Mongolia -- Travel Rule Implementation Regulatory Overview

Mongolia has made significant strides in implementing the FATF Travel Rule as part of its broader anti-money laundering and counter-terrorist financing (AML/CFT) framework for virtual assets.

Here's a breakdown of the status:

FATF Travel Rule Implementation in Mongolia

1. Adoption Status:

• Adopted. Mongolia passed comprehensive legislation for virtual asset service providers (VASPs) that incorporates the FATF Travel Rule requirements.

2. Effective Date:

• The Law on Virtual Asset Service Providers (VASP Law) was passed by the Mongolian Parliament on June 17, 2022.
• It came into effect on December 1, 2022.

3. Regulatory Authority:

• The Financial Regulatory Commission (FRC) of Mongolia is the primary regulator for VASPs and is responsible for licensing, supervision, and enforcement.

4. Threshold Amounts:

• The Mongolian VASP Law implements the Travel Rule with a specific threshold.
• Article 11.1.2 of the VASP Law mandates that VASPs must collect and transmit originator and beneficiary information for virtual asset transactions that exceed MNT 3,000,000 (Mongolian Tugrik).
  • Note: As of late 2023/early 2024, MNT 3,000,000 is approximately USD 880 - USD 900, which is lower than the FATF's recommended €1,000 threshold for cross-border transfers, indicating a stricter approach. For transactions below this threshold, simplified information requirements may apply.

5. Which VASPs Are Covered:

• The VASP Law broadly covers entities engaged in virtual asset services. Article 4.1 defines a VASP as an entity that, on behalf of another natural or legal person, conducts any of the following activities:
  • Exchange between virtual assets and fiat currencies.
  • Exchange between one or more forms of virtual assets.
  • Transfer of virtual assets.
  • Safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets.
  • Participation in and provision of financial services related to an issuer's offer and/or sale of a virtual asset.
• All VASPs operating in Mongolia are required to be licensed by the FRC and adhere to the VASP Law and related regulations.

6. Technical Implementation Requirements:

• While the law itself doesn't specify particular technical solutions (like TRISA, OpenVASP, etc.), it mandates the outcome of technical implementation. VASPs must:
  • Collect and store: Required originator and beneficiary information accurately for all relevant transactions (above the MNT 3,000,000 threshold).
  • Transmit: This information to the beneficiary VASP during or before the transaction.
  • Verify: The identity of their customers (KYC/CDD) to ensure the accuracy of the collected information.
  • Monitor: For suspicious transactions and report them to the Financial Information Unit (FIU) of Mongolia.
  • Comply with AML/CFT policies: Establish internal policies, procedures, and controls to prevent money laundering and terrorist financing.
• The FRC is expected to issue further regulations or guidelines to clarify technical and operational aspects, but the core requirement is for VASPs to have systems capable of securely handling and transmitting this data.

7. Penalties for Non-Compliance:

• The VASP Law includes provisions for liabilities and fines for non-compliance. Article 20 (Liabilities and Fines) outlines various penalties:
  • Operating without a license: Considered a criminal offense, potentially leading to significant fines and/or imprisonment.
  • Non-compliance with VASP obligations: (including Travel Rule requirements, KYC, record-keeping, reporting, etc.) can result in administrative fines for both the VASP entity and responsible individuals.
    • Fines typically range from MNT 10,000,000 (approx. USD 2,900) to MNT 50,000,000 (approx. USD 14,700) for legal entities, and MNT 1,000,000 to MNT 5,000,000 for individuals, depending on the severity and nature of the violation.
  • License revocation: The FRC has the power to suspend or revoke a VASP's license for serious or repeated breaches of the law.
  • Other administrative measures: The FRC can impose other sanctions, such as written warnings, orders to cease certain activities, or appointment of temporary managers.

References:

1. Law on Virtual Asset Service Providers (VASP Law) of Mongolia (2022):

   • While an official English translation directly on the FRC website can be challenging to locate, the law itself (in Mongolian) is the primary source. Reliable summaries are often provided by legal firms.
   • Summary/Analysis: EY Report on Mongolia VASP Law (often provides good summaries): https://www.ey.com/en_mn/financial-services/mongolia-s-new-law-on-virtual-asset-service-providers
   • FRC News Release (referencing the law): Look for news releases around June-December 2022 on the FRC website.
     • Financial Regulatory Commission (FRC) Mongolia Official Website: https://www.frc.mn/en/ (Navigate to "Laws and Regulations" or "News" for relevant announcements).

2. FATF Recommendations:

   • The basis for the Travel Rule: https://www.fatf-gafi.org/recommendations.html
   • Guidance for Virtual Assets and VASPs: https://www.fatf-gafi.org/content/fatf-gafi/en/guidance/Guidance-Virtual-Assets-VASPs.html

Mongolia's adoption of the VASP Law signifies a strong commitment to complying with international AML/CFT standards, particularly concerning virtual assets and the Travel Rule.