Mongolia in the Panama Papers

By Julian Dierkes

Since the #PanamaPapers scandal broke there has been speculation about any Mongolian entanglements in the dealings of the Mossack Fonseca law firm. With the release of further information on May 9, that speculation has been fed by some limited bits of information.

As deplorable as the seemingly endemic nature of corruption is in Mongolia, it’s also very unfortunate that most discussions of this challenge veers into conspiracy theories, rumours, and accusations. The quality of discussions about corruption, nor the evidence of actual corrupt practices has continued to decline under the DP government which had come in with many rhetorical pointers to anti-corruption.

I do not intend to contribute to any kind of rumour-mongering with this post, but I do want to consider the implications of the appearance of some names in the PanamaPapers.

I should thank UBC PhD student Damdinnyam for reminding me of the release of the data and thank some Twitter followers also for helping me identify some of the names that have popped up, and understanding the implications.

Prominent Names that Appear in the Panama Papers Release

Depending on how the search on the ICIJ database is configured, somewhere around 40 names linked to Mongolia appear.

The temptation is to search for recognizable and prominent names first and, perhaps not surprisingly, some such names can be found.

Caveat: Offshore ≠ Illegal

However, it should be remembered that appearing in the Panama Papers is not an indication of anything illegal at all. All it suggests is the existence of a tie to an offshore company. There may well be legitimate uses of offshore companies that involve complex investments in multiple jurisdictions and they need to move capital associated with these investments around. However, there are also many other uses that may be technically legal, often euphemistically referred to as “tax planning”, but surely contravene the spirit of tax law that generally structure taxation to be fair and to include (dis)incentives for certain kinds of economic or other behaviour such as investment tax credits, etc. In the case of legitimate use of offshore companies, it would certainly behoove individuals associated with such companies to explain what legitimate use this investment was aimed at.

I acknowledge that I’m approaching the question of the existence of offshore companies with some preconceived notions about these structures. I also acknowledge that in my interest in the nature of these financial investments, I may be engaging in some relative balancing of the right to privacy of individuals (such as those named here), and the (public) desire to understand mechanisms that may be used for corrupt and other illegal purposes, especially when corruption is seen as such a significant problem in the Mongolian context. Individuals and their right to privacy should be borne in mind, however.

As the disclaimer on the Panama Papers website states:

There are legitimate uses for offshore companies and trusts. We do not intend to suggest or imply that any persons, companies or other entities included in the ICIJ Offshore Leaks Database have broken the law or otherwise acted improperly.

Names

The four most prominent names that appear in the database are:

• Chuluudai B, son of Ulaanbaatar mayor Bat-Uul E
• Batbayar D, former Sumo champion (as 旭鷲山) and former MP for the Democratic Party (2008-12)
• Bum-Erdene Kh, as an associate of Batbayar’s in “Abros Co.”, but also listed as a commissioner on the website of the Financial Regulatory Commission
• two daughters of former MP and PM S Bayar, Badamkhand and Nandin

Again, all these individuals should be considered innocent in a legal way until any evidence emerges that there is anything illegal or underhanded about the companies they are involved in.

In Chuluudai’s case, the relevant company, “Strategic Mines” seems to have only existed from June 2011 to November 2013.

Batbayar is associated with Abros Co which appears to have been set up in Aug 2007 and is listed as “active”. Note that Aug 2007 is almost a year before Batbatar was elected to parliament in 2008 and served until 2012.

Bum-Erdene is associated with the same Abros Co. Seeing as it is listed as “active” his association with the Financial Regulatory Commission makes this connection particularly curious.

Bayar’s daughters are associated with Linnock Holding which existed for a year, Oct 2014 to Oct 2015, and Gold Wellen Inc which existed from Aug 2013 to Oct 2014. This is long after Bayar’s prime ministership.

Questions

Where offshore companies are used for illegitimate and perhaps illegal purposes, two particular uses come to mind:

• tax evasion
• corruption

A reduction in taxation seems to be the main purpose of offshore companies in such prominent cases as the father of British PM Cameron.

Yet, is “tax planning” a plausible motive in the Mongolian context? With a flat income tax of 10% it seems to me that an individual would have to have amassed a significant fortune before the costs of paying the advisors and structures that are required for an offshore company. Somehow, I’d have to suspect that tax reduction is not the primary aim of Mongolians who maintain offshore companies, though this is not an area I specialize in in any way, so I hope that others can enlighten me about this.

The greater fear in the case of Mongolia is that offshore companies are part-and-parcel of corruption schemes where shell companies and complex transactions may be used to hide the movement of funds to officials or decision-makers. That would clearly be an illegal activity, and certainly an illegitimate one. It is noticeable that a number of the records associated with individuals above point to company names that are at least inspired by names commonly used in the mining industry.

For example, the record that is associated with Chuluudai points to him as a shareholder in something called “Strategic Mines”. Some of the records associated with less prominent individuals have similar names.

Other Names

Of course, there are names beyond those that appear at first glance in the Panama Papers. For example, a search for Ulaanbaatar addresses leads to numerous addresses that seem to be linked to names that appear to be foreign names, be they Chinese or “Western”.

More Evidence Please!

Obviously, individuals named deserve a chance to explain themselves, and are entitled to a legal assumption of their innocence. I sincerely hope that the journalists involved in the analysis of the Panama Papers will be able to follow on the concreteness of the indications offered in the Papers by building up a greater understanding of the legitimate uses of offshore companies, or by pointing to concrete evidence of less-than-legitimate, perhaps even illegal use of such constructions. A greater understanding of different financial instruments will help inform debates about corruption and make strategies to curb corruption more effective.

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