Category Archives: Uncategorized

Mongolia Set to revise Labor Law

A recent meeting of the Cabinet reviewed and discussed a proposed draft of amendments to the Labor Law. It was decided by the Cabinet that the proposed amendments will be submitted to Parliament to be formalized in law, along with the addition of some proposals from Cabinet members.

The Labor Law was ratified in 1999 and has been amended several times since. The law governs employment relationships within Mongolia. The Law and sets standards as to health and safety requirements, minimum wage levels, maximum hours of work, collective employment agreements and bargaining and resolution of employment disputes. The law prohibits employment discrimination on the grounds of social or property status, race, color or nationality, sex, religion or political views as well as unwritten contracts of employment.

The latest changes introduced via the Amendment Law on 21 April, 2017 provide detailed regulations regarding previously unclear provisions of the Labour Law, such as probationary periods, internship/apprenticeship periods, and part-time employment. The amendment also increased the level of fines for violations of the Labour Law by employers, in order to ensure the protection of employees’ basic rights.

The working group which drafted the current proposed amendments believe that a number of the law’s articles are outdated and don’t meet the needs of the modern labor environment. The newly proposed amendments seek to cover relations between employers and employees, clarifying rights and obligations. The amendments also include articles that would place restrictions on the employment of minors, workplace discrimination, establishing employment agreements without time constraints for permanent employment, part-time employment regulations, remote working regulations, basing salaries on skills and abilities, annual vacation requirements, and new regulations for vacation days for mining sector employees who work far from home for extended periods.

Lehmanlaw Mongolia LLP will be update further progress of the amendments to the Law on Labour in timely.

Using Customs Seizure to Stop Import of Infringing Products to Mongolia

Our firm’s Mongolian intellectual property lawyers have seen a lot of inquires in recent months from clients seeking assistance regarding counterfeit products which were being sold in Mongolia.

There are several mechanisms our Mongolian lawyers recommend to deal with counterfeit products in Mongolia.  One of the most important of these is utilizing Customs to restrict entry of counterfeit products or goods infringing registered trademarks from entering Mongolia.

This works by seizing infringing goods at Customs upon attempted entry into Mongolia. Before this may be done, the authentic goods bearing a validly registered Mongolian Trademark must be registered with Customs.

This registration process is relatively easy, requiring documentation of the registered trademarks, basic information regarding the trademark owner, a description of the products, and a list of items requested to be reviewed and protected by Customs. Our Mongolian lawyers will walk you through the process. The review procedure will talk approximately 30 days from the date of submission of the application, after which, the registered information will be forwarded to Customs entry points around Mongolia.

A written request for seizure of infringing goods, must be submitted along with a small cash deposit or bank guarantee. The customs office prefers having the deposit to avoid incurring any damages to importer before starting examination of infringing goods based on the original goods with customs registration.

Our Mongolian lawyers and clients have found such Customs seizures to be effective at blocking incoming shipments of infringing products. However it is important to note the applicant seeking to block the shipments must have a valid, registered Mongolian trademark in order to support such action by Customs.

Mongolia to Amend Law on Patents

Law on Patent was adopted initially in 1993 to facilitate the legalization of the ownership rights of the industrial design, the patent, the utility models and the certificate holders; to regulate relations arising out of their use; and to facilitate them into economic circulation. The Law on Patent was amended in 1996, 1999 and revised in 2006 in connection with social and economic reform.

With the development of technological developments, innovation of Industrial designs, utility model and patent and their scope of applications are growing rapidly.

Thus, innovators and entrepreneurs are keen to produce value-added products, as well as to focus on foreign markets and business development.

In Mongolia, the number of patent applications is steadily increasing, with 70% of 1555 applications filed for patent the last 6 years (2010-2016), 94% of 1817 applications for industrial designs, and 80% of 1065 applications for utility models have been issued.

Patents grant with exclusive rights in the territory. In Mongolia, 16 patents were filed under Patent Cooperation Agreement in 2008-2016

However, in practice, the enforcement of laws is inadequate due to failure of regulations that need to be regulated by law, conflicting regulations, as well as renewing needs to meet with international treaties in which Mongolia ratified.

In other words, there is only one standard regulated by laws regardless the difference between the 3 objects of the invention, the industrial design and the utility model, regulation in connection with the filing and examination process is not appropriate in practice, as well as the use of a compulsory license of the patent that violates the rights of the owners. In addition, there is no financial support, tax and fee discount policy that supports creators, and the process of international application relating to the patent regulated by laws do not meet the standards and requirements of international agreements ratified by Mongolia.

Guidelines for improvement Mongolian legislations until 2020 states that the Patent Law is aimed at improving the protection of patents based on global trends and agreements with World Intellectual Property Organization based on the views of the World Intellectual Property Organization.

In addition, the Government’s Action Plan for the 2016-2020 was obliged to the Ministry of Justice and Home Affairs in order to draft a law on amendments to the Patent Law to submit to the State Great Hural.

As a member of the World Intellectual Property Organization, Mongolia obliges to comply with the fundamental principles set forth in international treaties and conventions which ratified.

Law on Patent expects to be amended based on abovementioned requirements.

Cryptocurrency: A New Financial World Order?

Cryptocurrencies have become a global phenomenon. While most people still don’t understand the concepts of it, many companies, major banks, financial institutions, and governments are aware of the importance of cryptocurrencies and are developing regulations and business models to manage and channel the trend.

In several-part series of articles we will go through all basic aspects of cryptocurrency and the firm’s growing cryptocurrency practice. Today we will discuss basic concepts of cryptocurrencies.

A cryptocurrency is a digital or virtual currency that uses cryptography for security. Cryptography is process of converting legible information into an almost uncrackable code, to track purchases and transfers. Therefore, cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency is that it is not issued by any central authority, such as a central bank or government. Cryptocurrencies use decentralized technology to let users make secure payments and store money without the need to use their name or go through a bank. Transactions are recorded on a distributed public ledger called blockchain, which is a record of all transactions updated and held by currency holders.

Units of cryptocurrency are created through a process called mining, which involves using computer power to solve complicated mathematical problems that periodically generate coins. After coins are mined, users can also buy the cryptocurrencies from brokers, then store and spend them using  online cryptographic wallets.

Cryptocurrencies make it easier to transfer funds between two parties in a transaction; these transfers are facilitated through the use of public and private “keys”, which are long strings of numbers and letters linked through the mathematical encryption algorithm that was used to create them, for security purposes. The public key (comparable to a bank account number) serves as the address which is published to the world and to which others may send cryptocurrencies. The private key (comparable to an ATM PIN) is meant to be a guarded secret, and only used to authorize cryptocurrency transmissions. These fund transfers are done with minimal processing fees, allowing users to avoid the steep fees charged by most banks and financial institutions for wire transfers.

As a new and largely unregulated financial asset, the cryptocurrency markets have been known to take off meaning a small investment can become a large sum overnight. But the same works the other way, with volatility sometimes resulting in steep losses of value.

Also because of the level of anonymity they offer, cryptocurrencies are often associated with illegal activity, such as money laundering, tax evasion and illegal activities on the dark web, however, crypocurrencies themselves are not illicit or criminal item. Those seeking to invest in or buy cryptocurrencies should be aware of the volatility of the market and the risks they take, and be careful about the implications when choosing to buy the currencies.

Still, many observers look at cryptocurrencies as hope that a currency can exist that preserves value, facilitates exchange, is more transportable than hard metals, and is outside the influence of central banks and governments.

Future posts in this series will examine the current state of crypocurrency regulation, legal trends in crypocurrency and practical aspects of engaging in cryptocurrency related business in Mongolia.

Mongolian Securities: What is a Depository Receipt?

What is a depository receipt?

According to Article 4.1.12 of the Security Market Law of Mongolia a “Depositary receipt” is a security issued by a depositary receipts issuer (depositor) for the purpose of future trade of that security on the securities market of another jurisdiction (where the depositor is not normally resident) on the basis of having deposited an underlying security at an institution conducting securities depository services (custodian) within that target jurisdiction.

In practical terms, a depository receipt is traded on the open stock market and it is a form of security and similar to a company share. Shares registered in the stock market of a foreign countries (for example Mongolia) are authorized to issue in another country’s stock market (for example USA) as a depository receipt.

In Mongolia, depositary receipts have the following types:

– Mongolian depositary receipts; and

– Foreign depositary receipts.

Mongolian depositary receipts

A “Mongolian depositary receipt” is a financial instrument registered and issued by a depositary receipts issuer for sale on the securities market of Mongolia on the basis of a deposit. The deposit is kept with a legal entity, such as a bank, licensed to undertake custodial services, of an underlying security registered with a stock exchange in another jurisdiction.

A domestic stock company which has fulfilled the requirements to issue depository receipt in a foreign market may deposit their own shares in any approved foreign custodian bank in that country. The bank issues depository receipts based on those shares, which will be traded in the foreign stock market.

The Mongolia Financial Regulatory Commission (“FRC”) defines the list of countries, types of underlying securities of Mongolian depositary receipts and current underlying security registration of relevant stock market based on proposal of Stock exchange. It is prohibited to trade or sell a depository receipt in Mongolia which are based on underlying securities that are not included in the list outlined by FRC.

Foreign depositary receipts

A Foreign Depositary Receipt is a financial instrument issued by a depositary receipts issuer on the basis of securities issued in Mongolia through an entity authorized to undertake custodial services. This means foreign companies are not required to register in the Mongolian Stock Exchange, and therefore place their shares in any custodian bank and its possible to sell or trade their depository receipts based on those shares in Mongolian stock market. One depository receipt may be represented by any number of shares. It’s prohibited to issue depository receipt unless the underlying security of depository receipt has not been deposited or incomplete quantity and amount. Issuer of depository receipt is prohibited to be beneficiary owner.

A foreign depositary receipt may have a name which identifies the market and jurisdiction in which the relevant depositary receipt will be traded.

A securities issuer that has decided to issue a global depositary receipt based on its own securities must inform the public, the FRC, and the stock exchange in writing after adopting a resolution to that affect.

There will be no consideration in the event of any conversion of a depositary receipt into an underlying security, or an underlying security into a depositary receipt.

Political Unrest in Mongolia Threatens IMF Review of Funding

The Executive Board of the International Monetary Fund (IMF) on May 24, 2017 approved a three-year extended arrangement under Extended Fund Facility (EFF) for Mongolia to support the country’s economic reform program. Other financing partners, including the Asian Development Bank, the World Bank, Japan, and Korea, have also committed to provide budgetary and project support, and the People’s Bank of China has agreed to extend its swap line with the Bank of Mongolia. In sum, the total financing package amounts to about $5.5 billion. The Board’s approval of the arrangement enabled the immediate disbursement of about $38.6 million. Addition of these funds to reserve currency of Bank of Mongolia had positive impact on the country’s economy and improves outlook for foreign investment.

Prior to each quarterly disbursement, IMF staff monitors and reviews if the country’s progress in meeting the conditions under the program justifies the continuation of disbursement. By this standard IMF staff team visited Ulaanbaatar from July 19 to August 2, 2017 to conduct discussions on the first review of the EFF arrangement. At the end of the visit the IMF staff team concluded that performance under the program has been good, with all quantitative targets on track. According to Bank of Mongolia’s report, the IMF staff’s positive conclusion enabled subsequent funding from above mentioned financing partners within the EFF arrangement. The IMF staff conclusion is subject to review by the management and Executive Board of the IMF. The Board is expected to consider the first review in late September, and this could lead to a disbursement of about $37.82 million.

In the midst of this positive news, Mongolian politics remains unwieldy. On August 23, 2017 thirty members of Mongolian People’s Party (MPP) group in the parliament signed and submitted a petition to dismiss the Prime Minister J.Erdenebat, and consequently, the Government. This is likely to cause some level of political destabilization. History of some countries (e.g. Argentina, Greece) shows that political destabilization may cause IMF to suspend or even cancel its financial aid altogether. Though we have high hopes that these political issues will not escalate to that point in Mongolia.

It is critical that this happens not long after the stir occurred during the Presidential election, in connection with payout of children’s money by the Government. The IMF staff team disapproved such action by the Government. Therefore the Government committed itself to target the Children’s Money Program to less affluent families, which partially led to overall positive preliminary findings of the IMF staff team. Thus any kind of political destabilization may not only affect the further implementation of EFF arrangement, as well as country’s further economic well-being.

According to the Constitution of Mongolia, the petition to dismiss Prime Minister should be discussed and resolved by the parliament within 15 days. We will keep you informed here of the outcome, and potential consequences.

Enforcing Foreign Court Judgments and Arbitration Awards

As we work with many foreign clients engaged in a range of international businesses, one of the most comment questions asked by our clients is whether a foreign arbitral award or court decision will be enforceable in Mongolia.

Generally speaking, Mongolian courts will generally not recognize or enforce judgments rendered in a foreign state unless Mongolia has concluded a treaty with that state concerning the mutual recognition of judgments. In this case, we would have to look at the relationship between the particular state from which the court decision originated to determine if there is a treaty, however, Mongolia has ratified very few such treaties and changes are slim such court judgment will be enforceable.

So what to do? The Mongolian Enforcement Agency will generally enforce a foreign arbitration award, so long as enforcement would not violate any public policy.

Mongolia has ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958, in 1994 and the courts of Mongolia will enforce an arbitral award in Mongolia provided that such award:

  • is given by an arbiter of competent jurisdiction;
  • imposes on the judgement debtor a liability to pay a liquidated sum for which the judgement has been given;
  • is final;
  • is in relation to a dispute which is commercial in nature;
  • is confirmed by a judicial order in Mongolia;
  • is not in respect of taxes, a fine or a penalty; and
  • was not obtained in a manner and is not of a kind the enforcement of which is contrary to the public policy of Mongolia;

There are a few specific circumstances under Mongolia’s Arbitration Law in which a foreign arbitration will not be enforced:

  • one of the parties to the arbitration agreement is incapacity or arbitration agreement is invalid;
  • proper notice of the appointment of an arbitrator or of the arbitral proceedings was not given to the respondent party and unable to participate to the arbitral procedure and provide the response;
  • arbitral award is not contemplated by or not falling within the terms of the submission claim, or arbitral award is beyond the scope of the claim;
  • the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties and law of the country;
  • award is not binding or valid or suspended;
  • the subject-matter of the dispute is not capable of settlement by arbitration under the law of Mongolia;
  • the recognition or enforcement of the award would be contrary to the public policy of Mongolia.

Mongolia is in the Middle of a Constitutional Amendment Process

Mongolian Constitution has been in force for the last 25 years, dating from its adoption in 1992. It has been amended once in 1999 and again in 2001. It is the fourth Constitution of Mongolia since the first was adopted in 1924. Subsequent constitutions were put into place in 1940 and in 1960.

Mongolians today pay close attention to issues connected with the recent constitutional reform. A series of public consultations for Constitutional reform have been held in the Ulaanbaatar and in local aimags.

Several recommendations have been put forward for public discussion:

  • maintaining the current balance of power between the legislature and the executive branches of government;
  • strengthening the unity of the country;
  • consolidating how local administration is structured;
  • developing a professional, independent civil service;
  • strengthening the judiciary to improve the legal structure; and
  • creating a bicameral legislature that would include the State Great Hural and the State Congress. (Mongolians Discuss Constitutional Reform, supra.)

Taking the outcome of the public consultations into consideration, a consolidated proposal will be finalized and submitted to the parliament during the upcoming autumn session this year. However, the Democratic Party disagreed with this procedure and issued a statement demanding to hold a public referendum to hear voices of the people rather than organizing public consultations taking place in limited scope.

According to the Constitution, Constitutional amendments may be initiated by the President, members of the Parliament and the Government, as well as being proposed by the Constitutional Court to the parliament. A national referendum on constitutional amendment may be held where it is supported by at least two-thirds of the legislature. An amendment to the Constitution will have the same force as the Constitution when adopted by not less than three fourths of votes of all members of the parliament.

 At the moment, the general public is encouraged to provide inputs to the proposed amendments. More information may be found at the following website:  http://forum.parliament.mn/projects/171.

Mongolia Continues Cooperation with China on Mutual Free Trade Zone

Chinese news media is reporting that China and Mongolia are beginning a new process of conducting a feasibility study regarding development of a new Free Trade Zone (FTZ).

This comes in the contest of the second China-Mongolia Expo, held in Hohhot, the capital of China’s Inner Mongolia region. The conference will occur in late September, and will serve as a forum to discuss issues of mutual cooperation and development between China and Mongolia.

Mongolia’s trade with China in the first six months of 2017 has been USD $3.1 billion. This is a 44.2% increase year-on-year. China mainly exports gas, diesel, food, machinery and equipment to Mongolia, and imports natural resources, fur and raw materials.

Talk of the new FTZ comes after the China-Mongolia Cross-border Economic Cooperation Zone (CECZ) was announced in 2015. The CECZ is a 18 square kilometer  territory evenly divided along the China-Mongolia border. The CECZ is intended to facilitate import/export processing, logistics, warehousing, and e-commerce.

The increase in economic cooperation between China and Mongolia is a core part of the wider China-Mongolia-Russia economic corridor, which seeks to facilitate integration of Mongolia with the economies and infrastructure of China’s northern territories and Russia’s far east.

Importing Products into Mongolia without a Buyer? Put it in a Bonded Warehouse.

Foreign investors who import products into Mongolia may be required or need to place their products into a custom bonded warehouse. In this case, below are main regulations of the bonded warehouse and things to know.

The purpose of the placing products in the custom bonded warehouse is providing an opportunity to find a market for imported products, as well as to time for the importers to pay customs duties and other taxes.

The kinds of goods which should be stored in the bonded warehouse are firstly, Mongolian goods, secondly, foreign goods coming from abroad and thirdly, goods which are placed in the bonded warehouse temporarily in connection with other non-import or export procedures.

Importantly, Foreign goods placed in bonded warehouse are not subject to non-tariff restrictions which means goods which are not generally prohibited to cross the national border of Mongolia are not required to obtain any further permissions from the relevant authorities when goods are entering into the border of Mongolia. When products are kept in the bonded warehouse, any permission or licenses normally required for possession of such products are not required to be obtained from the relevant government organization. This is because the customs bonded warehouse is considered as being outside of the customs territory of Mongolia. Keep in mind that the relevant license or permission is required upon release of the products from the bonded warehouse.

The product is to be stored in the bonded warehouse under the name of the importer. When imported products are exported directly from the custom bonded warehouse out of Mongolia, payment of an export tax is not required. There are not any export controls/restrictions and/or any licences/permits, to be obtained in order to export the product from the bonded warehouse.

In contrast to imported goods, Mongolian goods placed in the bonded warehouse will be subject to non-tariff restric­tions, which mean the exporter is required to obtain permission from relevant authority and limits may be imposed on the quantity of the goods. Of course, goods which are prohibited to be carried through the national border will not be allowed.

There are two types of bonded warehouse in Mongolia, open and closed. Open bonded warehouse is for public use and all goods allowed to enter or leave Mongolia may be stored or placed in the open bonded warehouse.

A closed bonded warehouse is not for public use and is designated for use solely by one or more legal entities or organization. Goods which require special storage condi­tions, facilities and equipment or which may have af­fect on other goods are typically placed in a closed bonded warehouse.

The timeline for storage of goods in a bonded warehouse is up to two years. The Customs Office will extend the timeframe by up to 1 year with no further renewal possible.