Update on Online Security and Collateral Registration

As we have mentioned in the past, the Mongolian Law on Pledge of Movable and Intangible Property came into force on March 1, 2017. In order to fully implement this new law,  an official Procedure for Online Registry of Pledges of Movable and Intangible Properties was adopted by Minister of Justice and Internal Affairs on March 3, 2017 and a centralized online registry system, www.mpr.gov.mn, has been established to facilitate for the registration of pledges on movable and intangible properties.

All types of movable assets, present or future can be registered in this electronic database as collateral. This includes accounts receivable, construction equipment, agricultural equipment, crops, consumer goods, documents, industrial equipment, intellectual property, office items, inventory, vehicles, domestic animals, wood, furniture, household item, investment security, mineral resources and others.

The registered collateral information in the database will be available to the public and searchable online by the following key terms at www.mpr.gov.mn :

  • an initial registration number of notice of pledge;
  • creditor’s name and registration number;
  • debtor’s name and registration number; and
  • serial number for vehicles.

Furthermore, this collateral registry system is accessible online for verification, amendment, extension and cancellation of the details of the registered collateral. This centralized modern collateral registry is a big positive step to protect the non-possessory security rights of creditors against third parties by ensuring transparency.

Mongolia Anti-Corruption Law: Overview of Prohibited Activity

Mongolian law prohibits certain activities by public officials, while other activities are restricted. These prohibitions and restrictions are intended to prevent conflicts of interest in public service and to eliminate opportunities for bribery and other forms of corruption. However, even in the face of legal prohibitions and restrictions, sometimes officials will in communications with our clients suggest “options” or “solutions” that amount to barely disguised violations of these laws. Foreign invested enterprises in Mongolia should “keep an eye out” for these kinds of activities so they are not caught up in an illegal scheme.

Mongolian public officials are prohibited from disclosing in a manner not related to their official duties, information that has been acquired via official capacity. Unfortunately, violations of this prohibition are widespread as politicians and unelected officers will often seek to share or trade in private information gained through their position of privilege. Officials will seek to use this information to further their own interests, or to spread damaging propaganda about opponents.

Public officials are also prohibited from utilizing their official position to issue a decision, or to control, supervise, inquire or impose liability on another for the private purposes of themselves or their friends and family. They are also prohibited from using their official position to put pressure or influence on others. While this is not as common as the information sharing described above, one would not be surprised when encountering an official who seeks to wield their power in this way.

An official is prohibited from using the power of public office in any kind of advertising, except in connection with their official duties, and where participation is in favor of activities in benefit of the society.

Public officials are further prohibited from utilizing public service to represent their own private interests, or those of other individuals, organizations, or companies they are directly or indirectly associated with. Even so, many members of parliament are successful in business and continue ot be involved with a private business. For many a primary reason to become a member of parliament is to enhance or extend to their business opportunities and income. Parliamentarians have been known to introduce new laws and regulations which are beneficial to their private business or their personal interests.

Officials are prohibited from accepting any payment or supplementary payment, or gifts in connection with the performance of their official duties, however, this is another common violation which is often performed discretely.

With regard to an official’s accepting a gift, there is a legal obligation for an official to file a written report within 30 days in the event the value of a one-time gift or service received exceeds the equivalent of that official’s salary for one month, or where the value of gifts received from a single source in the course of one year exceeds the equivalent of that official’s salary over three months. If the value of a gift or service received by an official is in excess of that official’s salary over 6 months, the gifted items shall become the property of the State. The official can accept or redeem these gifts only by way of paying the government the value in excess of the official’s six month total salary.

This is a strange arrangement per western standards as a gift of 6 months total salary may still be a substantial amount. Keep in mind that while a gift of this nature may be legal in Mongolia, foreign companies and individuals may still be subject to anti-corruption laws in their home country, such as FCPA in USA.

Public officials are further prohibited from participating in the business of a company or serving in a management role of a company. Additionally, officials are subject to a two year prohibition on being a shareholder, stockholder or a partner in a legal entity for which the official had been involved decision making on awarding such company government procurement contracts, allocation of central government, provincial or municipal funding, or where the public official had exercised official supervision or control over such company in connection with the official’s public duties.

This is only an introduction to official prohibitions on actions of public office holders. Future blogs will continue our review.

Mongolia Investment Promotion Agreement With Canada

Canadian Minister of International Trade Francois-Philippe Champagne met March 12, 2017 with Mongolia Mining Minister Ts.Dashdorj, to issue a joint announcement that the Mongolia-Canada Foreign Investment Promotion and Protection Agreement (FIPA) has entered into force.

The Global Affairs Department of the Canadian government is quoated as saying, “This agreement sets out a framework of legally binding rights and obligations that will protect Canadian investors in Mongolia. The strong reciprocal protections in the FIPA will help Canadian and Mongolian companies deepen commercial ties with confidence and spur job creation.”

Canada is estimated to have invested over 6.4 billion USD in Mongolia in 2015, one of the larest individual country contributions. Most of this Canadia investment in Mongolia is in Mining and related sectors. It is hoped that FIPA will encourage diversification in investments in areas such as agriculture and infrastructure.

According to the agreement each nation will accord the other “Most Favored Nation” status.

We are happy to see Canada double down on economic engagement with Mongolia. Canada’s efforts include working with Mongolia to develop capacity in natural resources management, official transparency and accountability, and environmental sustainability.

The benefits Mongolia gains from these policy improvements will be felt not only by Canadian investors, but for all foreign investors in Mongolia, along with local Mongolian companies and individuals.

Human Rights Development in Mongolia

Mongolia Foreign Affairs Minister Ts.Munkh-Orgil recently spoke at the United Nations Human Rights Council where he presented the current human rights policies and measures undertaken by the Government of Mongolia.

Human rights are essential values enshrined in the Constitution of Mongolia, which was one of the original countries to implement the Millennium Development Goal Number 9 as a national plan to improve human rights and promote democratic government.

The Mongolian government’s 2016-2020 action plan places a great priority on continued legal reforms based on the preservation of human rights. Mongolia is working toward elimination of the death penalty, and amending the criminal law and other laws to protect the rights of children and the elderly, as well to protect against domestic violence; combat human trafficking; enhance the transparency, accountability, and independence of the judiciary; and fight corruption in the public sector.

Mongolia’s commitment to democracy and fairness is a major positive point for many foreign businesses and NGOs operating in Mongolia. As the first international law firm established in the country, LehmanLaw Mongolia is excited to see continued progress and development in this area among many others in Mongolian law and society.

United Nations Development Program in Mongolia

Assistant Secretary General of the United Nations and Director of the Regional Bureau for Asia and Pacific at the United Nations Development Programme (UNDP) Haoliang Xu, is meeting with Mongolian officials to review and discuss the United Nations Development Assistance Framework, a plan for the continued development of Mongolia in years 2017 through 2021.

Mongolia’s cooperation with the UN Agency is intended to assist in the development of new renewalble energy sources in Mongolia and improving Mongolia’s capacity to implement legal and regulatory reform in areas important to preventing and responding to environmental risks. Also priorities are general economic development, and implementation of international principles of rule of law.

The UN Agency is also expected to work with Mongolia in cultivating new ideas and programs for the reduction of air pollution in Ulaabaatar, which has become a problem in recent years, particularly winter. Initiatives to promote the private sector in Mongolia will also be discussed.

Continued cooperation between Mongolia and international organizations such as Mongolia are expected to bring long term benefits as Mongolia navigates trends of increasing urbanization and seeks modernization and development in both its economy and its legal system. Continued cooperation with UN agencies helps to promote stability and prosperity in the country.

New Partnership to Improve Mongolian Construction Standards

The Mongolia Ministry of Construction and Urban Development (MCUD) signed a new MOU with the IFC for the joint development of new regulations and policies to promote environmentally friendly construction in Mongolia.

In one respect, Mongolia is one of the Most urbanized countries in Asia, with 72% of its population living in a city. However about 60% of city dwellers live in traditional tent-like gers. Many of these gers, as well as newer housing rely on stoves or coal burning to provide heating in the cold winter. This contributes to pollution and health problems.

Mandatory measures are expected to provide significant benefits in the reduction of pollution and improving public health. The partnership between MCUD and IFC is intended to promote stronger energy efficiency regulations and sustainable construction.

The Government of Mongolia aims to reduce heat losses from buildings by 20 percent by 2020 and 40 percent by 2030, compared to 2014 levels.

Mongolia Movable Property Pledges: Online Registration is Perfection

As we posted previously, the Mongolian Law on Pledge of Movable and Intangible Property was adopted on July 2, 2015. This new legislation was supposed to come into force on September 1, 2016. However, effective date of the law had been postponed until March 1, 2017 due to lack of preparation of the required online database for registration of pledges.

In order to fully implement this new law, the Ministry of Justice and Internal Affairs, the International Finance Corporation, the Intellectual Property Rights and State Registration Office, the Bank of Mongolia, and other organizations have cooperated to establish an online database for the registry of pledges on movable property and information regarding collateral.

According to the law, collateral may be all kinds of stocks, securities, rights to demand, industrial designs, trademarks, all creative works of sciences, arts and other movable properties or intangible assets and present or future movable properties of individuals that are usable and transferable to other’s ownership of individuals that is valid and transferable to other’s ownership. Under the law, a Pledge will be perfected upon registration of a notice of the pledge with online registry, whether collateral is not transferred to the pledgee’s possession or a pledge is created by operation of law.

As for movable and intangible assets which have been pledged prior to the new law coming into effect, these collateral need to be registered with the new online database within six months after the entry into force of the law.

The new online database shows how Mongolia is utilizing new technologies to make its legal and financial systems more efficient, and will benefit Mongolian citizens and foreign investors alike. The implementation of this law provides a new lifeline for the economy and will create new opportunities in the business sector. Furthermore, information in the database will be available to the public, and registered information will become official records of assets and collateral.

Mongolia’s New Arbitration Law Offers More Effective Enforcement

The Previous Mongolia Arbitration Law consisted of 43 clauses while the newly revised Arbitration law consists of 52 clauses. The new Mongolia Arbitration Law is drafted to be mostly based on the previous Arbitration Law with a few key changes.

Under the new Mongolia Arbitration Law the following “Temporary Actions” may be taken to secure the implementation of an Arbitration decision:

  • Force the continuance or restoration of the status quo until dispute is resolved;
  • Parties may be compelled to not take actions which may affect arbitration proceedings and may take preventive actions to prevent further damages;
  • Take actions to protect property aa may be necessary for ensuring the enforcement of of a final arbitration award;
  • Take action to preserve evidence which is significant for the resolution of the dispute or otherwise related to the dispute.

The following conditions must be met in order to take such protective measures

  1. The request for the temporary action should be clear and enforceable;
  2. if no actions are taken, it will be impossible to compensate, in full, the damage enforceable under the principle award;
  3. The amount of the potential damage should be greater than amount of potential damage which may incur as a results of the temporary actions if taken;
  4. there is a reasonable possibility that the dispute may be resolved positively for the Party requesting the temporary action.

If the arbitration panel considers that informing one party of the request for Temporary Action submitted by the other party, the panel may do so. The party so notified will have the opportunity to provide arguments relating to the request for Temporary Action.

The arbitration panel may request the Party requested the temporary actions, to provide appropriate financial guarantee in relation to the said actions.

This is a positive change to the Arbitration Law which will give Arbitration more “teeth” and better ways to be effective at both resolving disputes and securing an appropriate compensation for a grieved party seeking redress.  Our experienced Mongolia lawyers are excited at the new options provided by this change the Arbitration Law and we are looking forward to see these Temporary Actions take effect in our own cases.

Mongolia Economy to Benefit from Key Stabilization Measure

The good news is that the Government of Mongolia has agreed with the International Monetary Fund on the terms of financing of USD 440,000. The total current external financing for Mongolia is USD 5.5 billion. Negotiations on the current financing agreement have been ongoing since August of last year.

The agreement is preliminary, and has to be approved by the IMF’s Executive Board; however, in most cases the Executive Board will not overturn a preliminary agreement. The agreement will also depend on the Government of Mongolia meeting a series of agreed actions, which include the ceasing of certain off the record activities of Mongol Bank, and performing a diagnostic on the Mongolia banking system.

According to experts at the IMF, Mongolia’s loose budgeting in past years is a major cause of the country’s current economic troubles and relatively high debt. As a result, the IMF is requiring the national budget to be tightened. The agreement allows for the continuance of certain social spending for low income populations.

The government will be required to implement several fiscal reform actions. A Council will be established to provide independent budget forecasts and review expenditures. The Ministry of Finance will have to approve the budgets for any proposals.

The agreement with the IMF if implemented is expected to strengthen Mongolia’s prospects for sustainable growth going forward. Finance Minister B. Choijilsuren compared the reform package to a medicine that is “Bitter,” but helps to “heal.” LehmanLaw Mongolia is excited to see the agreement as it demonstrates both the belief the IMF has in the Mongolian economy as well as the determination of the government of Mongolia to accept difficult reforms in favor of a more sustainable path toward economic growth. With this agreement reached, there has never been a better time to come to Mongolia and see what unique business opportunities may be had in this unique developing country.

Proposed New Mongolia Laws Promise Reform in 4 Key Areas

Parliament has just issued a list of draft laws to be considered during the fall session in 2017. This list includes drafts in relation to State Budget 2017 and number of completely new proposed laws. There are also several proposed amendments to existing laws that look to be very interesting going forward.

The following are the newly initiated draft laws:

  • Amendments to Constitutional law
  • Law on National System of Payment
  • Law on Development of the Ger District
  • Law on Investigating and Resolving Infringements
  • Casino law
  • Law on Mongolian Foreign Relations
  • Law on Safety of Information
  • Law on Encouraging Development of Youth
  • Law on Food Supplements for Infants and Toddlers
  • Law on Health of Livestock and Animals
  • Law on Resource of Livestock Genetics
  • Law on Enriched Food
  • Law on Responsibility of Elected or Appointed State High Officials
  • Law on Protecting Critic’s Rights

The Mongolian Lawyers at LehmanLaw Mongolia are particularly interested in the proposed Law on National System of Payment.  There is huge potential for reform and modernization in this area and we are excited and looking forward to significant changes under a new law.

We expect the proposed Law on Investigating and Resolving Infringements to be very interesting to foreign businesses seeking greater protection for Intellectual Property rights in Mongolia, including Copyright, Trademarks and Patents. We hope the new law will provide a clear system for enforcement of protected intellectual property rights in Mongolia.

Two proposed laws appear to target Mongolia’s growing agricultural sector.  Mongolia is ripe for increased foreign investment in the agricultural sector and an improved legal framework in this area will be sure to increase interest. We will monitor related developments

It also looks like there will be a proposed law regarding establishing norms of official behavior, which appears to be an effort to increase anti-corruption measures among government officials; a very positive development which we will explore more fully as details are available.