Tag Archives: Compliance

Don’t Get Your Mongolia Mining License Revoked



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The Mongolian mining industry is a big part of the firm’s client base. Of course, mining in Mongolia is a very carefully regulated sector. Mongolian mining companies require a special mining license to legally manage a mine or conduct geological exploration activities. In some cases, a valid mining license may be revoked by the government. It is important to be mindful of these circumstances so that steps may be taken to avoid such a risk.

The State administrative agency will revoke a mining and exploration license on the following grounds:

One of the general requirements to hold exploration and mining license are that the legal entity holding the mining license, should be incorporated under the laws of Mongolia and must be Mongolian taxpayer for the entire duration of a valid license. Without meeting this requirement will be one of the grounds to be revoked the licenses. If a company is not paying correct taxes, it is at risk.

Another important requirement is to pay license fees on time as specified in the law. The amount of the license fee will be calculated on the basis of the measurements of the real estate covered by the license. Timely payment of the required license fees will be determined by the date of the transaction as recorded at the bank. The license holder must pay the license fees each year in advance, on or before the anniversary date of the issuance of the license. If the fee is not paid in advance, the company will be levied fines of 0.3 percent of the annual payment amount for each day overdue. If payment is overdue for 30 days or more the license is at risk of being revoked.

Where a designated area for exploration or mining has been reclassified as a “special purpose territory” by a decision of the Government, or it has been prohibited by the law to explore or mine in such area, the government may compensate the mining and exploration license holder, and duly revoke the license ;

If a company holding an exploration license is not conducting expected exploration activities, as indicated by annual exploration expenditures being lower than the expected minimum cost of exploration, the license for such exploration may be revoked.

A license may be revoked if environmental authorities determine the license holder has not adequately carried out its environmental conservation duties.

Where a designated area for exploration or mining has been identified as a cultural heritage area, the license will be revoked.

If it is determined that the license holder has breached obligations under Mongolian Law as it relates to fresh water conservation, the license will be revoked.

8 “Must Do’s” to Keep your Mongolia Company Safe



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Every Mongolia company, foreign or domestic, is required to have a Company Seal, which takes the form of a simple stamp. These seals serve as the legal “signature” of the company for various documents and are officially registered with the government. When a seal is affixed to a contract the company will be legally bound to the terms of the contract.

While these seals can be a convenient way for a company to indicate acceptance of a contract, the nature of the system can allow misuse by unapproved parties, or misappropriation of the seal if not kept securely. Even a misused seal will legally bind the company.

Problems encountered due to misuse of seals include employees redrafting employment contracts and granting themselves increased salary or benefits, Employees using company seals to bind the company to expensive contracts with the employee’s friends or relatives, or employees using seals to deposit company funds directly into the employee’s foreign bank account.

Seals personally kept and under the control of individuals may also be subject to theft or simply refusal to cooperating in executing certain company policies. This can include, holding seals “hostage” and demanding a payout from the company, refusal to approve important business deals, leaving the company unable to take action. Employees holding seals may refuse to cooperate in providing the necessary seal for the employee’s own termination from employment; or if terminated, an employee may continue to hold a company’s seals and continue to carry out business in the company’s name. In an extreme case, a terminated employee holding the companies seals may initiate lawsuits against the company itself, or against its trusted business partners sabotaging the relationship.

It is imperative for each company to establish clear systems for management of the company’s seals, particularly where they are kept on premises. The following are recommended best practices.

  1. Company management should appoint persons authorized to approve use of each particular seal (such as a department manager, whether in Mongolia, or abroad), and clearly communicate these authorizations to all employees.
  1. Company management should appoint persons authorized to hold and use each particular seal, and clearly communicate these authorizations to all employees.
  1. An employee seeking to utilize a seal is required to first report the required use, and gain approval from the authorized personnel, and then report to the individual authorized to hold and use the seal to finally affix the seal on the document.
  1. Each individual authorized to hold a seal is to be required to maintain the seal safely and securely, and has the responsibility to prevent unauthorized use of the seal in their possession, or delivery to unauthorized personnel.
  1. When applying for use of a seal, the applicant shall file an application form or send an application email stating clearly the purpose of the required use of the seal and the nature of the documentation to be stamped.
  1. Each time the seal is used, the individual seeking use of the seal is required to sign their name, and mark the date to record the seal use.
  1. Each time a seal is used, the authorized holder is required to maintain the application and approval documentation in their possession, clearly filed along with scanned copies of each stamped document.
  1. Seals are not to be affixed to any blank or incomplete document.

Mongolian Parliament to Consider New Anti-Corruption Program



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As we posted previously, the Anti-Corruption law of Mongolia was enacted firstly in 1996 and it was renewed by the Parliament in 2006. Furthermore, Mongolia became a Party to the United Nations Convention Against Corruption (UNCAC) in 2006.

According to the legislation, the Independent Authority Against Corruption was established in 2007 in charged with functions to raise anti-corruption public awareness and education, and corruption prevention activities, and to carry out under-cover operations, inquiries and investigations in detecting corruption crimes, and to review and inspect the assets and income declarations.

The National Program on Combating Corruption was approved by the Parliament of Mongolia in 2002. This program was implemented between 2002-2010. In recent years, a new National Program for Combating Corruption and Strengthening Integrity was drafted and submitted to the previous parliament. Unfortunately, Parliament at the time rejected the new program without discussion.

The current Parliament recently created a taskforce to prepare a draft program for discussion in the Parliament. The taskforce is led by the Chair of the Legal Standing Committee Sh. Radnaased. During the Parliament Legal Standing Committee meeting, a draft resolution on the National Program on Combating Corruption and Strengthening Integrity will be discussed. We expect the program to be presented and discussed at the Parliament plenary session in the near future.

Basics of Corruption Prohibitions for Mongolian Officials



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Following on our previous discussion of Mongolia’s Anti-Corruption Law, today we will take a closer look at restrictions in the law on Mongolian officials. The law applies to:

  • Political, and administrative officials;
  • State or locally-owned legal entity’s management;The Chairperson of the National Council;
  • The General Director of public radio and television;
  • Management of NGOs performing work on behalf of the government;  and
  • Electoral candidates.

 These officials are prohibited from engaging in the following activities:

  • Exerting pressure on, intervening in or influencing civil servants in the course of duty;
  • Giving or offering to give rewards to others or to intermediaries;
  • Illegally granting or promising to grant preferences to any individual or to a legal entity;
  • Illegally limiting the lawful rights of others in the course of duty;
  • Misusing official budget or donated funds;
  • Requiring others to provide rewards in connection to the officials performance of duty;
  • Misusing or exceeding such official’s power or position;
  • Using official position to acquire property, or enjoying preferential or privileged  rights; and
  • Unjust enrichment.

Top government officials are required to to prepare and file an accurate and true declaration of income. The declarers must submit their declaration within 30 days of their election or appointment to office. An annual declaration is due on February 15 of each year during the period of public service.

Where an official is unable to “explain” assets or income in excess of 6 month’s salary, such earnings may be declared illegal unjust enrichment.

Introduction to Mongolia Anti-Corruption Law



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For Multinational Companies Anti-Corruption policies and legal compliance is a major priority.  The Anti-Corruption law of Mongolia was enacted by the Parliament on 6 July 2006 and has since been amended several times.

The Law regulates the activities of political and governmental officials, officers and managers of state or local government owned entities, electoral candidates, and officials of some other organizations with an operational relationship with the government.

Certain specific officials are prohibited from corrupt activities listed in the law, and are additionally required to officially declare assets and income.

In addition to receiving bribes, the law penalizes giving bribes, or acting as an intermediary.

The law also outlines and regulates the structure, role and operational principles of the Mongolia Anti-Corruption Agency.

We will follow up over the next several days with a series of blog posts with more detail on this important topic.

Purchasing a Mongolian Company: Measure Twice Cut Once



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 A client approached us recently with a request to perform due diligence into a Mongolian company recently purchased by the client. The client, a foreign company, said they had some problems with their old local agent (not a lawyer) and wanted a local lawyer to verify the legal status and ownership of the company, as well as a property owned by the company.

 Our Mongolian lawyers perform due diligence on local and foreign companies on a regular basis. We proceeded to work through the due diligence checklist, confirming the company’s status with the various local government agencies, and confirming ownership of the property. We found that the current foreign shareholder of the company had formerly been a minority shareholder with a Mongolian national being the majority shareholder of the company. The foreign shareholder had purchased the Mongolian nationals shares earlier in the year. Nothing surprising here.

 When our lawyers took a look at the property held by the company we were surprised. The company held Land Possession Rights” (LPR), which by law may only be held by a Mongolian national, or a company with Mongolian ownership. As a company invested by a foreign national the client’s company was not allowed to hold LPR. By law it could only hold Land Use Rights (LUR). For both LPR and LUR the ultimate owner of the land is the state. The property rights held by LUR holder are more limited than those accorded to a holder of LPR.

 We informed the client of the situation, and speculated that the LPR were purchased by the company at an earlier time before the foreign shareholder had purchased the shares of the Mongolian national. Subsequently, the relevant government bureaus were not informed of the share transfer or the change in the status of the company.

 We advised the client to report the situation to the local government as quickly as possible. Legal penalties in such a situation are not clear, and it is typically far better to be open and honest about such compliance issues, rather than continue to cover up an illegal situation.

 All of this may have been avoided if a Mongolian Attorney would have been consulted first.