New AML Law: Better Than Nothing, But Implementation Will

UNCLAS SECTION 01 OF 03 ULAANBAATAR 000658

SIPDIS

SENSITIVE
SIPDIS

STATE PASS USTR, PEACE CORPS, OPIC, AND EXIMBANK
STATE FOR EAP/CM, EB/TPP, OES/IHA
USAID FOR ANE DEIDRA WINSTON
LONDON AND MANILA PLEASE PASS TO USEDS TO EBRD AND ADB

E.O. 12958: N/A
TAGS: EFIN PTER ECON PREL SNAR MG
SUBJECT: New AML Law: Better Than Nothing, But Implementation Will
Be Important

Refs: (A) 03 Ulaanbaatar 015, (B) 03 Ulaanbaatar 630, (C)

Ulaanbaatar 475, (D) Ulaanbaatar 537

Sensitive But Unclassified -- not for Internet distribution.



1. (SBU) SUMMARY: At the end of June, Mongolia's parliament passed
the country's first anti-money laundering (AML) law. The step
followed years of foreign exhortations, including and especially
from the United States, about the danger that Mongolia might become
a money laundering center. There were sharp differences in Mongolia
about the details of the new law, helping to explain why it took
three years to be presented to parliament. Parliament, though,
appears to have been so distracted by other important pending
legislation that legislators appear to have not carefully considered
all of the details. With the focus now on implementing the new law,
there are doubts about Mongolia's capacity and political will.
Mongolian officials have expressed a strong desire for technical
assistance, much of which likely will be routed through the Asia
Pacific Group (APG). On August 31, the Embassy hosted a DVC between
APG and a spectrum of Mongolian officials, with a view toward kick
starting cooperation in advance of APG's first review of Mongolia,
which is scheduled for December. END SUMMARY.

The Context
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2. (U) The lack of an appropriate legal framework and weak
oversight of the banking sector have helped to make Mongolia a
tempting place to launder money (ref a). Mongolia's geographic
location also makes it a potentially convenient destination for
dirty money departing North Korea, China, or Russia. While no hard
evidence of money-laundering has yet emerged, there is anecdotal
evidence it exists; and Mongolia has been awash in cash and
unexplained economic activity.


3. (SBU) The passage of the AML bill comes with the aid of
significant external incentives. For several years, the U.S. and
other donors have strongly signaled Mongolia about the urgent need
to adopt improved AML safeguards, including AML legislation
consistent with international best practice standards (ref b).
Donors have made clear that failure to act would carry important
consequences for Mongolia's international reputation. The Asian
Development Bank (ADB) made passage of the AML bill an explicit
precondition for release of the first tranche of a financial sector
budget support program for Mongolia. Treasury Deputy Assistant
Secretary Glaser's visit this June (ref C) continued U.S. pressure.

SIPDIS
Meanwhile, tighter banking practices elsewhere provided supplemental
pressure. Mongolian banks have found it increasingly hard to gain
correspondent banking relationships, because the country's lack of
an AML raised a red flag with foreign banks' own compliance
officials.

Differences Over the Details
--------------


4. (SBU) A working group consisting of Mongol Bank and Ministry of
Finance officials began drafting AML and anti-terrorist financing
legislation in late 2003. The original draft of the bill followed
UN model legislation with some adjustments to accommodate Mongolia's
legal system. However, the inability of successive governments to
reach compromise on various technical details delayed the bill from
reaching Parliament until earlier this year. Even after the draft
was submitted, sharp internal differences persisted. During DAS
Glaser's visit in early June, a roundtable with Ministry of Justice
and law enforcement officials degenerated into a heated shouting
match among Mongolian participants regarding the details of the then
pending law.


5. (U) One of the more intractable arguments was resolved when it
was agreed that the Financial Intelligence Unit (FIU) in charge of

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AML oversight and investigations would be housed in Mongol Bank.
Both Mongol Bank and the Ministry of Finance had initially laid
claim to the FIU. Another thorny issue concerned the amount of
power that would be granted the FIU, reflecting the tension between,
on the one hand, a need to grant FIU sufficient independence and
power to fulfill its mandate; and on the other hand, the aversion of
many members of Parliament (MPs) to the idea of creating another
clandestine inspection body in the mold of the General Intelligence
Agency. While a compromise has been reached based on the letter of
the law, it remains to be seen how this tension will play out on the
operational side.


6. (U) Another disagreement arose over the cash reporting limit,
with some arguing that, since Mongolia is a largely cash-based
society, limits should be set high; otherwise, technical and
bureaucratic capacity constraints might make it difficult to monitor
a large number of reportable transactions. Some MPs had tried to
push for a cash reporting limit of Tg50 million (roughly $42,000 at
the current exchange rate of USD 1.00 = MT 1165). The new AML law
imposes a cash reporting limit of Tg20 million (roughly $17,000).

The Law Passes
--------------


7. (SBU) On June 29, parliament passed the AML (ref D). Parliament
gave limited scrutiny to the AML bill, because they faced a crowded
Spring session agenda (which included several major tax reform
bills, anti-corruption legislation, and significant amendments to
the minerals law) and fervently desired to wrap up business before
the approaching Naadam holiday. MP Oyun -- as conscientious a
legislator as exists in parliament -- candidly told a recent
gathering of foreign businessmen that, when the AML bill was brought
to a vote, she and many other MPs were so focused on negotiations
over the recent tax bills, that they voted to support the AML bill
without bothering to consider its content. Parliament knew that it
needed to pass an AML bill, and here it was.


8. (U) After several weeks of post-passage "technical review" by
parliamentary staff and the Speaker, a text of the law was released.
An English translation of the bill has been passed to DOJ as well
as Treasury's Terrorist Financing and Intelligence unit in
Washington, DC. Embassy awaits DOJ's opinion of the legislation.
The Mongolian government's informal translation of the law is
available at the source below. However, ADB technical assistance
personnel have commented that the translation is rough and inexact,
and expect Mongol Bank to issue a corrected translation in a few
weeks. We will post the revised version when available, and will
email it to Washington agencies.

http://www.geocities.com/freemanpj/AML_law.ht m.

Parliament's website has the Mongolian text:

http://www.parl.gov.mn/parl/docs/LL/06-h-19.d oc

Implementation and External Technical Assistance
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9. (SBU) With an AML law in place, the focus turns to
implementation. The somewhat disinterested nature of domestic
support for the AML bill raises concerns that the legislation was a
gesture to appease donors, and that as a result, the need for
follow-on enforcement measures will fail to gain traction. However,
Mongolian officials, and officials at Mongol Bank in particular,
have been vocal in asking for donor technical assistance (TA) on AML
implementation.


10. As part of its financial sector budget support program for
Mongolia, the ADB will be dispatching a TA team to assist in the
establishment of the FIU in Mongol Bank. Mongolia's first mutual
evaluation (ME) with the Asia Pacific Group (APG),currently

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scheduled for December, will provide an excellent opportunity to
diagnose its technical needs. The Embassy has told Mongolian
officials, per Washington's direction, that any U.S. technical
assistance will be delivered through the APG.

August 31 Videoconference With APG
--------------


11. To help ensure a good start to mutual engagement, the Embassy
hosted a digital video conference between APG and Mongolian
interagency officials on August 31. The chief aim of the event was
to provide the Mongolians with an opportunity to learn about the ME
process and its significance as an internationally-recognized
diagnostic mechanism. Members of the ADB TA team assisting in the
establishment of the Mongol Bank FIU, as well as a small group of
Mongolian commercial bankers, attended. Both the APG and the
Mongolian government attendees expressed pleasure with the ability
to have a direct exchange as Mongolia prepares for the evaluation.
The APG commented that the dialogue set a useful precedent it likely
will seek to use with other countries undergoing their first APG
evaluation, and specifically mentioned Cambodia as one such
country.


12. The Embassy is especially grateful for the assistance of ConGen
Sydney, which will be hosting the APG officials taking part.

Slutz