Relative to size of population, our nation experiences the largest number of political dramas compared to other countries in the world. This time the thick, dark fog of MPP/DP (Mongolian People’s Party and Democratic Party) hovering over Mongolia has started being dispersed by the clashing winds of integrity and fraud. Although the winds aren’t very strong, there have been some revelations. As a society, we need to link specific events in the past by their sequence, make logical connections, find the truth, and – ultimately – clean up and find a path forward.
One owner for two banks
Almost three years ago, I wrote a column titled ‘Erdenebilegism – A New Phenomenon in Mongolia’s Democracy’ about how one individual conspired with the authorities and increased his ownership interest in Ulaanbaatar City Bank by using The Bank of Mongolia’s requirement to increase statutory capital reserves as an excuse. Instead of informing the true owners (the public) of the need to increase the capital reserve, Ulaanbaatar’s mayors, M. Enkhbold, Ts. Batbayar, and G. Munkhbayar allowed Erdenebileg to own 80 per cent of the bank. Subsequently, Erdenebileg gained full ownership in 2014 when another mayor, E. Bat-Uul, gave him the remaining 20 per cent.
The history of the Trade and Development Bank (TDB)’s privatization is connected to Prime Ministers. In 2002, 76 per cent of TDB was sold for 12.3 million USD to Geralds Metals, with direct involvement from the then Prime Minister N. Enkhbayar. In 2007, these shares were purchased for 70 million USD by D. Erdenebileg, with direct involvement from the then Prime Minister M. Enkhbold. Currently Erdenebileg owns 93 per cent of TDB via four different companies registered abroad, all of which are fully owned by him. The remaining 7 per cent is owned by Goldman Sachs (5 per cent) and by some 50 individuals who jointly own 2 per cent. TDB is currently Mongolia’s second largest commercial bank and holds 25 per cent of the total capital held by commercial banks in the country.
Both Ulaanbaatar City Bank and TDB were given special care and attention by former mayorsM.Enkhbold, Ts.Batbayar, and G.Munkhbayar, all of whom are from MPP. During their time, every piece of highly valued land, including publicly owned areas and parks in the city center, was always handed over to these two banks. When MPP lost the election in 2012 and Ulaanbaatar’s new authorities hadn’t yet been set up, G. Munkhbayar carried out his last act as mayor by issuing a decree registered under the number ‘a/495’. This decree gave Ulaanbaatar City Bank the ownership of the land in front of the Ulaanbaatar Hotel, the land in front of the General Intelligence Agency building, the land in Tsedenbal’s square, and the land in the Students’ Park for “the purposes of building a multi-level car park.”
TDB demolished an iconic building in the Children’s Library and erected a building made up of concrete and glass for 27 billion MNT. Subsequently, they sold Levels 11-12 of the building to the state-owned Development Bank of Mongolia (“DBM”) for 27 billion MNT, and Level 10 to MIK Company for 15 billion MNT. It appears that D. Erdenebileg is exceptionally talented at raising capital from state-owned organizations and selling goods and services to them.
D. Erdenebileg is also one of the financiers of both MPP and DP, who have had governing power in turn for years. Both MPP and DP keep the names of their financiers’ extremely secret. MPP and DP are the nest of corruption in Mongolia’s state and government.
On the way to establishing a monopoly
TDB has been playing an important role in our economy. However, it was recently revealed that the TDB has been serving companies that belong to their secret owners and playing an even more important role for them. This revelation was made with the diagram below, which was presented to the parliament and describes the capital raising process for the purchase of 49 per cent of Erdenet Mining Corporation.
This diagram was disclosed by L. Oyun-Erdene, Head of the Cabinet Secretariat, when describing how the Mongolian Copper Corporation used capital that originally came from state and government sources, when they purchased 49 per cent of Erdenet and Mongolrostsvetmet from Russia.
A total of 400.2 million USD was required, and 30 per cent came from the Ministry of Finance, The Bank of Mongolia, and DBM. This capital was raised by a company named QSC, which is owned by D. Erdenebileg himself. The remaining 70 per cent came from TDB, who provided loans to four different companies connected to government ministers and mayors. This is how the Mongolian Copper Corporation raised the money.
Following their takeover of Erdenet, TDB closed the loans within the time period from March to August 2016, by receiving 120 million USD from Erdenet in the form of dividends from previous years, by purchasing products from the mine, and by receiving 78 million USD from Mongolbank and a 72 million USD loan from the Ministry of Finance.
Given that 49 per cent of these assets were purchased with capital that comes from the state and government, the parliament made a decision to clear up all financial liabilities and transfer the ownership interest to the state. However, the Mongolian Copper Corporation didn’t accept this decision and went to court. The court proceedings have gone on for two years and still continue to this date.
The state views that TDB broke the banking law by granting a loan when there was no collateral and by giving a large loan to a related party. Although TDB executives were taken into custody, the court let them go, deeming the investigation illegal.
Justice Minister Ts. Nyamdorj declared that over 70 mining licenses are currently held by the two banks owned by D. Erdenebileg. These licenses include 35 licenses held by Mongolrostsvetmet alone (spanning over many aimags from the Asgat silver deposit to Bor-Undur), and 37 other mining licenses. He also added that the control over licenses also includes many other minerals deposits surrounding the Darkhan Metallurgical Plant, Erdenet, and Darkhan Selenge.
A mafia system
When corruption cases are protected by the judiciary and law enforcement institutions, it is an indication that a mafia system has been set up within the state. The government raised four disputes on the misuse of public funds, but Mongolia’s judiciary and prosecutor’s office have dismissed them all.
The government considers that the judges who made those decisions have a conflict of interest. Judge M. Batsuuri dismissed three disputes initiated by the government. M. Batsuuri’s father is D. Mishig, who previously was the chief executive of ‘United Energy’, which obtained a loan of 75 million USD from TDB and transferred 70 million of it to Mongolian Copper Corporation on the same day. The government raised this to the anti-corruption agency (the Independent Agency Against Corruption – IAAC), but nothing came of it.
Also, the IAAC has been putting off an investigation into why the government voluntarily refused to purchase the 49 per cent, despite having financial sources for the required capital.
The state is running out of options and becoming desperate to take action. Parliament is currently convening day and night to have the issue discussed at the National Security Council, in order to make amendments to relevant laws and replace high ranking officials among the judiciary and the prosecutor’s office.
Even if the individuals at the top of the judiciary, prosecutor’s office, and the IAAC are replaced, when will we finally get rid of the mafia and corruption that have crippled the Mongolian state?
2019.03.27
Trans. by B.Amar