Former Mongolian prime ministers Saikhanbileg Chimed and Sanjaagiin Bayar were both detained on April 11 by the country’s anti-graft authorities as part of an investigation into allegations of corrupt mining payments.

The probe concerns Mongolia’s flagship Oyu Tolgoi copper and gold mine, located in the Gobi desert. Over the weekend former finance minister Bayartsogt Sangajav and two other officials tied to Erdenes Mongol, the state-owned holding company created to hold Mongolia’s shares in mining projects including Oyu Tolgoi and the Tavan Tolgoi coking coal deposit, were arrested. 

The investigation dates back to revelations in the leaked Panama Papers that a Swiss bank account in the name of Bayartsogt received dubious money transfers. The Mongolian Anti-Corruption Authority (ACA) is examining the 2009 Oyu Tolgoi investment pact made with Australian-British mining corporation Rio Tinto and signed by the ex-finance minister.

It was previously reported that Saikhanbileg has become the highest-ranking official to find himself enveloped in an investigation into allegations of corrupt mining payments. Saikhanbileg was prime minister from 2014 to 2016, while Bayar held the post in 2009, when the investment deal was signed.

The prosecutor’s office in Ulaanbaatar has applied to extend the detention of both ex-prime ministers beyond the permitted 48 hour period — court approval is required in order to hold suspects in detention for longer periods of time.

Turquoise Hill, the Canada-listed subsidiary of Rio Tinto which is developing a $5bn underground stage of the Oyu Tolgoi mine, has stated that it received a request for more information from the Mongolian anti-corruption officials. It concerned the “possible abuse of power by authorised officials” during the negotiation of the investment agreement, shortly after Rio took over the project negotiation from Ivanhoe Mines, the original developer.

Meanwhile, the Swiss Federal Tribunal has upheld the seizure of $1.85mn in Swiss bank accounts as part of the corruption probe tied to Bayartsogt. The Swiss Office of the Attorney General (OAG) has confirmed it is pursuing an ongoing criminal investigation, including into suspicions that one of the seized accounts was used to transfer $10mn to Bayartsogt in 2008. The probe was originally launched in 2016. Rio Tinto is “not accused”, according to the Swiss probe. Swiss authorities have not yet contacted the company, Rio’s chief executive officer Jean-Sebastien Jacques said in a Bloomberg Television interview in Beijing two weeks ago.

Saikhanbileg linked to Erdenet copper mine 

Ex-prime minister Saikhanbileg, unlike Bayar, is not known for having had any direct involvement with the 2009 investment deal, though he signed an agreement in 2015 for the underground development of the second phase of the mine, following nearly two years of stalled talks between Rio Tinto and the Mongolian authorities.

Saikhanbileg is, however, linked to the sale of a Russian stake in Erdenet copper mine to the Mongolian Copper Corporation (MCC) in 2016. The details behind MCC’s purchase of Erdenet are dubious, a report by The Diplomat revealed last year, describing MCC as a private entity fronting for the Trade and Development Bank (TDB), one of Mongolia’s large private banks. At the time of the purchase, MCC was registered at a private apartment in a middle-class neighbourhood of Ulaanbaatar. The funds for the deal were made up of $200mn from the TDB and $200mn from undisclosed sources.

The government was then led by Saikhanbileg, who at the time approved the deal. He attempted to use the transaction to take advantage of nationalism surrounding Mongolian resources in favour of the Democratic Party while it was preparing for the general election. But the Mongolian People’s Party (MPP), which has gone further in appealing to such nationalism by opting for nationalisation of the stake, won the election, securing 65 of the parliament’s 76 seats.

The nation’s parliament claimed it had not endorsed the sale of the mine and attempted to repurchase and nationalise MCC’s 49% stake with a $400mn payment after a Supreme Court ruling in December 2017 prevented it from nationalising the stake directly. That led to a dispute with the MCC, as it maintains that the purchase was legal and that the government’s dismissal of the Supreme Court decision was unconstitutional. Such a nationalisation would not bode well for Mongolia’s recovering economy, which is heavily reliant on foreign investment flowing into its commodities sector.

Oyu Tolgoi mine is seen as a barometer for Mongolia's investment climate. Its underground expansion is set for completion in 2019, bringing hoped-for positive long-term prospects for the country. Oyu Tolgoi is jointly owned by Mongolia’s government (34%) and Turquoise Hill (66%), in which Rio Tinto has a 51% stake. The mine has proven and probable reserves of 1.45bn tonnes

The mine has been undergoing several difficult months — an unexpected $155mn tax bill was handed to Oyu Tolgoi by Mongolia's government in January. Moreover, the Dutch Centre for Research on Multinational Corporations (SOMO) and Oyu Tolgoi Watch (OT Watch) published a report on January 31 alleging that the tax planning of the company had led to approximately $230mn in tax losses for Mongolia in relation to the mine.