Transparency of the Regulatory System
The Law on Legislation sets out who may draft and submit legislation; the format of these bills; the respective roles of the Mongolian parliament, government, and president; and the procedures for obtaining and employing public comment on pending legislation. The Law on Legislation states that law initiators – members of parliament, the president of Mongolia, or cabinet ministers – must fulfill these criteria: (1) provide a clear process for developing and justifying the need for draft legislation; (2) set out methodologies for estimating costs to the government related to a bill’s implementation; (3) evaluate the impact of the legislation on the public; and (4) conduct public outreach before submitting bills to parliament.
Initiators must post draft legislation for public comment and publish reports evaluating costs and impacts on parliament’s official website ( Parliament of Mongolia/Projects ) at least 30 days prior to submitting bills to parliament. Posts must explicitly state the time for public comment and review. Initiators must solicit comments in writing, organize public meetings, seek comments through social media, and carry out public surveys. No more than 30 days after the public comment period ends, initiators must prepare a matrix of all comments, including those used to revise the bill as well as those not used, which must be posted on parliament’s official web site. After a law’s passage, parliament must monitor and evaluate its implementation and impacts. Investors report that while legislators have not implemented all these requirements, most relevant legislation is posted on parliament’s website before passage. Ministries and agencies have not fulfilled these statutory requirements, according to businesses.
While General Administrative Law Article 6 aligns Mongolia’s regulatory drafting process with Transparency Agreement obligations, investors report the government is not generally enforcing it. Under the Transparency Agreement, originators of regulations must seek public comment by posting draft regulations in a single journal of national circulation, designated as LegalInfo.mn ( HYPERLINK “https://www.legalinfo.mn/%22%20/t%20%22_blank” t “_blank” LegalInfo). Drafters must record, report, and respond to significant public comments. The Ministry of Justice and Home Affairs must certify each regulatory drafting process complies with the General Administrative Law before a regulation enters force. After approval, the statutorily responsible government agency monitors implementation and impacts.
Businesses also note unpredictable, nontransparent regulatory burdens at the local—province and county—levels. They note inconsistent application of regulations and statutes among central, provincial, and municipal jurisdictions and a lack of expertise among local inspectors. Regional tax, health, and safety inspectors are cited as particularly problematic. The Economic Policy and Competitiveness Research Center of Mongolia annually ranks local regulatory burdens: http://en.aimagindex.mn/competitiveness .
Mongolia’s so-called Glass Budget Law requires all levels of government to publicly post proposed and actual budget expenditures, and the law, according to businesses and transparency experts, has generally been followed. However, parliament can waive these transparency requirements for emergencies and for budgetary bills and has on several occasions in 2020 and 2021 during the COVID-19 pandemic.
The government neither promotes nor requires companies’ environmental, social, and governance (ESG) disclosures to facilitate transparency and/or help investors and consumers distinguish between high- and low-quality investments. The government does, however, limit the right to invest in such high-risk securities as digital tokens and cryptocurrencies to professional investors and other high net-worth individuals.
International Regulatory Considerations
Mongolia, which has generally eschewed regional economic blocs, acceded to the Asia-Pacific Trade Agreement (APTA) in 2021. Also, Mongolia often seeks to adapt European standards and norms in such areas as construction materials, food, and environmental regulations; looks to U.S. standards in the hydrocarbon sector; and adopts a combination of Australian and Canadian standards and norms in the mining sector. Mongolia also tends to employ World Organization for Animal Health standards for its animal health regulations. Mongolia, a member of the WTO, asserts it will notify the WTO Committee on Technical Barriers to Trade (TBT) of all draft technical regulations.
Legal System and Judicial Independence
Investors state that judges frequently avoid controversial decisions in business disputes, preferring to delay judgment for as long as possible—sometimes years. If a decision is made, businesses face similarly long delays enforcing court orders. In some instances, cases have taken so long that by the time an enforcement is executed, the counterparty has liquidated assets and vanished. Investors note similarly long delays with respect to inspection agencies, such as the Tax Dispute Settlement Resolution Council, as well as with other inspection agency panels, especially those related to mineral licenses and health matters.
In 2021, parliament revised the Law of the Judiciary to bring it into line with the amended constitution. This law limits the powers of the government, parliament, and the president to influence the selection and removal of judges; and vests the Judicial Disciplinary Council with responsibility for disciplining jurists, except in matters involving criminal acts. Investors have praised these reforms, saying are helping to restore judicial independence severely.
Under Mongolia’s hybrid civil law-common law system, trial judges may use prior rulings to adjudicate similar cases but have no obligation to follow legal precedent as such. Mongolian laws, and even their implementing regulations, often lack the specificity needed for consistent judicial and prosecutorial interpretation and application. All courts may rule on matters of fact as well as matters of law at any point in the judicial process.
Mongolia has specialized laws for contracts but no dedicated courts for commercial activities. Contractual disputes are usually adjudicated through the Civil Court division of the district court system. Criminal Courts adjudicate crime cases brought by the General Prosecutors Office. Disputants may appeal to the City Court of Ulaanbaatar and ultimately to the Supreme Court of Mongolia. Mongolia has several specialized administrative courts adjudicating cases brought by citizens, foreign residents, and businesses against official administrative acts. Mongolia’s Constitutional Court, the Tsets, rules on constitutional issues. The General Executive Agency for Court Decisions enforces judgments and orders.
Investors and legal sector experts say that the Administrative Court is procedurally competent, fair, and consistent but that the Civil Courts deliver highly inconsistent judgments.
Laws and Regulations on Foreign Direct Investment
The 2013 Investment Law sets the general statutory and regulatory frame for all investors in Mongolia. Under the law, foreign investors may access the same investment opportunities as Mongolian citizens and receive the same protections as domestic investors. Investment domicile, not investor nationality, determines if an investment is foreign or domestic. The law provides for a more stable tax environment and offers tax and other incentives for investors; and authorizes a single point of registration, the State Registration Office ( www.burtgel.gov.mn ), for all investors. The law offers qualifying companies transferable tax-stabilization certificates valid for up to 27 years. Affected taxes may include the corporate-income tax, excise taxes, customs duties, value-added tax, and royalties.
Investors cite two primary national-treatment issues with respect to investment rules. First, foreign nationals and companies may not own real estate; only Mongolian adult citizens may own real estate. While foreign investors may obtain use rights for the underlying land, these rights expire after a set number of years with limited rights of renewal. Government officials have said that in some cases municipal, provincial, and central government officials may waive land-use rights limits and recommend that investors contact the relevant agency or ministry for more information on how to apply for these waivers. Foreign investors also object to the regulatory requirement that each foreign investor in any given venture must invest a minimum of $100,000. Although the Investment Law has no such requirement, Mongolian regulators impose it on all foreign investors without requiring the same minimum from Mongolian investors.
The Ministry of Economy and Development manages the “One-Stop-Shop for Investors,” which provides investor services on visas, taxation, social insurance, notarization, and business registration ( https://investmongolia.gov.mn/ ). The Ministry of Economy and Development has publicly stated that it will establish in 2022 a new foreign investment and foreign trade support entity to assume the duties of the One-Stop-Shop, although no date has been provided.
Competition and Antitrust Laws
Mongolia’s Agency for Fair Competition and Consumer Protection reviews domestic transactions for competition-related concerns. For a description of the Agency go to AFCCP . The Agency for Fair Competition and Consumer Protection launched no 2021 competition cases affecting U.S. FDI. U.S. investors generally find the AFCCP applies its norms and procedures transparently, although they remain concerned the agency favors local economic interests over foreign interests. AFCCP decisions may be appealed to the courts.
Expropriation and Compensation
State entities at all levels may confiscate or modify land-use rights for purposes of economic development, national security, historical preservation, or environmental protection. Mongolia’s constitution recognizes private real-property rights and derivative rights, and Mongolian law specifically bars the government from expropriating assets without payment of adequate, market-based compensation. Investors express little disagreement with such takings in principle but state that a lack of clear lines of authority among the central, provincial, and municipal governments has led to loss of property and use rights in practice. For example, the Minerals Law provides no clear division of local, regional, and national jurisdictions for issuances of land-use permits and special-use rights. Faced with unclear lines of authority and frequent differences in practices and interpretation of rules and regulations by different levels of government, investors may find themselves unable to fully exercise legally conferred rights.
Some expropriation cases involve court expropriations after third-party criminal trials at which investors are compelled to appear as “civil defendants” – but are not allowed to fully participate in the proceedings. In these cases, government officials are convicted of corruption, and the court then orders the civil defendant to surrender a license or property, or pay a tax penalty or fine, for having received an alleged favor from the criminal defendant with no judicial proceedings to determine if property or licenses were obtained illegally.
Businesses claim the tax dispute settlement processes has become a form of indirect expropriation. 2020 amendments to the Tax Law allow tax officials to require disputants to place the entire disputed tax assessment in escrow as a precondition for disputing the tax assessments, which encourages officials to issue punitive tax assessments that make using settlement processes prohibitively expensive and confiscatory.
ICSID Convention and New York Convention
Mongolia ratified the Washington Convention and joined the International Centre for Settlement of Investment Disputes (ICSID) in 1991 and the New York Convention in 1994. It has accepted international arbitration in several disputes. Mongolian law allows for domestic enforcement of awards under the ICSID and New York Conventions.
Investor-State Dispute Settlement
Under the 1997 U.S.-Mongolia Bilateral Investment Treaty ( US-Mongolia BIT ), both countries agree to respect international legal standards for state-facilitated property expropriation and compensation in matters involving nationals of either country, providing U.S. investors in Mongolia with an extra measure of protection against financial loss.
In disputes involving the government, investors claim some government officials and politicians interfere in administrative and judicial dispute resolution processes. Foreign investors describe three general categories of alleged interference. First, in disputes between private parties before judicial tribunals, investors warn that Mongolian private parties may exploit contacts in the government, the judiciary, law enforcement, the media, or the prosecutor’s office to coerce foreign private parties to accede to demands. Second, in disputes between investors and the Mongolian government directly, the government may claim a sovereign right to intervene in the business venture, often because the Mongolian government itself operates or seeks to operate a competing state-owned enterprise (SOE); because officials have undisclosed business interests; or from ignorance of the relevant statutes and regulations. Third are disputes with Mongolian tax officials or prosecutors allegedly levying highly inflated, statutorily deficient tax assessments against a foreign entity and demanding immediate payment on threat of civil or criminal prosecution.
Investors report local courts recognize and enforce court decisions—but problems exist with enforcement. The thinly staffed General Executive Agency for Court Decisions (GEACD) implements civil and criminal court orders. Its employees, often living in the jurisdictions in which they work, are subject to pressure from friends and professional acquaintances. A complicated chain-of-command and opportunities for conflicts of interest may weaken GEACD’s resolve to execute court judgments on behalf of foreign and domestic investors.
Mongolia has been plaintiff and defendant in several past and ongoing international arbitration suits over the expropriation of private sector mining rights or the imposition of excessive tax assessments. Whenever the government has lost arbitration claims, it has satisfied every judgment after some negotiation with foreign investors.
U.S. investors have reported no extrajudicial actions against their interests.
The Oyu Tolgoi copper and gold mine remains a bellwether of Mongolia’s investment climate. Upon reaching full production, the mine may produce as much as 25 percent of Mongolia’s GDP. Many investors see the 2021 settlement between the government of Mongolia and Oyu Tolgoi resolving some of the ongoing disputes as improving Mongolia’s investment climate image internationally.
International Commercial Arbitration and Foreign Courts
Mongolia’s Arbitration Law, based on the United Nations Commission on International Trade Law (UNCITRAL), provides clear rules and protections for Mongolia-based arbitration. The law does not, however, designate any organization for use by all disputants. Any organization that satisfies the law’s specific requirements may provide arbitral services.
The Arbitration Law limits the role of Mongolia’s courts in the arbitration process. Parties have the right to appeal only once to Mongolia’s Court of Civil Appeals (CCA). This Court may only reject an arbitration judgment for “serious” procedural failings or discrepancies with official public policy initiatives.
Local courts will recognize both foreign and domestic arbitral awards and order the General Executive Agency for Court Decisions to enforce them, although collection may be allegedly slowed or even sabotaged for reasons described in the Legal System and Judicial Independence section of this report.
Foreign investors claim a bias against them if they pursue legal action against a Mongolian stare-owned enterprise (SOE). To our knowledge, no foreign plaintiff has ever prevailed against an SOE in Mongolia’s courts. Mongolia-based legal experts claim foreign investors and exporters may experience preemptory, non-transparent court treatment up to outright discrimination from judges. Most investors and legal experts advise using legal, non-judicial dispute resolution mechanisms when confronting Mongolian SOEs.
Bankruptcy law treats bankruptcy as a civil matter requiring judicial adjudication. Mongolia allows registration of mortgages and other debt instruments backed by real estate, structures, and other immovable collateral (mining and exploration licenses, intellectual property rights, and other use rights); and movable property (cars, equipment, livestock, receivables, and other items of value). Although investors may securitize movable and immovable assets, local law firms hold that the bankruptcy process remains too vague, onerous, and time-consuming for practical use. Reporting that foreclosure and bankruptcy proceedings usually require no less than 18 months, with 36 months not uncommon, legal advisors state that a lengthy appeals process, perceived corruption, and government interference may create years of delay. Moreover, while in court, creditors face suspended interest payments and limited access to the asset.