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Owners in the Shadows: Beneficial Ownership in Mongolia’s Mining Sector

In 2019, the Mongolian parliament deliberated on several constitutional amendments that it eventually adopted. At public forums organized by parliament that took place over several months, non-governmental organizations (NGOs), government officials, political parties and parliamentarians fiercely debated provisions that specified who owns the country’s natural resources.

President Khaltmaa Battulga and some NGOs heavily criticized the language from the 1992 constitution, which stated that natural resources belong to the people and shall be the property of the state. President Battulga and his allies argued that such language allowed public officials to make discretionary decisions on behalf of the state, which grants titles to natural resources to companies and allows them to exploit these resources without any oversight. President Battulga urged the parliament to adopt the term “public property,” which resulted in the incorporation of the term “state public property” in the amended provision. The provision now reads, “The land, except for the property owned by the citizens of Mongolia, as well as the subsoil with its mineral wealth, forests, water resources and the fauna shall be the state public property.”

Whichever terminology is used, businesses will ultimately hold licenses for exploring and exploiting natural resources. Public officials will decide to which businesses Mongolia grants these licenses. In this way, “the state” performs its role in managing the newly defined “state public property.” But how can Mongolia ensure that “the public,” or the ordinary citizens, also have a role in determining the use of the country’s resources? By fairly distributing the tax benefits and payments accrued from mining, the state can ensure that it is meeting its obligation to the public.

Mining companies are responsible for paying their taxes and payments in full and as prescribed by law, reporting in earnest their revenues and profits and rehabilitating the environment. If they fail in these responsibilities, they are embezzling the assets entrusted to them by the true owners of the natural resources.

In order to make sure that companies are being good stewards of Mongolia’s resources and honoring their contracts with the government, it is critical to know who the beneficial owners—the people who either directly or indirectly hold shares, voting, or investing power in a company—of contracted companies are. This transparency is particularly important because it allows the public to see whether a politically exposed person, or an official making decisions on behalf of the Mongolian public, serves to materially benefit from granting a mining license to a company in which he or she holds a financial interest.

In 2013, Mongolia began its effort to unveil the beneficial owners of mining companies through its Extractive Industries Transparency Initiative (EITI) Report. In this report, Mongolia EITI collated information provided by companies, initially called “beneficiaries” (termed “beneficial owners” in subsequent reports). Because Mongolia is committed to the 2016 EITI Standard that requires companies to disclose their beneficial ownership information, the government undertook to implement this requirement by 1 January 2020. In the years leading up to this deadline, the country developed a roadmap to achieve this objective, and in line with this approved roadmap, conducted various studies and organized numerous workshops and trainings for government officials, mining companies and civil society representatives.

Despite these efforts, Mongolia has failed to meet the deadline. Hundreds of mining license holders have fulfilled their obligation to register their beneficial owners with the General Authority for State Registration (Registration Authority), Tax Administration and Mineral Resources and Petroleum Authority. In line with the law on legal entity registration, companies must register their beneficial ownership information with the Registration Authority. However, the Registration Authority cannot release this information publicly without written permission from each company. Civil society had demanded that this provision be modified, but the government has not acquiesced. The legal provision that the Registration Authority can only disclose this information “upon written permission” creates an environment in which beneficial ownership is treated as a business secret and has undermined the public’s right to see who is exploiting their natural resources.

When government fails to introduce necessary laws and regulations to promote transparency, NGOs can lead by taking initiative and pushing the reform process. While beneficial ownership information cannot be shared by the Registration Authority due to the current law, Mongolia has made some progress in revealing beneficial ownership information through companies’ EITI disclosures and through reporting by investigative journalists. To build on this progress, beginning in 2018, Transparency Foundation, an NGO, began operating a regularly-updated online database of extractive companies’ registration, ownership and owners, The Natural Resource Governance Institute has supported this work.

One-off disclosure of beneficial owners will not provide the Mongolian public with the information that we need to make sure that our country is receiving fair payment for our natural resources. Minerals licenses and company ownership stakes are not fixed and constantly change hands through purchasing, selling and other transfers. Therefore, companies must disclose their owners regularly and uniformly.

In late 2019, Transparency Foundation organized two information and experience-sharing workshops on beneficial ownership transparency. The section below shares some anonymized examples of the main concerns that non-governmental organizations and journalists who participated in these workshops presented.

In one location, for many years, local residents have sought accountability as their surroundings have been damaged by numerous companies that are extracting gravel and other minerals. Despite intervention by public officials and bodies, the situation has not improved. Now, the public believes that their final option is to identify and reveal the “owners standing behind” these companies. If their investigation reveals that the owners are politicians, ministers or high-ranking officials, those owners will suffer reputational damage and public pressure to end their bad practices. Journalists are now working with the community to analyze and link the scarce information available from official registers and to gather unofficial information to expose the beneficial owners.

Some participants stated that state-owned mining companies often lack corporate governance structure and that managerial and board of directors appointments are subject to political interference.

Chasing beneficial ownership information for medium- and large-sized companies oftentimes leads to “owners behind” or the officially registered owners. However, this only reveals the first level of ownership information, and beyond that, it is often difficult to trace beneficial owners due to foreign-named companies that are registered in offshore zones. Identifying such owners is an entirely new skillset that the civil society must master.

While the ownership structure of companies listed on international stock exchanges can be quite complex, open access to shareholders’ meeting materials helps. Investigative journalists successfully identified some of the beneficial owners of listed mining companies by reading these materials.

Disclosure of the major shareholders of companies listed on the Mongolian Stock Exchange (MSE) can serve as a starting point for research and investigations. However, the number of extractive companies listed on the MSE has not grown much over the years.

Providing transparent beneficial ownership in Mongolia’s extractive sector and using it to ensure accountability is more complex and challenging than we initially anticipated.

Tserenjav Demberel is the executive director of the Transparency Foundation, a member of the Publish What You Pay Network. The views represented here are his.