NOTE: This is an unofficial translation of an article published on Ikon.mn by Baabar, ex-Minister of Finance of Mongolia, and one of the most influencial blogger in Mongolia.
Three former employees of the foreign-invested “Southgobi” company were sentenced to prison in Mongolian court for tax evasion. One of them was a U.S. citizen and the other two were citizens of the Philippines.
They were arrested by the IAAC, an organization responsible for investigating and halting corruption-related offenses in state institutions, and then the cases were transferred to court. The word corruption includes crimes related to the state, and, if it is outside the state, it should be considered a simple bribe and investigated by the police. In this case, if the Tax Authority detected any violation, the case should have been examined by external experts and then transferred to the prosecutor or to the police. Instead, the Ministry of Finance acted as an “expert” and made a conclusion themselves. The court denied an expert conclusion, yet, when the Ministry of Finance proposed that same conclusion, the court deemed it relevant and sentenced the defendants. According to Southgobi, the expert conclusion that was denied by the court was an audit made by an independent and reputable international tax expert. Since Southgobi is a foreign-invested company, this case will inevitably become an international issue. Therefore, the conclusion by a prominent auditing firm should be respected, and, if not, it should be decided by an international arbitration court. Unfortunately, that did not happen. Even worse, the procedure dictates that an external expert must examine the validity of the tax inspector’s conclusion, but in this case, the experts did additional inspection themselves and aggravated the conclusion.
What happened next was that the prosecutor suggested the court should impose a fine on the defendants on behalf of the state, but, the next day, to everyone’s surprise, the prosecutor added imprisonment to his charge. The law dictates that a prosecutor must announce the suggested sentence in advance so that the attorney and defendants will have a chance to defend themselves accordingly. It is obvious that a fine and imprisonment sentences will be defended differently, but Mongolian prosecutors have been using this surprise technique for many years. Even worse, the defendants were just employees of Southgobi. If the company avoided paying taxes, the company itself and the owner should carry the responsibility, not the employees. If an employee of a company commits murder, he should receive the penalty, not the company; if the company commits tax evasion, the company is responsible for the violation, not an employee. It is that obvious. And doesn’t this kind of court procedure sound too familiar to us?
The U.S. citizen in this case has been living in Mongolia for 11 years with his Mongolian wife and children. He was employed by Boroo Gold, and, once that project ended, he started working for Southgobi. The two Filipino men have been working in Mongolia for three years in the mining sector and they were supporting their families back home by remitting their salaries. Since they were first accused of a crime three years ago they have been banned from leaving the country. During that time the father and uncle of one of the men passed away and currently, his mother is very sick. Despite pleading for permission to attend his father’s funeral, his request was denied. The in-laws of the other Filipino man have both passed away, too. There is a humane international practice that allows the accused to post bail under these circumstances and leave the country, especially when they are not even tried at the court and convicted.
So you are saying our revenue was equal to Mongolia’s entire GDP and we hid it?
Concerning the claim that Southgobi evaded taxes for their USD 6.2 billion revenue, the defendants had asked an interesting question: “So you are saying our revenue was equal to Mongolia’s entire GDP and we hid it?” I guess the tax inspectors mistakenly made a conclusion on the entire GDP. Southgobi mine has 400 million tons of coal reserve, which means it is a mid or lower-mid sized mine in Mongolia. Second, it seems like the inspectors got involved in this because of the decreasing value of our currency. MNT decreased by two times against USD from 1200, which seems to have “proved” their crime since the company makes all transactions in USD. If that is the case, shouldn’t the Mongol Bank be responsible for this?
Now, let’s make some possible hypotheses on why such blatant accusations and wrongful charges might have been made:
1. This might be a license war. Southgobi has been involved in an illegal license case for the past few years. In the past decade, many gangs that rob real and potential foreign investors have sprung out, and they have become pretty adept at it. The most known case involves a Japanese real estate investor who got imprisoned because of a sudden appearance of drugs in his hotel room. Robbing Chinese small investors became even rampant. Investors get arrested suddenly and locked in prison till they are on the verge of admitting a crime, and then their innocence is “found out.” Those innocent investors will be kicked out of the country with a black stamp on Mongolian visa forbidding them from returning to the country. This happened even to a big Korean investor. Obviously, there is an adept network that does these things. To get what they want, many state institutions get involved in this network. In general, one of the biggest sources of corruption in Mongolia originates from the practice of intentionally trying cases at a criminal court, while the cases should have been tried in civilian court.
2. The founder of the Southgobi Sands LLC is stock exchange speculator Friedland. He launched an IPO by borrowing USD 500 million from China. Later on, he raised the value of his stocks to USD 4 billion by announcing the 9 licenses that he obtained. He was the biggest shareholder of OT, and when he sold his stocks to Rio, he pressured them to buy Southgobi along with those stocks. When Rio opened the basket after buying Southgobi, all the eggs were rotten. Rio did an internal examination within Southgobi and found out the employees have been embezzling and giving bribes. The Australian citizen Sarah Armstrong was banned from leaving Mongolia and Andrew escaped to Hong Kong and tarnished Mongolia during a press conference. Later on, the head of the responsible Mongolian agency was sent to prison. In the meantime, Southgobi stocks fell to USD 200 million, which is not even half of the initially offered value. For some reason this case has been going on for almost three years, and the core of the problem might lie here.
3. The third hypothesis is that it could all be orchestrated by a foreign country or a foreign group. It could even be a geopolitical game of a powerful country. We have been shouting about “third neighbor” for over 25 years, but we haven’t moved a step away from our two neighbors. In this case, it is not pleasant thing to attract large-scale investment from a distant neighbor. The demonstrations in Mongolia are always against our third neighbor investors, yet never against our two neighbors. Even the demonstrations against Chinese workers are always against the ones that are employed by third neighbor companies. Our northern neighbor Russia controls the biggest strategic assets, such as Erdenet, railroad, and MonRosTsvetMet and Mongolia is completely dependent on their energy and oil products. Our southern neighbor China has completely monopolized Mongolia’s foreign trade and directly and indirectly owns 70% of all the resource licenses. Russia pushing out Western investors from Mongolia has become a known fact. After a decade of significant investment in uranium mining, a Canadian company Khan Resources was kicked out due to the pressure from Russia. There is currently an international arbitration case against the Government of Mongolia and the amount of damages sought by Khan is USD 350 million. French state company Areva has been pressured to leave Mongolia for many years and the person who is openly financing it is a Japanese citizen of Korean origin and the money is transferred from Germany. Of course, Japan, Korea, and Germany have nothing to do with this. Since the stupid one is obviously us, not our two neighbors, we end up doing the dirty work. The local “distributors” are high-ranking officials who work in the name of the state, and the ones who extort money and rob assets are the vultures that feast on spoils. One such example is the recent tomb issue surrounding the Gachuurt mine. Those vultures can’t even properly pronounce archeology and paleontology. They don’t even know where their drink money is coming from. I guess they are not the ones to blame.
4. The most common robbery in Mongolia is extortion by an individual or a group. To mention just one example, a tax inspector was arrested for extorting in the name of the state, and made MNT 17 billion in 5 years. There are thousands of state officials who are doing this kind of thing everyday. For example, state officials have been gaining for some time from “benevolent” dispute resolutions by intentionally filing a complaint on behalf of a random citizen against any administrative court decision. But I guess this model did not work for Southgobi. The reason is that the amount of the fine is astronomical, and the parties that are involved are court, prosecutor, tax authority, customs authority, and IAAC, which leads to a logical conclusion that the operation was conducted under someone influential.
But, whatever the reason is, Mongolian court did not follow the procedure and this fact alone would kill Mongolia. Most probably after a long fight, the three defendants will be released and expelled from Mongolia with a black stamp on their passport. They will tell a dramatic story on international news agencies and media as if they were hostages that have been released from Sudan, Afghanistan, Al Qaeda, and the Islamic State. An image of them crying, suffering, and reuniting with their wife and children will be broadcast around the world. The whole world will feel sorry for them and hate Mongolia. To make a counter PR, we do not have powerful media let alone a dog that would bark on behalf of us.
Forget about the support for investment that Saikhanbileg got from the people. The issue will be discussed on the floor of the U.S. Congress, and looks like the hundreds of million dollars that the MCC has promised will be canceled. Forget about mayor Bat-Uul, who announced Ulaanbaatar as a friendly city. Three Mongolians recently murdered two Chinese workers and robbed them and a group of patriots beat and robbed Vietnamese workers. The cases like these are increasing every year. Apparently, the most positive things heard at the Mongolian Investment Summit in Hong Kong was the news that the Government of Mongolia has been ousted. When a former wealthy investor to Mongolia was asked whether she would return to Mongolia now that the new Investment Law is in place, her response was “I am ready to invest anywhere in the world, except Mongolia.” Last year, when our Minister of Mining attended a mining conference in Toronto, the local newspaper bestowed on him a nice nickname: “dickhead.” Coal has already become ash, gold prices keep falling, and the price of copper has already fallen down to USD 5,000, and will most likely reach USD 4,000.
I recently read a post by a Russian blogger. A foreign man was walking down the street of Moscow and was smiling to passers-by just as a civilized person would do. Depressed Russians who were affected by the sanctions thought he was mocking them and a gang beat him. I guess man becomes more violent when he suffers. Compared to them, our country is a free and pluralistic country. They are following and supporting their President by cursing at foreigners. But we cannot be like that. We cannot all be silent and do nothing about this unfair court decision as if we approve of it. To prove that we are free and pluralistic country, at least one or two people must criticize this court decision. Only that way our country’s reputation will be flawed less, if not saved. This article is written for that purpose.SOURCE: Ikon.mn