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Mongolia - Corruption

In accordance with the corruption index produced by Transparency International, Mongolia scored 4.3 points out of 10 in 1999 and ranked at the same level as Poland, Uruguay and Jordan. In 2004 Mongolia scored 3 points, moving backward by 42 positions and ranking at the same level as Armenia, Madagascar, Iran and Romania. In 2006 and 2007, Mongolia scored 2.8-3.0 points ranking at 99th position, but in November 2008 it ranked 108th position. By 2011 Mongolia ranked 120 out of 183 countries, with a score of 2.7 out of 10. This showed that corruption was becoming an increasingly serious problem.

Corruption in Mongolia is a matter of high geopolitics. Landlocked Mongolia is surrouned by Russia and China, both of which covet Mongolia's mineral riches, and both of which use corrupt practices to gain and retain influence in the Mongolia economy and government. Mongolia is seeking to improve relations with its leading "third neighbor" the United States. But American resource extraction companies may be a bit reluctant to enter Mongolia, given the pervasive climate of corruption. Russia and China can collude in discouraging the Americans, by keeping Mongolia corrupt. Faced with the selective nationalization of key mining assets (vaguely defined "strategic" assets), by 2008 several foreign and domestic mining firms had chosen to slow, suspend or cancel their operations in Mongolia. Firms remained highly critical of the Government of Mongolia's (GOM) tendency to sometimes be arbitrary, un-transparent, or inconsistent with respect to the implementation of its mining laws, that is to say, to create opportunities for corrupt payments in return for favorable treatment.

The Mongolian People's Revolutionary Party (MPRP) appears to draw a large proportion of funding from undocumented and consequently illegal sources. The Democratic Party (DP) appears transparent in comparison, and draws from a much broader base comprised largely of individuals. The distinct absence of mining interests in the public contribution records suggests that this sector is providing funds to politicians in secret, and primarily to the Mongolian People's Revolutionary Party (MPRP). In 2008 the minimum election costs for the MPRP may have easily reached USD 11.4 million, suggesting at least a USD 10 million shortfall in reported funds. Although the mining sector accounts for more than 20 percent of GDP, no contribution from them is documented to any party.

Nambaryn Enkhbayar served a single term as president of Mongolia from 2005 until 2009. Enkhbayar was forcibly arrested by Mongolian SWAT teams on 13 April 2012 after what the Mongolian government said was his failure to appear for questioning on charges dealing with instances of corruption.

In general, the performance of Government institutions cannot satisfy public expectations. In accordance with the corruption index produced by Transparency International, Mongolia’s scores have been decreasing significantly over the last decade suggesting that corruption is becoming an increasingly serious problem.

Nambaryn Enkhbayar, president of Mongolia from 2005 until 2009, was forcibly arrested by Mongolian SWAT teams on 13 April 2012 after what the Mongolian government said was his failure to appear for questioning on charges dealing with instances of corruption. Mark Minton, the U.S. Ambassador to Mongolia from 2006 to 2009, said the treatment of former president Enkhbayar contained enough irregularities that questions arising from the treatment need to be answered.

On 08 June 2012 Mongolian President Tsakhia Elbegdorj called on the United Nations, European Union, United States and its other global allies to support Mongolia's efforts to clamp down on public corruption. Earlier this spring, following widespread public reports of misdeeds, Mongolia's Independent Authority Against Corruption (IAAC) called for the arrest of former Mongolian president Nambaryn Enkhbayar after the former official refused to receive subpoenas which detailed numerous corruption-related violations of the Mongolian Criminal Code.

Since the IAAC's first subpoenas were issued to Mr. Enkhbayar in May of 2011, the IAAC initiated 27 separate investigations, ranging from embezzlement to extortion and bribery; of these ongoing investigations, the IAAC initially charged Mr. Enkhbayar with five offenses. President Elbegdorj urged the country's democratic allies to recognize the need for due process of law in Mongolia while an open judicial process moves forward on the charges.

Mongolia is a predominantly cash economy with a large informal sector. There is a significant underground banking sector as well, largely to service the hundreds of thousands of overseas workers sending remittances to Mongolia. The formal commercial banking sector is highly fractured, divided among 16 institutions (including one in conservatorship). Together these factors make Mongolia highly vulnerable to money laundering. The limiting factor has been the country's meager $5 billion GDP.

As of 2005 Mongolia was perilously close to “State capture” - a term coined by World Bank analysts to describe the situation - mainly in the former Soviet Union countries - wherein economic elites (many of whom got their wealth through especially favorable privatization deals) have become so influential that they are effectively able to control state policy to serve their economic interests. State capture differs from the more familiar notion of “lobbying” in that it a) is not transparent and b) seeks not simply to provide advantage to influential economic interests, but ultimately to exclude all others from accessing the state for similar purposes.

China is Mongolia's chief export partner and a main source of the "shadow," or "gray," economy. The gray -- largely cash -- economy is estimated to be at least one-third the size of the official economy, but actual size is difficult to quantify since the money does not pass through the hands of tax authorities or the banking sector. Remittances from Mongolians working abroad, both legally and illegally, constitute a sizeable portion. Money laundering is growing as an accompanying concern.

Opportunities for corruption are increasing in Mongolia at both the “petty” or administrative and “grand” or elite levels. Both types of corruption should be of concern to Mongolians, but grand corruption should be considered a more serious one because it solidifies linkages between economic and political power that can negatively impact or ultimately derail democracy and development, as it has in other post-Communist countries.

Corruption in Mongolia “follows the money,” meaning that graft on the most significant scales generally occurs most often in the industries and sectors where there is the most potential for financial gain. Opportunities for increased corruption emerged during the transition toward democracy and market economy and process of reconnecting to the international community. Two areas that offered particular opportunities for grand scale corruption at that time were foreign donor assistance, such as the US Government wheat donation program, and privatization of state-owned enterprises.

Later, as Mongolia embarked on further policy changes to install capitalistic practices, corruption reared its head in the process of privatizing public land. Now that most ofthe high-valued land has been doled out and the overall economy is expanding, based in part on extractive industries, emerging areas for corruption include the banking and mining sectors. As in many developing countries, there also are several areas that provide stable and consistent opportunities for corruption, both grand and administrative in nature, such as procurement, customs, the justice sector, among high-level elected and appointed officials, and in the conduct of a variety of day-to-day citizen- and business- to -government transactions.

Though it may be possible, though difficult, for average Mongolians to conduct their daily livesand operate businesses without getting involved in corruption (either as a recipient or aprovider), administrative corruption is common. This includes lower-level abuse of authority such as weekly visits to a restaurant by one inspector or another (and the concomitant “free lunch” provided to avoid citations), taxi drivers seeking to be stopped by police early in the day in order to collect a ticket that shows they have paid their daily “dues,” the practice of “tipping” doctors for services, and paying for children to enter schools they didn’t otherwise qualify to attend. Corruption is affecting many peoples’ daily lives, but surprisingly, most people seem to excuse this kind of corruption and take it in stride.

Economic and political elites are, if not one and the same, then certainly operating in close cooperation with each other for mutual benefit. The line between public andprivate spheres is almost non-existent, and conflict of interest is rampant, particularly at the highest levels of the economy and polity. A standard of non-transparent self-dealing dating back to the initial privatizations of state-owned enterprises in the 1990s (and drawing its inspiration from the privileges and perks of the politically powerful under the previous Communist regime) is well established. More troubling is the sense of many long-time observers that high-level corruption in Mongolia is getting both more predatory and more sophisticated. Instead of demanding a small kickback for a favorable price for a public asset, political elites now expect part ownership or control of companies, further consolidating the linkages and overlaps between the public and private sectors.

The most critical shortcomings in the environment for fighting corruption in Mongolia are the lack of transparency surrounding nearlyall government activities and the near-absence of the public in substantive policy discussions and oversight of government. These basic elements of democratic accountability are substantially absent in Mongolia, resulting in a political system that is increasingly skewed toward the entrenchment of existing elites and a public management and regulatory system that lacks leadership and incentives to address corruption.

The World Bank, civil society and donors, including the U.S., have long identified the lack of transparency and citizen access to government information as a major invitation to corruption and have encouraged the Government of Mongolia and worked with civil society and legal reformers to repeal or significantly amend the State Secrets Law, to de-criminalize the offense of libel, and to implement a Freedom of Information Act. The State Secrets Law is among the most restrictive and punitive in any post-communist country. It extends the definition of "state secret" to not only national security interests but also to maps finer than a 1:200,000 scale, to statistics on the number of prisoners, to basic economic and census data, to the identity of shareholders in private companies, to audits of state owned companies, to access by citizens to state archives. On one level, it enables "petty" corruption by handing bureaucrats the power to levy fines on (i.e., solicit extra-legal fees from) citizens and businesses without having to share with the victim the text of the law or regulation allegedly violated. On another level, however, it has been used to harass and convict people whose views or activities were considered by the government, or even by individual ministers, to be inimical to its authority or interests.

As of 2005 it did not appear that corruption has reached the cancerous and extortionary levels that typify the world’s “worst cases.” For several reasons, corruption in Mongolia is not yet asdeeply entrenched as it is in many post-Communist countries, especially the Central Asian countries to which Mongolia is most often compared. Nor are the problems facing anti-corruption efforts nearly as serious in Mongolia as they are in countries facing conflict and grinding poverty.

First, the stakes seemed relatively low compared to countries with significant natural resources and market size (e.g. Nigeria or Russia). But the economy is set to expand rapidly with the conclusion of the massive Oyu Tolgoi contract with Western firms to mine copper and gold in the South Gobi and the impending negotiation of several other mineral resources. As the scale of the economy in turn increases, so too will the potential for money laundering.

Second, the government system and economy in Mongolia never totally collapsed during the transition as it did in other places (e.g. Albania, Cambodia, or Liberia), thus maintaining standards of living and keeping at least some management systems and controls in place. Nor was the transition marked by such repression that political participation had to be rebuilt from the ground up. A high level of literacy is an additional advantage that was maintained because of a relatively smooth political and economic transition.

Third, Mongolia remains free from conflict, and the government maintains control over the entire territory (unlike Colombia, Sri Lanka, or Nepal), so the risks of tackling corruption, should strong leadership emerge, are fewer and the likelihood of having a broad impact is greater. Fourth, Mongolia’s small size and culture where “everybody knows everybody,” while often cited as a constraint on fighting corruption, may also place an inherent cultural check on those who take corruption “too far.”

Mongolia's anti-corruption entity, the Independent Authority Against Corruption (IAAC), was established in 2006 during the presidency of Mr. Nambaryn Enkhbayar, and is headed by a former police officer. The IAAC stands to ensure transparency and accountability in government, and advance the goals of the U.N. Convention against Corruption (UNCAC). The Authority has a chairman and deputy appointed by the Parliament, which is controlled by the Mongolian People's Party (MPP), which Mr. Enkhbayar previously led.

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Page last modified: 01-07-2012 18:54:17 ZULU