By Munkhjargal Enkhbaatar, Accountable Mining Project Coordinator and Bilguun Odkhuu LLM, Program officer, Transparency International Mongolia
Mongolia’s new government can curb corruption in mining by passing the Extractive Industries Transparency Law
22 March 2021
Mongolia’s long-awaited draft Extractive Industries Transparency Law is an opportunity for the country to plug the gaps that leave its mining sector exposed to conflicts of interests and corruption.
While the country has made some progress to improve transparency and accountability in the sector in recent years, if the new government is serious about integrity, it will make it a priority to pass it into law.
Transparency International Mongolia, in partnership with other civil society groups, has been working for several years to strengthen the transparency and governance of the country’s mining sector. One area of particular focus has been to require mining companies to disclose their beneficial owners – something numerous NGOs have been advocating for since 2012 (read about our recent collaboration). There has been progress on this front in recent years, but the changes fall short of what is needed for beneficial ownership information to help safeguard integrity in the sector.
Beneficial ownership disclosure laws need strengthening
Since 1 January 2020, companies holding rights to mineral and oil resources must declare and register their beneficial owners with the taxation authority. From the start of 2021, all registered companies or entities seeking company registration must also disclose their beneficial owners to the company registry (State Registration Agency). This is an important step toward meeting Mongolia’s obligations under the Extractive Industries Transparency Initiative (EITI), its Open Government Partnership (OGP) commitments and the requirements of the Financial Action Task Force (FATF).
But there are several shortcomings.
Firstly, the information on beneficial owners (BO) cannot be accessed by the public. This is not consistent with the EITI requirements and the country’s own commitments under the OGP or the country’s Anti-corruption National Action Plan, which stipulate that the information should be publicly available.
The public have a right to know who is behind the companies holding mining rights. Despite our official requests to the Independent Authority Against Corruption, the Ministry of Finance, Cabinet Secretariat and Speaker of Parliament, and multiple meetings with the State General Company Registration Agency seeking an explanation and timetable for publication of this information, it remains unclear whether and when the public will get access.
Secondly, the current law sets a very high threshold for who is to be considered a beneficial owner – it is a person who owns 30% or more of shares, equity or voting rights. Given the size of some mining companies, even a 5 percent ownership or interest in a large-scale project could be worth millions of dollars. Considering Mongolia’s poor reputation when it comes to corruption, Mongolia needs to implement a lower threshold if its BO disclosure law is to capture relevant individuals with a significant or material interest in the mining sector.
The mining authority needs to use the BO information
One of the most significant shortcomings is that the BO data collected by the tax authority and company registry is not cross-checked or used by other state agencies, notably the Mineral Resources and Petroleum Authority (MRPAM), which is responsible for granting mining licences. This undermines a key purpose of BO transparency – the detection and prevention of conflicts of interests in the mining sector.
This was one of our findings from an evaluation of Mongolia’s BO and integrity screening mechanisms that we conducted with our partners at the Natural Resource Governance Institute and Open Society Forum using a tool developed by the Accountable Mining Programme (tool forthcoming May 2021).
We found that Mongolia does not have a process for screening the beneficial owners or integrity of mining licence applicants. MRPAM only considers how well the company meets technical and financial capacity criteria. Beneficial ownership and the presence of any politically exposed persons are not checked. Moreover, in the case of licence transfers no checks are done whatsoever on the company buying the licence – not even on technical criteria – meaning the buyer can evade any background checks or screening.
These findings were presented to several government agencies at a roundtable jointly hosted by the Mongolian Independent Authority Against Corruption. We have followed up with written recommendations to call for government agencies to cross-check their respective databases to enable proper and rigorous integrity due diligence on mining licence applicants. Best practice would see the BO data made publicly available, but in the first place, the government bodies registering the BO information should share it with relevant agencies, such as MPRAM.
The promise of the Extractive Industries Transparency Law
The Extractive Industries Transparency Law holds promise as a way to make progress on transparency and integrity due diligence in Mongolia. As a member of the government working group on the draft law, it is pleasing to see several recommendations from our evaluation incorporated into the draft law, in particular:
- The requirement for detailed due diligence to be conducted as part of the licence allocation process
- For companies’ BO declarations to include the corporate structure, a breakdown of the shareholders by percentage of shares held, and identification of any government/state-owned company shareholders
- For details of politically exposed persons (PEPs) in BO declarations to specify the dates when the beneficial owner became a PEP, their position and nationality.
Effectively implementing this law and Mongolia’s commitments under the EITI is not a matter solely for the mining ministry, as it requires the participation of and coordination with ministries such as finance, environment and even government audit functions. In a country like Mongolia where the mining sector plays such an important role, it would be wise for the Prime Minister’s office to have oversight of this area.
BO and transparency need to be a government priority
Progress on the Extractive Industries Transparency Law has stalled since a draft was made available for public consultation in the second half of 2020. At the time of writing, the final draft of the law is yet to be tabled in Parliament.
The new Prime Minister Oyun-Erdene has an opportunity to show his government’s leadership and commitment to bolstering integrity in the mining sector by spearheading the passage of the Law in parliament.
The work does not end once the law is passed. The Office of the Prime Minister should re-assume the chair of the EITI National Council, as it did from 2012-2018, to ensure that the measures in the law are effectively implemented.
Transparency International Mongolia will continue working to make sure beneficial ownership information is used effectively to prevent corruption in the mining sector. We look forward to seeing Prime Minister Oyun-Erdene make transparency and integrity in mining a matter of priority for his government.