Remote VASP serving residents in Mongolia

Partial but Evolving: Mongolia has moved from an unregulated state to establishing a foundational legal framework for virtual assets, specifically targeting Virtual Asset Service Providers (VASPs). The focus is heavily on AML/CFT compliance, risk management, and consumer protection through licensing. It's considered "partial" as it primarily regulates the service providers rather than attempting to regulate every facet of virtual assets or underlying technologies comprehensively at this stage.

Financial Regulatory Commission (FRC) of Mongolia:

Role: This is the primary regulator responsible for licensing, supervising, and overseeing Virtual Asset Service Providers (VASPs). The FRC defines the scope of virtual asset activities, sets licensing requirements, and monitors compliance with AML/CFT and other regulations.

Financial Information Unit (FIU) of Mongolia (under the General Intelligence Agency):

Role: The FIU is crucial for implementing AML/CFT measures. Licensed VASPs are obligated to report suspicious transactions to the FIU, making it an integral part of the enforcement mechanism.

Law on Regulation of Virtual Asset Service Providers (VASPs)

Date: Enacted on December 17, 2021 (effective from January 1, 2022).

Definition of Virtual Assets: Specifies what constitutes a virtual asset under Mongolian law.

Definition of VASP Activities: Outlines the services requiring a license, such as 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, and participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.

Licensing Requirements: Mandates that all entities providing VASP services must obtain a license from the FRC.

AML/CFT Compliance: Imposes strict AML/CFT obligations on licensed VASPs, including Know Your Customer (KYC) procedures, transaction monitoring, record-keeping, and suspicious transaction reporting to the FIU.

Risk Management: Requires VASPs to implement robust risk management systems, cybersecurity measures, and capital adequacy requirements.

Consumer Protection: Aims to protect users of VASP services.

Permitted but Regulated: Crypto trading and the operation of cryptocurrency exchanges are legal in Mongolia, provided they are conducted by entities that have obtained a license from the Financial Regulatory Commission (FRC).

Licensing is Mandatory: Any entity wishing to operate as a Virtual Asset Service Provider (VASP) – including crypto exchanges, custodial services, or providers facilitating virtual asset transfers – must go through a rigorous licensing process with the FRC.

Strict AML/CFT Compliance: Licensed exchanges and VASPs are subject to strict AML/CFT requirements, including:

Law on Combating Money Laundering and Terrorism Financing (LMLCFT): This is the main AML/CFT law in Mongolia, originally adopted in 2013 and subsequently amended (e.g., in 2018 and 2021) to incorporate FATF recommendations, including those related to virtual assets. It establishes the legal framework for identifying, freezing, and confiscating assets obtained from criminal activities, as well as preventing the financing of terrorism.

Identification and Verification (ID&V):

Beneficial Ownership (BO): Identify and verify the identity of the natural persons who ultimately own or control the customer, as well as the natural persons on whose behalf a transaction is being conducted. For legal entities, this typically involves identifying individuals owning 25% or more of the shares or voting rights, or otherwise exercising control.

Ongoing Monitoring: Continuously monitor the business relationship and transactions undertaken by the customer to ensure they are consistent with the VASP's knowledge of the customer, their business, and risk profile. This includes:

Enhanced Due Diligence (EDD): Apply EDD measures for higher-risk customers (e.g., politically exposed persons - PEPs, customers from high-risk jurisdictions, complex structures) and transactions. This may involve obtaining additional information on the customer, sources of funds/wealth, and the reasons for the intended transactions.

Screening: Screen customers against national and international sanctions lists (e.g., UN Security Council sanctions) and internal watchlists.

Reporting Threshold: Report any transaction (regardless of amount) or attempted transaction that the VASP knows, suspects, or has reasonable grounds to suspect is related to money laundering or terrorism financing.

Reporting Body: All STRs must be submitted to the Financial Information Unit (FIU) of Mongolia.

Timing: Reports must be filed promptly, without undue delay, typically within a few working days of forming a suspicion.

No Tipping-Off: VASPs and their employees are prohibited from disclosing to the customer or any third party that a report has been or will be made (i.e., "tipping-off").

CDD Records: All documents and data obtained through the CDD process (e.g., copies of identification documents, beneficial ownership information).

Transaction Records: Records of all virtual asset transactions, including amounts, types of virtual assets, sender and receiver addresses, timestamps, and any relevant metadata.

STRs and Communications: Copies of all submitted STRs and any related communications with the FIU or other authorities.

Legal Basis: The implementation of UNSC resolutions is typically embedded in a country's national Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) laws.

Legal Basis: Penalties would be outlined in the Law on Combating Money Laundering and Terrorism Financing and the Mongolian Criminal Code.