Mongolia’s frontier market and vast mineral reserves represent potentially lucrative opportunities for investors but vulnerability to external economic and financial shocks, ineffective dispute resolution, and lack of input from stakeholders during rulemaking warrant caution. Mongolia imposes few market-access barriers, and investors face few investment restrictions, enjoying mostly unfettered market access. Franchises such as fast food and convenience stores, outperforming expectations, suggest that investors can bring successful international business models to Mongolia. The cashmere-apparel and agricultural sectors also show strong promise. However, investing into politically sensitive sectors, including mining, carry higher risk.
Mongolia attracts investor attention but has trouble converting interest into investment. Unless and until Mongolia embraces a stable business environment that transparently creates and predictably implements laws and regulations, investors will likely find Mongolia too risky and opt for more competitive countries. An essential step to mitigate these risks is for Mongolia to implement the U.S.-Mongolia Agreement on Transparency in Matters Related to International Trade and Investment (known as the Transparency Agreement), which requires a public-comment period before new laws and regulations become final. Mongolia has implemented some of this agreement but is over five years behind full implementation of public-notice commitments. Parliament, however, with its D-Parliament online platform, is leading the way in increasing public engagement and engaging the public in the rulemaking process, offering a model for the government.
Government and parliament continue to address threats to judicial independence by implementing 2019 constitutional amendments and 2020 statutory judicial reforms that have improved transparency and reduced political influence in the appointment and removal of judges. Investors, however, continue to cite long delays in reaching court judgments, followed by similarly long delays in enforcing decisions, as well as reports that administrative inspection bodies, such as the tax authority, sometimes fail to act on politically sensitive decisions or cases involving politically exposed Mongolians. Businesses note substantial and unpredictable regulatory burdens at all levels; and cite an excessively slow tax dispute resolution process as an indirect expropriation risk. Investors are particularly concerned about a tax process that they believe effectively lets officials issue excessive, confiscatory tax assessments to coerce settlements. Finally, the perception that the government favors its own state-owned entities over private sector companies discourages existing investors from expanding, and new investors from coming. More positively, parliament has streamlined procedures for, and reduced the required number of, permits and licenses while the Government has moved delivery of most services onto digital platforms, increasing efficiency of its business registration processes.
COVID-19’s aftermath and Russia’s invasion of Ukraine stressed Mongolia’s economy. In late 2021, Mongolia’s parliament passed its New Recovery Policy, a 10-year development plan to increase national productivity by improving transport logistics, energy production, industrialization, urban and rural infrastructure, and green development. This program depends on restoring market access for mining exports, the primary revenue source. Relaxation of PRC border restrictions in late 2022 has eased bottlenecks along the Mongolia-China border, increasing export revenues and relieving near term fiscal and balance-of-payments risks. Meanwhile, Russia’s unprovoked invasion of Ukraine, prompting unprecedented international sanctions on Russia, continues to contribute to uncertainty about access to critical imports, such as petroleum products, electricity, and such key commodities as wheat and fertilizer.
1. Openness To, and Restrictions Upon, Foreign Investment
POLICIES TOWARDS FOREIGN DIRECT INVESTMENT
Mongolia generally does not discriminate against foreign investors with two major exceptions. First, foreign investors must invest a minimum of $100,000 to establish a venture; in contrast, Mongolian investors face no investment minimums. Second, only Mongolian adult citizens may own real estate in the form of land. Additionally, while foreign investors may obtain use rights for the underlying land, these rights last for five years with a one-time, five-year renewal. The government imposes no such restriction on its nationals. Mongolia offers the “One-Stop-Shop for Investors,” which provides investors with services related to visas, taxation, notarization, and business registration. Mongolia’s Ministry of Economy and Development, responsible for FDI promotion, has publicly stated that it will create a new foreign investment and foreign trade support entity to assume the duties of the One-Stop-Shop ( ), as well as offering such new services as dispute resolution support; however, the new agency has not been created and there is no firm date for an opening. Regardless of what shape the new agency takes, investors encourage the government to develop policies aimed at retaining existing foreign direct investment in country. They, however, express concern that the government has offered neither specific retention measures nor created an ongoing formal mechanism to discuss this and other investment challenges.
LIMITS ON FOREIGN CONTROL AND RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
Except for real estate, foreign and domestic investors have the same rights to establish, sell, transfer, or securitize structures, shares, use rights, companies, and movable property. Mongolia generally imposes no statutory or regulatory limits on foreign ownership and control of investments, except for foreign state-owned entities. The Mining Law allows the government to acquire up to 50 percent of mineral deposits deemed of “strategic” value to the state by parliament. Since 2019, Article 6.2 of Mongolia’s Constitution also requires the state to take a “majority” share of the “benefits” of strategic mining projects. Investors continue waiting for the government and parliament to clarify the meaning of “benefits” derived from mining activities, which according to government officials may mean profit and may also include such non-cash contributions as development programs, employment, or technology transfers. The Nuclear Energy Law also grants the state participatory rights to develop uranium and rare earth elements. Mongolia also limits foreign ownership and operational control in the energy and transportation sectors. Investors also observe that excessive regulatory discretion allows bureaucrats de facto control over the use of legally granted rights, corporate governance decisions, and ownership stakes, stating that in some cases regulators make up rules beyond their actual statutory remit. Finally, the Law on Investment specifically states that direct investment by foreign state-owned enterprises in three sectors – mining, banking, and telecommunications – is subject to an unspecified national security review by the Ministry of Economy and Development. Nonetheless, Mongolia has no other formal or informal investment-screening mechanism, although the National Security Council (composed of the Speaker of Parliament, the President of Mongolia, and the Prime Minister) has barred investments from some foreign state-owned entities.
OTHER INVESTMENT POLICY REVIEWS
Mongolia underwent its regular World Trade Organization Trade Policy Review in 2021 (WTO | Mongolia). The Extractive Industries Transparency Initiative (EITI) published its 2021 16th Reconciliation Report on Mongolia’s mining and petroleum sectors in December 2022. This report discusses the regulatory and statutory environment as well as state involvement in the extractives sector (https://eiti.org/documents/mongolia-2021-eiti-report).
While the Mongolian Government neither promotes nor incentivizes outward investment, it does not generally restrict domestic investors from investing abroad, although politically exposed persons and their families may undergo additional scrutiny or may even be barred from investment abroad.
2. Bilateral Investment and Taxation Treaties
3. Legal Regime
TRANSPARENCY OF THE REGULATORY SYSTEM
The Law on Legislation sets out who may draft and submit legislation; the format of these bills; the respective roles of the Mongolian parliament, government, and president; and the procedures for obtaining and employing public comment on pending legislation. The Law on Legislation states that law initiators – members of parliament, the president of Mongolia, or the cabinet of ministers – must fulfill these criteria: (1) provide a clear process for developing and justifying the need for draft legislation; (2) set out methodologies for estimating costs to the government related to a bill’s implementation; (3) evaluate the impact of the legislation on the public; and (4) conduct public outreach before submitting bills to parliament.
Initiators must post draft legislation for public comment and publish reports evaluating costs and impacts on parliament’s official website ( ) at least 30 days prior to submitting bills to parliament. Posts must explicitly state the time for public comment and review. Initiators must solicit comments in writing, organize public meetings, seek comments through social media, and carry out public surveys. No more than 30 days after the public comment period ends, initiators must prepare a matrix of all comments, including those used to revise the bill as well as those not used, which must be posted on parliament’s official web site. After a law’s passage, parliament must monitor and evaluate its implementation and impacts. Ministries and agencies have not fulfilled these statutory requirements, according to businesses. However, investors report that parliament itself is now posting most relevant draft legislation submitted to parliament its D-Parliament website ( ), where public comment is possible. Members of parliament, and in some instances government ministries, also sometimes but not consistently post draft legislation on the D-Parliament platform prior to formal introduction to parliament.
While General Administrative Law Article 6 aligns Mongolia’s regulatory drafting process with Transparency Agreement obligations, investors report the government is not generally enforcing it. Under the Transparency Agreement, originators of regulations must seek public comment by posting draft regulations in a single journal of national circulation, designated as LegalInfo.mn (Эрх зүйн мэдээллийн нэгдсэн систем (legalinfo.mn). Drafters must record, report, and respond to significant public comments. The Ministry of Justice and Home Affairs must certify each regulatory drafting process complies with the General Administrative Law before a regulation enters force. After approval, the statutorily responsible government agency monitors implementation and impacts.
Businesses also note unpredictable, nontransparent regulatory burdens at the local—province and county—levels. They note inconsistent application of regulations and statutes among central, provincial, and municipal jurisdictions and a lack of expertise among local inspectors. Regional tax, health, and safety inspectors are cited as particularly problematic. The Economic Policy and Competitiveness Research Center of Mongolia annually ranks local regulatory burdens: .
Mongolia’s so-called Glass Budget Law requires all levels of government to publicly post proposed and actual budget expenditures, and the law, according to businesses and transparency experts, has generally been followed. However, per the Law on Legislations, parliament can waive these transparency requirements for discussion of the annual budget, budget amendments, the Budget framework, State Investment Program, Government’s Debt Management Strategy, Budget performance, and legislations initiated during emergency situations to alleviate those situations.
In early 2023 the government adopted the Procedure on Social Impact Assessment, which specifically delegates duties to the ministries to ensure transparency and public engagement prior to project approval at local provinces. The Ministry of Environment has been tasked with developing a methodology; however, no specific measures regarding environmental, social, and governance (ESG) disclosures to facilitate transparency and/or help investors and consumers distinguish between high- and low-quality investments have been promulgated. The government does, however, limit the right to invest in such high-risk securities as digital tokens and cryptocurrencies to professional investors and other high net-worth individuals.
INTERNATIONAL REGULATORY CONSIDERATIONS
Mongolia, which has generally eschewed regional economic blocs, acceded to the Asia-Pacific Trade Agreement (APTA) in 2021. Also, Mongolia often seeks to adapt European standards and norms in such areas as construction materials, food, and environmental regulations; looks to U.S. standards in the hydrocarbon sector; and adopts a combination of Australian and Canadian standards and norms in the mining sector. Mongolia also tends to employ World Organization for Animal Health standards for its animal health regulations. Mongolia, a member of the WTO, asserts it will notify the WTO Committee on Technical Barriers to Trade (TBT) of all draft technical regulations.
LEGAL SYSTEM AND JUDICIAL INDEPENDENCE
Investors state that judges frequently avoid controversial decisions in business disputes, preferring to delay judgment for as long as possible—sometimes years. If a decision is made, businesses face similarly long delays enforcing court orders. In some instances, cases have taken so long that by the time an enforcement is executed, the counterparty has liquidated assets and vanished. Investors note similarly long delays with respect to inspection agencies, such as the Tax Dispute Settlement Resolution Council, as well as with other agency dispute resolution panels, especially those related to mineral licenses and health matters.
In 2021, parliament revised the Law of the Judiciary to bring it into line with the amended constitution. This law limits the powers of the government, parliament, and the president to influence the selection and removal of judges; and vests the Judicial Disciplinary Council with responsibility for disciplining jurists, except in matters involving criminal acts. Investors agree these reforms have helped to restore judicial independence somewhat.
Under Mongolia’s civil law system, trial judges may use prior rulings to adjudicate similar cases but are not required to follow legal precedent as such. Mongolian laws, and even their implementing regulations, often lack the specificity needed for consistent judicial and prosecutorial interpretation and application. All courts may rule on matters of fact as well as matters of law at any point in the judicial process.
Mongolia has specialized laws for contracts but no dedicated courts for commercial activities. Contractual disputes are usually adjudicated through the Civil Court division of the district court system. Criminal Courts adjudicate crime cases brought by the General Prosecutors Office. Disputants may appeal to the City Court of Ulaanbaatar and ultimately to the Supreme Court of Mongolia. Mongolia has several specialized administrative courts adjudicating cases brought by citizens, foreign residents, and businesses against official administrative acts. Mongolia’s Constitutional Court, the Tsets, rules on constitutional issues. The General Executive Agency for Court Decisions enforces judgments and orders.
Investors and legal sector experts say that the Administrative Court is procedurally competent, fair, and consistent but that the Civil Courts deliver highly inconsistent judgments.
LAWS AND REGULATIONS ON FOREIGN DIRECT INVESTMENT
The 2013 Investment Law sets the general statutory and regulatory frame for all investors in Mongolia. Under the law, foreign investors may access the same investment opportunities as Mongolian citizens and receive the same protections as domestic investors. Investment domicile, not investor nationality, determines if an investment is foreign or domestic. The law provides for a more stable tax environment and offers tax and other incentives for investors; and authorizes a single point of registration, the State Registration Office , for all investors. The law offers qualifying companies transferable tax-stabilization certificates valid for up to 27 years. Affected taxes may include the corporate-income tax, excise taxes, customs duties, value-added tax, and royalties.
Investors cite two primary national-treatment issues with respect to investment rules. First, foreign nationals and companies may not own real estate; only Mongolian adult citizens may own real estate. While foreign investors may obtain use rights for the underlying land, these rights expire after a set number of years with limited rights of renewal. Government officials have said that in some cases municipal, provincial, and central government officials may waive land-use rights limits and recommend that investors contact the relevant agency or ministry for more information on how to apply for these waivers. Foreign investors also object to the regulatory requirement that each foreign investor in any given venture must, according to the Investment Law, invest a minimum of $100,000. The Investment Law imposes no such requirement on Mongolian investors.
The Ministry of Economy and Development manages the “One-Stop-Shop for Investors,” which provides investor services on visas, taxation, social insurance, notarization, and business registration ( ). The Ministry of Economy and Development publicly stated in 2022 that it would establish a new foreign investment and foreign trade support entity to assume the duties of the One-Stop-Shop. Cabinet formalized the decision to create this Investment and Trade Authority on February 1, 2023.
COMPETITION AND ANTITRUST LAWS
Mongolia’s Agency for Fair Competition and Consumer Protection reviews domestic transactions for competition-related concerns. For a description of the Agency go to . The Agency for Fair Competition and Consumer Protection launched no 2022 competition cases affecting U.S. FDI. U.S. investors generally find the AFCCP applies its norms and procedures transparently, although they remain concerned the agency favors local economic interests over foreign interests. AFCCP decisions may be appealed to the courts.
EXPROPRIATION AND COMPENSATION
State entities at all levels may confiscate or modify land-use rights for purposes of economic development, national security, historical preservation, or environmental protection. Mongolia’s constitution recognizes private real-property rights and derivative rights, and Mongolian law specifically bars the government from expropriating assets without payment of adequate, market-based compensation. Investors express little disagreement with such takings in principle but state that a lack of clear lines of authority among the central, provincial, and municipal governments has led to loss of property and use rights in practice. For example, the Minerals Law provides no clear division of local, regional, and national jurisdictions for issuances of land-use permits and special-use rights. Faced with unclear lines of authority and frequent differences in practices and interpretation of rules and regulations by different levels of government, investors may find themselves unable to fully exercise legally conferred rights.
Some cases involve alleged court expropriations after third-party criminal trials at which investors report they are compelled to appear as “civil defendants” – but are not allowed to fully participate in the proceedings. In these cases, investors report government officials are convicted of corruption, and the court then orders the civil defendant to surrender a license or property, or pay a tax penalty or fine, for having received an alleged favor from the criminal defendant with no judicial proceedings to determine if property or licenses were obtained illegally.
Businesses claim the tax dispute settlement processes has become a form of indirect expropriation. 2020 amendments to the Tax Law allow tax officials to require disputants to place the entire disputed tax assessment in escrow as a precondition for disputing the tax assessments, which business claim encourages officials to issue excessive, punitive tax assessments that make using settlement processes prohibitively expensive and confiscatory. As many businesses cannot put the entire disputed amount into escrow as per the law, they are forced to settle what many have called “extortionate” demands. Investors also report that the Tax Authority often vitiates its own settlements and issues new assessments on the same disputes, using its system to extract additional tax revenue from companies.
Mongolia ratified the Washington Convention and joined the International Centre for Settlement of Investment Disputes (ICSID) in 1991 and the New York Convention in 1994. It has accepted international arbitration in several disputes. Mongolian law allows for domestic enforcement of awards under the ICSID and New York Conventions.
Investor-State Dispute Settlement
Under the 1997 U.S.-Mongolia Bilateral Investment Treaty ( ), both countries agree to respect international legal standards for state-facilitated property expropriation and compensation in matters involving nationals of either country, providing U.S. investors in Mongolia with an extra measure of protection against financial loss.
In disputes involving the government, investors claim some government officials and politicians interfere in administrative and judicial dispute resolution processes. Foreign investors describe three general categories of alleged interference. First, in disputes between private parties before judicial tribunals, investors warn that Mongolian private parties may exploit contacts in the government, the judiciary, law enforcement, the media, or the prosecutor’s office to coerce foreign private parties to accede to demands. Second, in disputes between investors and the Mongolian government directly, investors report the government may claim a sovereign right to intervene in the business venture, which the investors believe is because the Mongolian government itself operates or seeks to operate a competing state-owned enterprise (SOE); because officials have undisclosed business interests; or from ignorance of the relevant statutes and regulations. Third are disputes with Mongolian tax officials or prosecutors allegedly levying highly inflated, statutorily deficient tax assessments against a foreign entity and demanding immediate payment on threat of civil or criminal prosecution. Although in abeyance for several years, investors expressed concern that travel bans or pre-trial incarceration may be used as a tool of coercion, disincentivizing investment.
Investors report local courts recognize and enforce court decisions—but significant problems exist with enforcement. The thinly staffed General Executive Agency for Court Decisions (GEACD) implements civil and criminal court orders. Its employees, often living in the jurisdictions in which they work, are subject to pressure from friends and professional acquaintances. A complicated chain-of-command and opportunities for conflicts of interest may weaken GEACD’s resolve to execute court judgments on behalf of foreign and domestic investors.
Mongolia has been plaintiff and defendant in several past and ongoing international arbitration suits over the alleged expropriation of private sector mining rights or the imposition of excessive tax assessments. Whenever the government has lost arbitration claims, it has satisfied every judgment after some negotiation with foreign investors.
U.S. investors have reported no extrajudicial actions against their interests.
The Oyu Tolgoi copper and gold mine remains a bellwether of Mongolia’s investment climate. Upon reaching full production, the mine may produce as much as 25 percent of Mongolia’s GDP. Many investors see the improved relationship between the government of Mongolia and Oyu Tolgoi – most notably symbolized by the start of long-delayed underground mining in the first quarter of 2023 – as improving Mongolia’s investment climate image internationally.
International Commercial Arbitration and Foreign Courts
Bankruptcy law treats bankruptcy as a civil matter requiring judicial adjudication. Mongolia allows registration of mortgages and other debt instruments backed by real estate, structures, and other immovable collateral (mining and exploration licenses, intellectual property rights, and other use rights); and movable property (cars, equipment, livestock, receivables, and other items of value). Although investors may securitize movable and immovable assets, local law firms hold that the bankruptcy process remains too vague, onerous, and time-consuming for practical use. Reporting that foreclosure and bankruptcy proceedings usually require no less than 18 months, with 36 months not uncommon, legal advisors state that a lengthy appeals process, perceived corruption, and government interference may create years of delay. Moreover, while in court, creditors face suspended interest payments and limited access to the asset.
4. Industrial Policies
The government generally offers the same tax preferences to foreign and domestic investors; and occasionally waives tariffs for imports of essential fuel and food products or for imports in such targeted sectors as agriculture or energy. Exemptions may apply to Mongolia’s 5-percent import duty and 10-percent value-added tax (VAT). The government may offer traditional and green energy sector investments such incentives as feed-in tariffs, discounts on electricity rates, or tax incentives. The government may also extend tax credits on a case-by-case basis to investments in such sectors as minerals processing, agriculture, and infrastructure. Under the Investment Law, foreign-invested companies, properly registered and paying taxes in Mongolia, qualify as domestic Mongolian entities for investment incentive packages that, among other benefits, offer tax stabilization for up to 27 years. While in theory the government can issue guarantees or jointly finance foreign direct investment projects, it seldom does so in practice.
FOREIGN TRADE ZONES/FREE PORTS/TRADE FACILITATION
The Mongolian government has had a free-trade zone program since 2004. Two free-trade zones are along the Trans-Mongolian Highway and Railroad: (1) the northern Mongolia-Russia border town of Altanbulag; and (2) the southern Mongolia-China border town of Zamiin-Uud. Both free-trade zones are relatively inactive, requiring development. A third free-trade zone is located at the port-of-entry of Tsagaannuur in the far western province of Bayan-Olgii bordering Russia. Mongolian officials also suggest the new Ulaanbaatar International Airport may host a Special Economic Zone that may have some of the characteristics of existing free-trade zones but may also offer a broader range of yet-to-be-determined incentives.
PERFORMANCE AND DATA LOCALIZATION REQUIREMENTS
Mongolia does not generally require foreign investors to use local goods, services, or equity; or to engage in import substitution. Neither foreign nor domestic businesses need to export a certain percentage of output or use foreign exchange to cover exports. The government applies the same geographical restrictions to foreign and domestic investors, involving border security, environmental concerns, and local-use rights. The government does not impose onerous or discriminatory visa, residence, or work permit requirements on U.S. investors—although foreign and domestic firms must meet certain industry-specific, local-hire requirements.
The Mongolian government strongly encourages but does not legally compel domestic sourcing of inputs, especially for firms engaged in natural-resource extraction. The Minerals Law states that holders of exploration and mining licenses should preferentially supply extracted minerals at market prices to Mongolian processing facilities and should procure goods and services and hire subcontractors from business entities registered in Mongolia. Although facing no legal requirement to source locally, investors occasionally report that central, provincial, or municipal governments will delay permitting and licensing until domestic and foreign enterprises make some effort to source locally. Hiring Mongolians is often a de facto necessity because the government sometimes issues work visas for foreign employees only if employers have attempted to hire domestically. These requirements do not apply to members of boards of directors.
Despite pressure to source locally, foreign investors generally set their own export and production targets without concern for government-imposed quotas or requirements. Mongolia does not require (but often encourages) technology transfers. The government generally imposes no offset requirements for major procurements. Investors, not the government, generally decide on technology, intellectual property, and finance as they see fit. Except for an unenforced provision of the Minerals Law requiring mining companies mining strategic deposits to list 10 percent of the shares of the Mongolian-registered mining company on the Mongolian Stock Exchange, foreign-invested businesses are not required to sell shares into the Mongolian market. Equity stakes are generally at the discretion of investors, Mongolian or foreign. In cases where investments may have national economic, political, security, or social impacts, the government has, without a clear statutory basis, restricted the type of financing foreign investors may use, their choice of partners, or to whom they sell shares or equity stakes.
The government generally requires neither data localization nor compels IT providers to turn over source code or provide surveillance access, except for criminal investigations. Businesses may freely transmit customer or other business-related data abroad, with the written consent of the client. However, financial data subject to data localization requirements cannot be transmitted abroad.
5. Protection of Property Rights
The Mongolian Constitution provides that “the State shall recognize any forms of public and private properties.” Statute limits real-estate ownership to adult citizens of Mongolia. Civil law allows private Mongolian citizens or government agencies to assume property ownership or use rights if the current owner or holder of use rights does not use that property or those rights. In the case of use rights, revocation and assumption is almost always written into the formal agreements covering the rights. Squatters may, under certain circumstances, claim effective property ownership of unused structures.
Foreign investors may own permanent physical structures and obtain use rights to land and resources, but only Mongolian citizens may own real estate, and only in municipalities. Land ownership does not convey ownership of, or necessarily access to, surface or subsurface resource rights, which remain with the state. Outside municipalities, the state owns the land and resources in perpetuity and may lease those resources to public and private entities.
Ownership of a structure may vest the owner with control over the use rights of the land upon which the structure sits. Use rights are granted for terms ranging from 3 to 60 years, depending on the particular use right. However, foreign nationals and foreign companies can lease land-use rights for no more than 10 years: a five-year term and a single five-year renewal.
Although Mongolia has a well-established registry for immovable property – structures and real estate – and a central register for use rights ( ); consequently, investors, particularly those investing in rural Mongolia, can way to learn who might have conflicting rights. However, Mongolia’s civil-law system is still developing a formal process for apportioning multiple use rights on adjacent lands or adjudicating disputes arising from conflicting use rights. As of 2023, the Mongolian government has no accurate figure for land with clear titles.
Creditors may seize and dispose of property offered as collateral, although this process is often subject to lengthy legal delays. Debt instruments backed by real estate, fixed structures, and other immovable collateral may be registered with the Immovable Property Office of the State Registration Office ( ). Movable property (cars, equipment, livestock, receivables, and other items of value) may also be registered with the State Registration Office as collateral. Investors report that the movable-property registration system, while generally reliable, has occasional technical capacity issues.
INTELLECTUAL PROPERTY RIGHTS
Film, television, and digital content from the United States enjoy strong copyright protection in Mongolia. Mongolia’s Internet Service Providers (ISPs) will quickly block access to internet addresses of offending sites once listed by the Intellectual Property Office of Mongolia ( ). However, use of pirated software by Mongolian government ministries, home-use consumers, and businesses is rampant. Patent protection for pharmaceutical and medical device importers is virtually non-existent, with trademark law generally the only recourse for rightsholders. While enforcement agencies will seize trademark-infringing drugs, simply removing the infringing trademark still allows the importer to bring in the patent-infringing drug. Medical devices encounter similar problems. Trademark infringement also includes stores distributing counterfeit apparel and fake spare parts for heavy equipment. However, the Intellectual Property Office of Mongolia has not focused on these areas because rightsholders seldom file complaints.
IPR violations below MNT 50 million ($14,000) are subject to administrative enforcement; those above MNT 50 million are subject to criminal enforcement. Enforcement agencies do pursue criminal and civil intellectual property (IP) cases, suggesting a willingness by Mongolian courts, prosecutors, administrative investigators, and police to attack the problem.
6. Financial Sector
CAPITAL MARKETS AND PORTFOLIO INVESTMENT
Mongolia has few restrictions on capital flows and has respected IMF Article VIII by not restricting international payments and transfers. However, capital markets are underdeveloped, with little ability to trade futures or derivatives on traditional markets. The state-owned Mongolian Stock Exchange ( ) is the primary venue for domestic capital and portfolio investments. An over-the-counter (OTC) market for corporate debt launched in late 2021 and has grown rapidly. Fintech companies have begun promoting investments using digital tokens and other virtual assets. Credit is available on local market terms to foreign investors in a variety of forms.
MONEY AND BANKING SYSTEM
Mongolia’s four largest commercial banks – Khan, Trade and Development Bank (TDB), Xac, and Golomt – are majority owned by combinations of Mongolian and foreign investors and collectively hold 81.3 percent of all banking assets, or about $10.7 billion (as of December 2022). Mongolian commercial banks had rates of non-performing loans (NPLs) averaging 9.2 percent in December 2022, a decrease from December 2021’s 10 percent, although these classifications do not conform with international standards given COVID-19 forbearance measures. Although no longer in force, COVID-19 rules enabled postponement of consumer loan and mortgage payments, creating ongoing forbearance risks to the banking sector. The Bank of Mongolia, Mongolia’s central bank, regulates banking operations. Foreigners may establish domestic accounts so long as they can prove lawful residence in Mongolia.
Parliament amended Mongolia’s Law on Banking in 2021. The amended law states that ownership by a shareholder and their related parties collectively and as certified by the Bank of Mongolia shall not exceed 20 percent. Banks’ beneficial owners have until December 31, 2023, to comply with this divestment requirement. In addition, Mongolia’s four systemically important commercial banks – Khan, TDB, Xac, and Golomt – and the state-owned State Bank must list themselves on the Mongolian Stock Exchange by June 30, 2023. As of December 2022, State Bank and Golomt Bank have complied with listing requirements. The new rules may improve bank governance by creating accountability to a broader group of shareholders, although there are concerns that the stipulated timeline may not be conducive to sector stability.
The IMF has reported unaddressed macroprudential concerns regarding the relatively large banking system, resulting in the Extended Fund Facility’s unsuccessful completion in 2020. The banking system is broadly undercapitalized, while commercial banking practices and regulatory supervision are inadequate for ensuring macroeconomic stability. Mongolia also has a significant number of illiquid banks. Potential investors in Mongolia’s banking sector should conduct careful due diligence as sector participants and regulators have expressed concerns that the balance sheets of certain systemically important banks may have been inflated or misreported to create the perception of higher capital-adequacy ratios than is accurate.
International and domestic sector participants observe that the Bank of Mongolia does not exercise adequate macroprudential oversight over banks, enabling these banks to misreport their assets. It has also allowed insolvent smaller banks to continue operating despite not having enough assets to cover liabilities. Investors contemplating IPO participation should carefully factor in the additional systemic risk associated with these regulatory concerns.
FOREIGN EXCHANGE AND REMITTANCES
The government employs a liberal foreign exchange regime; its national currency, the tugrik (denoted as MNT), is fully convertible into an array of international currencies. Foreign and domestic businesses have reported no problems converting or transferring funds aside from occasional, market-driven shortages of foreign reserves.
Mongolia’s Currency Law requires domestic transactions use MNT, unless exempted by the Bank of Mongolia. Regulation prohibits listing of wholesale or retail prices in any way – including as an internal accounting practice – that effectively denominates or otherwise indexes prices to currencies other than MNT. Hedging mechanisms available elsewhere to mitigate exchange risk are generally unavailable given the small size of the market. Letters of credit in a variety of currencies are available for trade facilitation. The government sometimes pays for goods and services with promissory notes that cannot be directly exchanged for other currencies.
Businesses report no chronic, government-induced delays remitting investment returns or receiving inbound funds, although challenges with correspondent-banking relationships sometimes slow remittances. Most transfers are completed within a few days to a week; however, occasional currency shortages, most often of U.S. dollars, may cause commercial banks and the central bank to limit transfers temporarily. Remittances sent abroad are subject to a 10-percent withholding tax to cover potential tax liabilities.
SOVEREIGN WEALTH FUNDS
Mongolia’s Ministry of Finance manages two sovereign wealth funds (SWF) funded through diversion of mining sector revenues: the Fiscal Stabilization Fund and the Future Heritage Fund. The Fiscal Stabilization Fund diverts revenues that might promote boom and bust cycles of spending; however, Mongolia’s recent fiscal crises have depleted this fund. The Future Heritage Fund, resembling Norway’s Global Pension Fund, accumulates mining revenues and invests the proceeds exclusively outside Mongolia. Mongolia’s Future Heritage Fund follows the Santiago Principles, and Mongolia is an associate member of the International Forum of Sovereign Wealth Funds. The Ministry of Finance and the IMF project the Future Heritage Fund should start accumulating $104-125 million annually in 2023, coinciding with increased revenues from the Oyu Tolgoi copper and gold mine. These SWFs are not meaningfully funded as of 2023, however. Mongolia’s SWFs are not invested in the United States and do not have negative ramifications for U.S. investors in Mongolia as of 2023.
7. State-Owned Enterprises
The government perennially floats privatization for such state-held assets as the Mongolian Stock Exchange, the national air carrier MIAT, the Mongol Post Office, and mining assets, through sales of shares or equity but has not identified how or when it would do so.
8. Responsible Business Conduct
Department of State
- Country Reports on Human Rights Practices;
- Trafficking in Persons Report;
- Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
- U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
- Xinjiang Supply Chain Business Advisory
Department of the Treasury
Department of Labor
RESOURCES TO REPORT CORRUPTION
Independent Agency Against Corruption (IAAC)
District 5, Seoul Street 41
Ulaanbaatar, Mongolia 14250
Telephone: +976-70110251; 976-11-311919
Transparency International Mongolia
O. Batbayar, Executive Director, Mongolia Chapter
Office 803, 8th floor, Dalai Tower, Unesco Street,
Sukhbaatar District – Khoroo 1, Ulaanbaatar 14230
10. Political and Security Environment
11. Labor Policies and Practices
The International Labor Organization (ILO) is concerned about child-labor practices and variations between Mongolian law and international labor standards. Authorities report employers often require minors to work more than weekly permitted hours, paying them less than the minimum wage. The Ministry of Labor and Social Protection enforces all labor regulations, but its new inspection division is understaffed. ILO conventions ratified by Mongolia:
12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs
13. Foreign Direct Investment Statistics
14. Contact for More Information
P.O. Box 341
Ulaanbaatar 14192, Mongolia