Beneficial Ownership Transparency (MN0044)

Main objective:
Legal environment for transparency of beneficial owners and digital database of beneficial ownership created and data disclosed to public

Brief description of commitment:
Create legal environment for , beneficial ownership transparency of extractive sector companies, license holders, their operators, suppliers and beneficial owners of concentrator and beneficiation plants and disclose the beneficial owners through the digital database

Ambition:
-Legal environment for extractives sector transparency and disclosure of beneficial owners created;
-Beneficial ownership database created and disclosed to public;
-Government of Mongolia commitment to EITI to disclose beneficial ownership data before 1 January, 2020 fully implemented;
-Contributions made for achievement of paragraph 4.1.6.5 of the National Anti-Corruption Progam on EITI.

Milestones:
1. Organize joint meeting of members of Parliamentary Standing Committee for Economics, representatives of government ministries, extractive companies and civil society discuss on creating legal environment for disclosure of beneficial ownership
2. Get the concept notes for re-visiting the Extractive Sector Transparency Bill and other legislations approved, carry our necessary assessment, analyses and calculations, adopt the law
3. Collect data on beneficial owners, store in the database and disclose to public
4. Organize advertisement and awareness raising measures for legal entities and other stakeholders on the requirement on disclosure of beneficial owners
5.Carry out mid-term and final evaluation on enforcement of laws and implementation of Action Plan

10. Transparency of Beneficial Owners

Create legal environment for beneficial ownership transparency of extractive sector companies, license holders, their operators, suppliers, and beneficial owners of concentrator and beneficiation plants, and disclose the beneficial owners through the digital database.

Main Objective

Legal environment for transparency of beneficial owners and digital database of beneficial ownership created and data disclosed to public.

Milestones

1. Organize joint meeting of the Members of Parliamentary Standing Committee for Economics, representatives of government ministries, extractive companies, and civil society to discuss creating legal environment for disclosure of beneficial ownership.
2. Get the concept notes for revisiting the Extractive Sector Transparency Bill and other legislations approved, carry out necessary assessment, analyses and calculations, adopt the law.
3. Collect data on beneficial owners, store in the database, and disclose to public.
4. Organize advertisement and awareness-raising measures for legal entities and other stakeholders on the requirement on disclosure of beneficial owners.
5. Carry out midterm and final evaluation on enforcement of laws and implementation of action plan.

Editorial Note: For the complete text of this commitment, please see Mongolia’s action plan at https://www.opengovpartnership.org/wp-content/uploads/2019/12/Mongolia_Action-Plan_2019-2021.pdf.

Commitment analysis

This commitment aims to establish the legal framework required for the implementation of beneficial ownership transparency in the extractive sector, including through the creation of an online database that is available for public access. Mongolia’s Cabinet Secretariat and Ministry of Mining and Heavy Industry are responsible for the implementation of this commitment, in cooperation with the Ministry of Justice and Internal Affairs, the Bank of Mongolia, the General Agency for State Registration, the Ministry of Finance, the Independent Agency against Corruption, and the Mineral Resources and Petroleum Authority. A group of organizations which includes the Extractive Industries Transparency Initiative (EITI), Publish What You Pay (PWYP), Open Society Forum (OSF), and Natural Resource Governance Institute (NRGI) will also collaborate with the government on this commitment.

This commitment builds on the progress made by Mongolia in the previous action plan cycle through Commitment 12 on the transparency of beneficial ownership information in the mining sector. ^[80] Beyond participating in discussions and workshops on beneficial ownership, the government made limited progress on this commitment as it did not establish a database to disclose beneficial ownership information. ^[81] However, a separate civil society initiative, led by the NRGI and Transparency Fund NGO in 2018 resulted in the launch of a website, https://iltodezed.wordpress.com. ^[82] By the end of 2018, the website has disclosed beneficial ownership information of 50 mining companies. ^[83]

Through the current commitment, the government plans to organize a multistakeholder meeting to discuss and revisit key legislation around beneficial ownership transparency. The government also aims to collect and publish data of beneficial owners on a database, while also raising public awareness of the database. This commitment is therefore relevant to the OGP values of access to information and civic participation.

Although a number of extractive sector companies have already shared their beneficial ownership information, such practice is voluntary, as existing laws do not mandate or enforce such disclosure. ^[84] Thus companies can conceal beneficial ownership information without the threat of sanction.

Despite this, in 2018, the Extractive Industries Transparency Initiative (EITI) reported ^[85] that Mongolia successfully met a “satisfactory” level of progress in implementing EITI standards ^[86]—making them only the second country to do so after the Philippines. ^[87] However, while the disclosure of beneficial ownership is included in EITI Standard’s validation, it is only included as a recommendation and is therefore not taken into account in assessing compliance.

According to Mongolia’s Roadmap for the Disclosure of Beneficial Owners Information within the EITI Standard 2016–2020, ^[88] the government was scheduled to begin the disclosure of beneficial ownership information between January and July 2019, which falls within the same timeframe as Mongolia’s OGP action plan. As the publication of beneficial ownership information begins, the government would then integrate the database to other existing electronic data systems, ^[89] such as:

• EITI Mongolia Data Portal at https://e-reporting.eitimongolia.mn (operated by EITI Mongolia)
• National Legal Center portal at https://www.legalinfo.mn (operated by the Ministry of Justice and Interior of Mongolia)
• Computerized Mining Cadastre System (CMC) at https://cmcs.mrpam.gov.mn (operated by the Mineral Resources and Petroleum Authority of Mongolia)
• Open contracting portal at http://www.iltodgeree.mn (operated by the Open Society Forum)
• Glass account portal at http://www.shilendans.gov.mn (operated by the Cabinet Secretariat of the Government of Mongolia)

If fully implemented, this commitment stands to have moderate potential impact on the transparency of beneficial owners in the extractives sector and, therefore, on combatting possible corruption within it. Highlighting the importance of this commitment, Mongolia benefits significantly from activities in the extractive sector—with the sector accounting for at least 23 percent of its GDP on average. ^[90] Despite some progress in the context of voluntary beneficial ownership disclosure, efforts to revise and thereafter, effectively implement and enforce strong legislation on beneficial ownership transparency stands to bring about a significant improvement in ensuring consistent and greater transparency of extractive companies.

Although the commitment’s overall success relies on approving, adopting, and enforcing the legislation—including the Bill on Extractive Sector Transparency—the commitment aims to ease such passage by bringing key stakeholders together to discuss the necessary changes. It is difficult to determine the extent to which the proposed discussion will contribute to or directly result in legislative changes and adherence to the law.

The commitment also aims to publish the mandatorily disclosed information on a database—or a beneficial ownership register—and raise public awareness on disclosure requirements. This, along with efforts to evaluate the implementation of the law, is likely to raise pressure on extractive companies to properly and fully adhere to disclosure requirements. While these key interventions signal the potential for a significant improvement in the status quo, the scope and success of this commitment is also dependent on other supplementary factors including, for instance, the adoption of measures to regularly ensure the quality and interoperability of the disclosed information and the determination of an appropriate threshold for the disclosure of information. ^[91]

Going forward, the government should generally aim to consolidate efforts around transparency in the extractive sector in order to avoid overlap and duplication (see Commitment 11). In implementing this commitment, stakeholders should focus on the crucial objective of ensuring that legislation and related amendments on beneficial ownership transparency are passed and adopted. In addition, in the process of revisiting such legislation, the government should create a working group with civil society, through which a beneficial ownership data standard could be adopted, developed, or customized to ensure that the beneficial ownership information is reliable and accurate. The standard could, for example, draw on the Open Ownership’s Beneficial Ownership Standard, ^[92] or even build on existing principles of open data, such as the Open Knowledge Foundation’s three principles ^[93] of availability and access, reuse and redistribution, and universal participation. In addition, once such information is published, the government could develop a mechanism for law enforcement agencies to leverage the database to identify, investigate, and prosecute financial crimes.

10. Transparency of beneficial owners

Substantial:

For details regarding the implementation and early results of this commitment, see Section 2.3.

Aim of the commitment

This commitment aimed to establish a legal framework for beneficial ownership transparency in the extractive sector and a publicly accessible beneficial ownership database. It was a component of Mongolia’s Roadmap for the Disclosure of Beneficial Owners Information with the Extractive Industries Transparency Initiative (EITI) Standard 2016–2020 and was carried over from the previous OGP action plan. Prior to implementation, existing laws did not mandate disclosure of companies’ beneficial ownership, although Mongolia became the second country to meet a satisfactory level of progress in implementing EITI standards in 2018. [38] 

Did it open government?

Marginal

This commitment saw positive progress on transparent beneficial ownership information. In the 2019 EITI report, 291 of 2,093 companies provided some beneficial ownership information, [39] although many instead provided legal ownership information. For context, a legal owner holds the company’s legal title under their name, while a beneficial owner may receive the benefits of ownership despite the title remaining under another’s name. To date, EITI reports are the only publicly available source of beneficial ownership information. With the deadline imposed by the Law on Procedures to Implement the General Taxation Law of March 2019, 29,948 companies (one-third of active entities) provided hardcopy beneficial ownership information to the General Authority for State Registration by the end of 2020. By 2021, companies were widely aware of their obligations to disclose this information. However, the registry is not publicly accessible. The paper-based system also makes it difficult for government agencies to verify information efficiently and identify suspicious patterns. [40] Outside of the commitment’s scope, the draft public data disclosure law (under deliberation by parliament in November 2021) would require disclosure of beneficial ownership information from all sectors. [41]

The commitment’s central objective was adoption and enforcement of the Extractive Sector Transparency Bill, which was drafted in early 2020 by the Ministry of Mining and Heavy Industry, but was still pending in November 2021. According to EITI, passage of the bill was delayed by parliamentary elections and a consequent re-drafting of the bill with input from the Asian Development Bank. The draft was finalized in June 2021 and added to a list of legislation to be discussed in parliament. [42] The Open Society Forum attributes slow progress to limited political interest in beneficial ownership reform. [43] A Brookings analysis notes that the bill has been deprioritized in favor of COVID-19 policies and lacks parliamentary support as this issue is not on the agenda of any political group or a member of parliament. [44] Mongolia’s removal from the Financial Action Task Force (FATF) grey list has also contributed to a loss of momentum. [45] The draft bill encompasses mandatory compliance with the global EITI standard and official establishment of the Mongolia EITI national council and secretariat, with state budget allocations. It includes clear sanctions on non-compliance. EITI considers passage of this bill to be fundamental to transparency in the extractive sector. [46]