Mongolia pardons foreign workers, but will investors pardon Mongolia?

By bne IntelliNews February 27, 2015

Terrence Edwards in Ulaanbaatar -


Mongolia's pardon for three foreign workers convicted of tax evasion in late January is a victory for their friends and family who campaigned for their return home. But it will not quickly heal the wounds inflicted on investiment sentiment for a country dependent on foreign investment to develop its $1.5tn in resource wealth.

Mongolia's jailing of American citizen Justin Kapla and Filipinos Hilarion Cajucom Jr and Cristobal David sparked accusations from other foreign workers in Mongolia that the charges were politically motivated. Perceived resource nationalism and disputes over the country's largest mines have rocked the mining sector, as foreign investment fell 74% last year.

"The business community has made clear to us that this case negatively affects its assessment of Mongolia as a destination for foreign direct investment," said the US embassy in Mongolia in a statement.

Mongolia's President Tsakhia Elbegdorj pardoned the three former employees on February 26, according to a statement from the Office of the President, after they received prison sentences of more than five years each. Kapla was president of SouthGobi Sands while Cajucom and David held management positions.

A court found the three former employees guilty of tax evasion and levied a fine of MNT35bn ($18mn) on SouthGobi Sands, the Mongolia-based mining unit owned by Toronto-listed SouthGobi Resources.

Many have been critical of the investigation made into SouthGobi Sands and its employees because of how long they were kept in the country and breeches of protocol. The three former employees were banned from leaving the landlocked country for nearly three years while Mongolia's Independent Agency Against Corruption investigated them for embezzlement and tax evasion. Kapla registered his case with the UN Human Right Committee when the exit ban prevented him from visiting a relative in hospice care.

The US embassy was critical of the court hearing held because of the defendants' communication challenges. "We hope that in the future, the Mongolian authorities will conduct such cases through a fair and transparent process, in full accordance with Mongolian law,"  the US embassy said.

The prosecution's request for jail before sentencing, after recommending it unnecessary the day before, was another cause for raised eyebrows.

SouthGobi Resources said in a statement that it planned to appeal the verdict and labelled the charges from the government as “gross violations of Mongolian law".

Southgobi Resources Chief Executive Officer Sengee Enkh-Amgalan in an interview shared by the company argued that it had been audited by top four auditors KPMG and PricewarehouseCoopers without discovering any of the alleged crimes claimed by the government. SouthGobi's legal defense has also argued that the anti-corruption group that led the investigation had no right to audit them when that responsibility belongs exclusively to the country's General Tax Authority.

“We are fully confident that we’ve been operating in accordance with the taxation law and other related laws of Mongolia,” Enkh-Amagalan said.

Meanwhile, the pardon has failed to give either side a sense that justice was served. Tensions are mounting between the tens of thousands of foreign workers and the 3mn Mongolians in the world's most sparsely populated country. Investors have grown tired of what seems to them is an inability to commit to long-term agreements. On the other side, locals remain suspicious of foreigners buying up their natural wealth.

There is also a sense of favoritism among local citizens who feel the former SouthGobi workers received special privileges with their pardons. “Where is equal right? Where is democracy? Americans are just insulted our independence and judgment system,” reads a comment on the Facebook page for the American Chamber of Commerce in Mongolia by one. “Got the money, break the law... the capitalism it is...” reads another.

Even the president's pardon has raised concerns.  Elbegdorj posted on the social media site Twitter that he granted the pardon on the basis that the imprisonment of Kapla and company was hurting the country's reputation, rather than any sense that they were innocent.


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