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D.Azbileg: Precious metals sector is being formalized to keep the country away from money laundering

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  • 2024-02-18
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D.Azbileg: Precious metals sector is being formalized to keep the country away from money laundering

Photo by: "planetGOLD Mongolia" project 

The Precious Metal Traders National Association was established in 2020 to protect the interests of participants in the precious metals and stones and jewelry market and it conducts activities such as organizing training, providing outsourcing services, conformity assessment, certification, and verification. We met with D.Azbileg, the Director of the Association, and discussed the significance of the development of the precious metal sector for the country.

It has been four years since Mongolia was removed from “Grey List” by the Financial Action Task Force. One of the "homeworks" given by the organization was to formalize the precious metals traders. How has this industry worked in the past in accordance with the “homeworks” and what results have been achieved?

Hello, I would like to wish Happy Lunar New Year to anybody who is reading this interview. I would first like to introduce our association to the readers. In order to contribute to the economic growth of Mongolia, our association is working together with 6 member associations since 2020, such as the "Tumen-Erdenes" Association of Craftsmen and Factories, Artisanal and Small-scale Mining National Federation, "Evt" Association of jewelry and gold traders, and is working with the big goal of formalizing the industry at the national level.

If we were still grey-listed and further, black-listed by FATF, every citizen of Mongolia would have faced many restrictions, such as not travelling across the border, expanding their business outside of the country, and take loans and furthermore, there would have been a risk of many strategic activities coming to a standstill due to the situation where investments could not come through our country. Therefore, the homework was to formalize the precious metals sector in a unified manner, to carry out the tasks of proper and coordinated registration of the cash flow of precious metals, precious stones and jewelry in the sector, and to obtain a special license from the Financial Regulatory Commission (FRC) for enterprises operating in the sector and these activities have been ongoing. As of today, more than 400 people are operating with special licenses.

As a result of the support and cooperation with the FRC's Real Estate, Investment Brokerage, Precious Metals, and Precious Stones Trading Regulatory Department, our association developed a sectoral strategy by the end of 2023 and has planned and organized a number of effective activities within the strategy. Also, thanks to the cooperation between the government and the private sector, Mongolia has announced that it was removed the "Grey List", and as a result, many risks that could have occurred to the country and citizens have disappeared.

FRC had praised the precious metal sector for its significant contribution to removal from the "Grey List". What is your organization's contribution?

First of all, primary baseline study reports have been carried out although there is still a need to improve these reports. Second, the implementation of the regulation, which ensures citizens and enterprises operating in precious metals, precious stones, and jewelry sector to obtain a special license, has started. In order to do so, these entities need to be aware of the laws and regulations that must be followed in this field, protect themselves and others from the risk of money laundering and terrorist financing, participate in trainings to provide knowledge about the responsibility of paying taxes, participating in special license inspections, sending special license reports, and pass exams. Moreover, understandings to produce silver cups and jewelries from the raw materials that have the origin, due diligence and legality are increasing, and legally mined metals are bought, reported and manufactured from the members of the Artisanal and Small-scale Mining National Federation. Furthermore, the National Precious Metals and Jewelry Forum and Expo has been successfully organized for the past two years in a row to give decision makers the understanding of the need for unified regulation and policy support for mining, processing, refining, trading of precious metals and precious stones, blacksmith industries, and trading of jewelry. In addition, we are working together with the parties to discuss the opportunities that can be solved together, to improve the coordination of legal regulations, to have a law for the industry, and to eliminate the obstacles necessary for the operation and purchase of the industry.

As an organization that plays a significant role in this field, such as organizing special license training, making amendments to legal regulations, etc., how are you working with the government, more specifically, with the FRC?

FRC has issued and approved several regulations to regulate the sector. In that context, our organization works with FRC in the registration of industry members and exchange of information. In cooperation with the training department of the FRC, more than 100 people have been trained and certified with the training program jointly created. We plan to cooperate on the development of the draft bill of the sector. We are also working to remove the obstacles to improving the working conditions of industry members within the framework of the law.

How involved is the government in this sector? Is there any work entrusted to your organization within the framework of the law to perform some government functions by non-governmental organizations?

Yes. In addition to supporting the activities of the sector with policies, FRC has approved the regulations for determining the requirements for the professional association of traders of precious metals, precious stones, or articles made from them in 2020, considering our organization as a unified professional association, and we are operating within it. The organization also conducts special license trainings.

What is the sector’s contribution to the economy now, which was a previously unregulated field? Has there also been a opportunity concretely created to continuously develop the sector based on the principles of the market and in terms of business?

It is an industry that has great potential to increase its contribution to the economy. At least there is an opportunity to determine the increase in tax payments and the turnover in the sector. Recently, the financial sector has made up 26.3 percent in Mongolia's gross domestic product in 2023 including sales of precious metals worth 461.1 billion MNT, purchases of precious metals worth MNT 433.8 billion, and sales of jewelries worth MNT 20.8 billion and purchases of 33.4 billion MNT worth of jewelry. This is a decrease compared to the previous year. Looking at the above indicator and judging from my personal opinion, I guess that the lack of legal regulation and unified law in the sector has a negative impact. Part of the reason why there is a decrease is it might be that they have not yet grown to the fact that they now operate with permission and are subject to inspections and fines. In the future, if the entire industry cannot be formulated fully and the licensed parties are not inspected in a unified manner, it may bring up a misconception that it will be easy for the unlicensed operators. In order to develop the precious metals, precious stones, and jewelry industry and develop it according to market principles, the government should support it through policies. We have not yet had the opportunity to develop it in a business sense. Recently, we visited South Korea and got acquainted with the activities of the country's factories, services, government and associations operating in the field of precious metals, precious stones and jewelry. South Korea does not mine precious metals. However, they have a legal regulation that supports this sector by the government policy and considers it as one of the most important sectors. Through the benefits of this sector, it develops other SMEs. So we have a lot to learn and improve.

How much money is circulating in this sector and do you think there is a chance to expand?

Currently, it is almost impossible to determine how much money is circulating in this sector. However, we are working to only discover the hidden economy behind this. It is said that 95 percent of the amount of gold supplied to the Bank of Mongolia is from strategic mining. So, only five percent of the gold supplied to the Mongol Bank is taken from the citizens. Rumor has it that only the manufacturing sector needs three tons of gold per year. There is a lot of potential for the industry to open up in the future.

Can you please explain the differences among precious metals, jewelry and precious stones?

Clause 3.1.2 of the Treasury Fund Law of Mongolia, "precious metal" means gold, silver, platinum and palladium, iridium, rhodium, ruthenium, osmium belonging to its group, "precious stone" means diamond, ruby, emerald, sapphires and pearls; Individuals import jewelry and sell it online.

This industry is a constitution that brings together multiple interests. It participates in every stage of extraction, processing, refining, production, and trading, and covers a wide range of economic, environmental, and foreign relations. So, what do you plan to do in the future in terms of avoiding money laundering, terrorist financing, and environmentally friendly production?

Individuals import jewelry and sell it online. Even now, we still have relationships where people buy from others without knowledge. Should the buyer check whether the product meets the standard requirements and has a certified certificate, and what are the obligations of the people trading? To answer this, let me tell you followings. In the world, when buying and using jewelry, ETHICS is put at the beginning. Before buying, people check where the product was produced, whether it was made legally, whether it was eco-friendly, whether it did not exploit human labor, or whether it did not involve child labor. In a way, it's about defining its origin and traceability. Therefore, we also need to learn and change our attitude. Now, people should pay attention to a few things when making a purchase. First, check whether the product is being operated by a licensed person or not. It is available on the FRC’s website. Second, whether the sample of the product is guaranteed should be taken into account by the guarantee provided by the Sample Inspection Department. There are many cases where citizens will also suffer because of this. There are many examples of e-traders misleading people by selling products of unknown origin and poor warranty. 

When talking about money laundering, most people say that they can launder money. However, they do not know that dirty money called investment has entered the cash flow of the sector because they have not seen it with their own eyes. In countries like our country with weak legal regulations, money laundering is considered to be a high risk. Well, let's imagine. If a person buys illegally mined gold in Mongolia with his ill-gotten money, goes to a blacksmith, pays the service fee, makes some beautiful silver and gold cups, earrings, rings and wears them, or takes them across the border and wears them, who would know? What if the money made after selling the jewelry is used to finance terrorist attacks somewhere in the world or for the cross-border trafficking of children? No one is saying that this is not possible. Because, even though there are reasons, when I had a bad understanding of this industry, I wondered why there was such a thing. Since taking this job, I've met and talked to a lot of different people, and my opinion on this has changed. That is why I chose to work in this sector.

What are the opportunities to develop our cultural heritage, blacksmiths?

There are many opportunities to develop this. How many tens of billions and trillions are Arabs earning today from exhibiting their work in the industry and combining it with tourism? So, if our country guides the industry in the right way, without affecting the foreign exchange reserves of Mongolia, there is a huge opportunity to develop the precious metals, precious stones, and jewelry industry and increase its impact on the economy.

How do you see the future of your industry?

The sector will soon use Mongolia's rich intellectual heritage to produce products on the international market through artisans and industrial tools, a jewelry factory for mass consumers, and a global technology company with gold, silver, other metals, and stones with a clear origin and traceability. It is enough to develop this sector if we can only produce one small chip with gold, silver, other metals, and stones, for the global technology company. I imagine this sector recognized domestically and internationally that provides professional services with its own laws and stable operations.

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