Mongolia Moves to Protect Foreign Investors



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A regular session of the Mongolian Government was held on August 03, 2016. During the session, the number of departments under the Secretariat of the Government has been confirmed, and the number of personnel to be employed by the government approved.

One interesting development from the session is the newly established Investor Protection Committee. The Committee is intended to play a role in facilitating resolution of disputes involving foreign investors and foreign invested projects in Mongolia. Mongolia has seen numbers of arbitrations involving foreign investors increasing in recent years. The World Bank estimates that the average such case lasts 3 and a half years and costs around 3 million USD.

The Committee will work to protect investors’ rights and interests, promote cooperation within the legal framework of Mongolia, minimize foreseeable risks and facilitate settlement of disputes swiftly, in hopes of avoiding unnecessary costs.

This is another positive step for Mongolia and for potential foreign investors in industry and infrastructure projects in the country. If the committee works as planned it could significantly reduce costs and mitigate risks for foreign investors in major projects in the country.

Free Trade Ties Between Mongolia and China Growing



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In May this year, China’s Minister of Commerce Gao Hucheng led an economic and trade delegation from the PRC in a visit to Mongolia. The delegation met with Mongolian Prime Minister Saikhanbileg to discuss facilitation of trade between Mongolia and China. During the meeting of the China-Mongolia Economic and Trade Joint Committee, the two sides reached broad consensus as to several areas of cooperation.

At the meeting, Minister Gao indicated that China would like to actively promote cooperation, accelerate the establishment of a China-Mongolia-Russia economic corridor, and promote the construction of free trade zone with cross-border economic cooperation zones, and generally promote the sustained and healthy development of bilateral economic and trade relations.

The Mongolian side noted that Mongolia attaches great importance to relations with China, and regards China as a good neighbor, good friend and reliable partner. Mongolia will strengthen cooperation with China is several areas, including to accelerate the establishment of a free trade zone, and promoting cooperation in the development of mineral resources, energy and animal husbandry. Mongolia and China will work to facilitate trade.

The parties expect the construction of a Free trade zone between Zamiin Uud and Ereen hot (aka Erlian) to be completed by the end of this year, 2016. The Free trade zone will cover almost 18 sq.m on Mongolian and Chinese border. About 50 business entities from China and Mongolia will operate in the zone. According to the bilateral agreement on establishing cross-border economic cooperation zone, Mongolian and Chinese export and import taxes will be zero within the zone.

Mongolia Set to Make Domestic Violence a Criminal Offense



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The Mongolia Law on Domestic Violence and Abuse was approved in 2004. However, the rate of domestic violence has not decreased. Unfortunately, rates of murder and the involvement of children in domestic violence have increased. As of the 1st half of this year, 764 cases of domestic violence have been reported, an increase of 30.4% from last year.  From 2010 through 2016, 95 people have lost their lives due to domestic violence. Research conducted by NGOs reveals that the level of unreported domestic violence could be 5 times higher than the official reported number.

The Law on Domestic Abuse and Violence had been revised and amended after 12 years. The revised edition was expected to be come into force on September 1, 2016 along with amendments to the Criminal Code, but was delayed. The decision to delay the law faced strong resistance by social groups seeking to protect thousands of women, children and elderly. As a result of social opposition, the government decided again to present the revised edition of the Law on Domestic Abuse and Violence to the Parliament on September 09, 2016.

The draft law was created with the goal to make domestic abuse a criminal offense and to allow for appropriate punishments for the promotion of safety for victims and prevention of the recurrence of domestic violence. Under previous laws, domestic abuse had been considered a minor offense punishable by a fine. If the revised edition is approved, domestic abuse will be a raised to be criminal offense. The revised edition of the Law on Domestic Violence and Abuse will include a punishment of 1-3 months of imprisonment for domestic violence, 3-24 months of imprisonment for torture. Under the new law, a neighbor will be legally responsible to report domestic violence to the police if they are aware of it.

The revised edition of the Law on Domestic Violence and Abuse is expected to be enacted at the beginning of the Parliament’s fall session this year.

Mongolia and Japan Enter Economic Partnership



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On 8th of May 2016, Governments of Mongolia and Japan exchanged a diplomatic note verbale on implementation of the Mongolia-Japan Economic Partnership Agreement (EPA). Accordingly, the agreement entered into force starting from 7th of June 2016.

The agreement seeks to increase trade of goods and services, encourage investment and people-to-people relations between the two countries. It is also an important part of Mongolia’s efforts at strengthening its own regional economic integration. The agreement enables Mongolia to attract investment and adopt know-how from Japan, export its goods and services to Japan and to third markets and to further link itself with regional economies and production chains.

The agreement covers liberalization of 5700 tariff lines from Mongolian side and 9300 tariff lines from Japanese, enabling Mongolian businessmen to supply goods originating from Mongolia to Japanese market ate preferential tariff rates.

The annual monetary circulation in trade between Mongolia and Japan is generally between USD 300 million to USD 500 million, which is equal to 3-4 percent of the entire international trade of Mongolia. The parties expect this number to grow due to the positive effects of the new EPA agreement.

Mongolia Hosts Annual Trilateral Intellectual Property Conference



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The 4th Trilateral Intellectual Property Conference between Mongolia, Russia and China was held in Ulaanbaatar on 6 September, 2016. The theme of the conference was, “Protecting intellectual property rights; bringing intellectual property to the market; and encouraging innovation, technology, and SMEs.” Participants included the Head of the State Registration and Intellectual Property Rights Office of Mongolia R. Sodhuu, the Commissioner of the State Intellectual Property Office of the People’s Republic of China Shen Changyu, the Director General of The Russian Federal Service for Intellectual Property Grigoriy Ivliev and around fifty other intellectual property officials and representatives from all three countries.

Mongolia ranks 55th on the innovation index and the State Registration and Intellectual Property Rights Office of Mongolia representative G. Sarnai noted that although Mongolia conducts a great deal of research, little is being done to patent the research abroad and more needs to be done to bring the intellectual property to the market.

The Commissioner of the State Intellectual Property Office of the People’s Republic of China Shen Changyu noted new policies adopted by State Council in regards to intellectual property development and protection of innovation, highlighted China’s focus on bring new intellectual property to the market in addition to promoting new effective measures for guarding against infringement of Intellectual property.

The Director General of The Russian Federal Service for Intellectual Property Grigoriy Ivliev indicated that Russia also is increasing the investment for research and innovation, and pointed to positive results including new legislation for copyright protection Russia is also focused on decreasing the infringement of intellectual property online.

The conference is an important indication of the regions dedication to promoting Intellectual Property development and legal protection. The conference allows senior officials to share experiences and practical knowledge as regarding effectively promoting intellectual property development and legal protections. A key goal of the conference is to promote commercialization of intellectual property in all three participating countries through technology and innovation support centers and small and medium-sized factories. The conference is organized regularly each year.

Even in Jail, There’s No Place Like Home



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The number of Mongolians studying, working and travelling for business purposes abroad has steadily increased since 1990. As Mongolia’s relations with foreign countries around the world expand, so have the numbers of Mongolians traveling abroad. Unfortunately, this also means the number of Mongolians convicted of crimes abroad has also increased. Currently there are a total of 130 Mongolian citizens now serving jail time in foreign countries. These individuals face many difficulties such as the language barrier, extreme climates, and different qualities and preferences for food. Additionally, due to distance, these inmates have very limited opportunity to meet with family which may visit.

The Mongolian Government making efforts at bringing some small relieve to these convicts of criminal offences abroad, but expanding opportunities for them to serve sentences in their home country.

In the last years, Mongolia ratified the international Convention on the Transfer of Sentenced Persons, established in Strasbourg on March 21, 1983. It has been ratified by 65 countries, including every country of the Council of Europe (except Monaco), in addition to Australia, Canada, Japan, South Korea, Mexico and the United States. Under the provisions of this convention, Mongolian convict within member countries have been transferred to Mongolia.  At the same time, foreign convicts in Mongolia can be transferred to their home countries via the Convention or through bilateral agreements with Mongolia.

Mongolia has concluded a Bilateral Treaty on the transfer of sentenced person with seven countries, namely Peoples Republic of China, Russia, Canada, Poland, Turkey, South Korea and Cuba. At the beginning of 2016, the Parliament approved the bilateral agreement with Government of Hong Kong Special Administrative Region of the People’s Republic of China. As a result, nine Mongolian convicts serving jail time in Hong Kong are now eligible to be transferred to Mongolia.

Contracts with Provincial Governors Promote Accountability



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In an interesting development, the Prime Minister of Mongolia has signed contracts with local governors, and the mayor of Ulaanbaatar, in a move which seems designed to promote accountability and strengthen rule of law in Government.

The contracts set forth the responsibilities of the local governors, and obligations to adhere to the Constitution of Mongolia, and to follow other applicable laws. Additionally, the contracts state clearly that governors are required to fully implement the governmental action program to the benefit of their respective province.

The contracts further provide that local government must be staffed with educated and appropriately skilled personnel, with relevant specializations and expertise. Under the contracts governors are responsible to ensure that provinces maintain and implement budget saving policies and make public services available to more people. Governors will be responsible for enforcing budgeting and discipline, and for enforcing anti-corruption laws.

 Governors will be responsible for ensuring that their respective provinces benefit from economic growth, and to ensure equal and well distributed development in areas such as education, culture and general health with a goal to minimize poverty and unemployment.

 Under the contract, provincial governors will be subject to punishment for failure to meet the responsibilities as outlined. Governors will be required to submit progress on contractual responsibilities in an annual report to the cabinet.

The take away here is the government’s effort to implement as system of accountability. We are hopeful that the clear guidelines and expectations of the contract will work to increase local government effectiveness. Penalties which the local governors may be subject to for failure to meet expectations are not clear, but the important thing is that each of these governors now knows their performance is being watched. Clear expectations and a little oversight will hopefully go a long way to improve provincial governance.

Accountability and dependability are key factors foreign companies look for when considering a major investment. This applies nationally and at local levels. If provincial governors are able to deliver good results in meeting their responsibilities under the new contracts, foreign investors’ confidence to do business in Mongolia will be greatly improved.

New Criminal Law Delayed



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The Parliament passed a new Criminal law and Law on Infringement earlier this year, both  were supposed to come into force in 01, September 2016. However, now the Head of the Secretariat of the Government of Mongolia explains that the process of education of relevant government officials, and advertisement to the public for new laws, has not been sufficient. In light of this, it seems the government employee who will be responsible to enforce these laws are not yet ready, further new regulations in connection with implementation of the laws must be implemented as well. There is also a need to restructure the organizations in compliance with the law which may take quite some time to accomplish.

With all of these factors in mind, it is proposed that the implementation date be set back to 07 July 2017. This should allow enough time to address the outstanding issues.

No Dual Citizenship Allowed in Mongolia



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Like all countries, Mongolia has specialized laws regarding immigration and nationality. The Mongolian Constitution indicates that the grounds and procedure for determining Mongolian nationality, or for acquisition or loss of citizenship shall be defined by the law.

The Current Law of Mongolia on Citizenship was enacted in 1995 and it has been updated four times since then. According to the law, Mongolian citizens shall not be allowed to hold citizenship of a foreign nation and maintain their Mongolian nationality. Further, if a foreigner wishes to acquire Mongolian citizenship, he or she is required to give up any prior citizenship.

Under Mongolian Law, there are four ways an individual may become a Mongolian Citizen:

  • If both of the parents of a child are Mongolian then the child is automatically Mongolian. It doesn’t matter where the child is born. (In some circumstances it is possible for Mongolian parents living abroad to request the child become a citizen of a foreign country.)
  • A child born to one Mongolian parent within the territory of Mongolia is also automatically Mongolian.
  • A child who is within the territory of Mongolia whose parents are not identified is designated a Mongolian citizen.
  • Individuals of foreign nationalities may apply for citizenship via the President’s office, or through a Mongolian embassy.
  • Mongolians who are adopted by foreigners maintain “the right to choose his/her own nationality” according to the Family law of Mongolia.

Interestingly, approximately 16 thousand Mongolian citizens report having a dual citizenship, with most of them are women and children. Over the last 20 years an estimated 59,000 citizens withdrew their Mongolian citizenship while citizenship was awarded to only 221 individuals (not including new births within Mongolia).

A total of 250 Mongolian children have been adopted by foreign citizens, including family members. There are concerns that the Law should be amended to allow an adopted child to maintain his/her native citizenship until turning 18 years old. Until this change is made, Mongolian law will not be aligned with international convention regarding rights of children.

For this reason, the President, Ts.Elbegdorj has proposed amendment of Law of Mongolia on Citizenship, and has submitted relevant drafts legislation to the Parliament for consideration. It is expected that this change will be officially passed later this year.

Mongolia Company Formation 101



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In Mongolia, the Law on State Registration of Legal Entities regulates the founding, reorganization, and dissolution of legal entities, as well as amendments to registered information. Per the law the following legal entities, including subsidiaries and representative office must be registered with the state registration authority:

  • partnerships;
  • companies;
  • cooperatives;
  • NGOs;
  • State or local government owned enterprises;
  • government organizations, departments and state funded enterprises (Other than intergovernmental organizations, international organizations, government special funds, committees and national councils);
  • religious organizations;
  • media organizations;
  • public legal entities;
  • foreign invested legal entities;

After a completed application and required documentation has been submitted to the state registration authority, a decision will be made within 10 business days for foreign invested legal entities as to whether the entity is approved for registration. For domestic entities only two days are required.

If the state registration authority refused to register the legal entity, they will deliver notice in written stating the ground for refusal.

The state registration authority will refuse to register a new entity or any changes to an existing entities’ information if the application documentation is found to not match legal requirements, to be incomplete, or is found to be fraudulent. If an application is refused for any of these reasons, an new application may be made correcting the errors.

Investors should understand that the law specifically prohibits undertaking activities in the name of a entity which has not yet been officially registered.

 If any key information of the entities registration is to be amended, the legal entity should inform to the state registration authority within 15 business days after execution of relevant corporate documentation. Failure to do so may incur legal penalty.