic rush to 
pass them prior to Naadam, Mongolian parliamentary 
procedure allows for substantive changes to be made 
during a "technical" editing period before bills are 
formally sent by the SGH to the President for review. 
This final editing can take a full working week.  Once 
the President receives a bill, he has five working days 
to consider vetoing the law in full or part. 
 
TAX CUT BILLS WELCOMED; IMPACT ON GOM FINANCES TBD 
--------------------------------------------- ----- 
 
¶3.   Preliminarily, the bills present a mixed picture. 
The tax reform bills -- which lowered rates and 
introduced provisions allowing for deductions of 
business expenses, depreciation, and loss carry forward 
-- have generally been welcomed by domestic and foreign 
businesses.  However, the IMF worries about the impact 
on budget finances of lower tax rates given proposed 
social expenditures increases.  The fall SGH session, 
set to begin in October, is slated to consider customs 
levies and employment taxes, measures which will 
complete tax reform. 
 
MINING FIRMS LIKE TAX CUTS; MINERALS LAW MIXED PICTURE 
--------------------------------------------- --------- 
 
¶4.  Foreign mining companies have joined in the praise 
for the tax reform measures, which move Mongolia toward 
world standards.  However, they have been vociferously 
critical of the windfall profits tax on gold and copper 
passed by the SGH on May 12 (reftel), both regarding 
the tax itself and the opaque and abrupt way the 
legislation was passed.  Regarding the minerals law 
amendments, there is a grudging acknowledgment so far 
that the final version likely was "not as bad as it 
could have been," but concerns remain over provisions 
allowing for the state to take an equity stake in 
"strategic" mining deposits under certain conditions. 
Royalties for corporate miners were doubled under the 
bill, from 2.5% to 5%; royalties due from placer miners 
(mostly Mongolians) were reduced to 5% from 7.5%. 
Canada's Ivanhoe Mines put out an upbeat press release 
(www.ivanhoe- 
mines.com/s/NewsReleases.asp?ReportID=143713) asserting 
that the tax reform and minerals bills "set the stage" 
for the company to conclude its long quest for a 
stability agreement for its proposed copper mine at Oyu 
Tolgoi. 
 
ANTI-CORRUPTION, MONEY-LAUNDERING LAWS A GOOD START 
--------------------------------------------- ------ 
 
¶5.  An anti-corruption law has been under consideration 
since 1999, and an anti-money laundering law for the 
last three years.  The State Great Hural's passage of 
these two bills is a significant milestone in 
Mongolia's efforts against both problems.  However, 
details of the measures as passed remain murky, and 
prior to passage the SGH apparently removed conflict of 
interest provisions from the anti-corruption law as 
 
ULAANBAATA 00000537  002 OF 002 
 
 
being "too complicated" in Mongolia's small and 
interwoven polity.  Even without that excision, the 
anti-corruption law would only have made a good 
beginning at bringing Mongolia into compliance with its 
obligations under the UN Convention Against Corruption, 
with additional legislation required.  Moreover, 
Mongolia will require political will, human resources, 
and technical skills to implement the anti-corruption 
and anti-money laundering laws; concerns exist as to 
whether it has any of these.  Mongolia will also have 
to craft anti-terrorism finance laws to complement its 
new AML.  (NOTE:  Treasury had earlier offered to 
assist Mongolia once an AML had passed with training 
for its soon-to-be-created Financial Intelligence Unit. 
Following an analysis of the AML itself and after 
consulting with the Bank of Mongolia and Ministry of 
Finance, a clearer picture will emerge of Mongolia's 
technical assistance needs.) 
 
Slutz