Offshore Alert yesterday revealed the Mongolian government has charged former Prime Minister Batbold Sukhbaatar with receiving hundreds of millions of dollars from kickbacks and fraudulent and illegal transactions in deals involving the nation’s two largest mines. The case against the former prime minister, senior member of the ruling Mongolian People’s Party, and the party’s likely 2021 presidential candidate, is spelled out in a November 23 filing in a New York court.  The New York case together with similar ones in Hong Kong and London seeks a freeze on assets Batbold holds until the main case, brought in Mongolia, is decided.  There plaintiffs — the agency responsible for overseeing Mongolia’s natural resources and the state-owned companies that operate the two mines – ask that agreements between the two operating companies and shell companies they say Batbold secretly owns be invalidated and Batbold and accomplices disgorge all profits made on secret deals and as well as pay damages. The total could run into the hundreds of millions if not billions of dollars.  

Documents submitted in the New York case paint a picture familiar to students of kleptocracy.  With assistance from lawyers, accountants, and other enablers, Batbold allegedly established some 100 shell companies in at least ten countries to conceal his actions and hide his wealth.  Two things make the case worthy of careful study by all seeking to end the massive theft of a nation’s assets by its rulers:

i) the political will the governing party has shown in pursuing one of its own, and

ii) the quantum of information on an alleged kleptocrat’s wrongdoing that can be gleaned from a painstaking search of the public record.

Political will. Under Mongolia’s semi-presidential system, executive power is exercised by a prime minister and cabinet chosen by the Grand Khural, the nation’s 76-seat, one-house legislature. The Mongolian People’s Party has had unchallenged control of the Grand Khural since 2016, winning 65 seats in that year’s elections and 62 in 2020. This dominance gives the party effective control over the anticorruption agency, the prosecution service, and the plaintiffs in the case against Batbold.

Different observers of Mongolian politics offer differ explanations for why the party would allow a case against one of its most powerful members to proceed. Some put it off to an intra-party power struggle and the desire of newer members to cleanse the party of its corruption-shaded past.  Others say it reflects citizens’ growing demand that those who have stolen the nation’s wealth be held accountable. They offer as evidence the July 2020 conviction of former Finance Minister Sangajav Bayartsogt for accepting bribes from Ivanhoe, a Canadian company.  In partnership with Australian mining giant Rio Tinto, Ivanhoe holds the rights to the Oyu Tolgoi copper-gold mine, one of the world’s largest, revenues from which promise to lift all Mongolians out of poverty.

Bayartsogt took the bribes in 2010, while Ivanhoe and Rio Tinto were negotiating an investment and shareholding agreement with the Government of Mongolia in the Oyu Tolgoi project. To this day complaints are heard from civil society that the 2010 deal denies Mongolia a fair take of the earnings, complaints the bribery conviction has amplified. 

Demands to revisit the 2010 agreement may well be behind the case against Batbold. Plaintiffs in the New York case say Batbold “received undisclosed illegal kickbacks” from individuals associated with Ivanhoe in 2010 “in exchange for favors from the government relating to the Oyu Tolgoi Mine” (here). The kickbacks allegedly include rights to a mining concession today worth hundreds of millions. While the favors are unspecified, it is not too much of a reach to think they involved sweetening Ivanhoe/Rio Tinto’s take from Oyu Tolgoi.

Information on public record. Batbold and the others named in the New York case have yet to respond to the substance of the charges. It is hard to imagine what the defense could be given the astonishing amount of detail presented in the complaint and supporting documents. Assisted by noted private investigator Jules Kroll, plaintiffs put a middle class South Korean husband and wife team with close personal ties to Batbold and his family at the center of a complex network of offshore holding companies controlling tens of millions of dollars in properties in New York, London, and Hong Kong. As Kroll puts it in paragraph 98 of his affidavit—

“there is no good reason why a linguistics academic [the wife] or a former Samsung employee on a modest salary [the husband] might have the personal means or need to purchase expensive properties in cities with which they have no personal connection, often using offshore companies to do so.”

Not only does the public record make the two out to be property magnates, it shows too that through various shell companies they are listed as owning or controlling, they were major actors in the global copper concentrate market when Batbold was prime minister, purchasing a total of some $400 million worth from a government-owned mine then under his control. Some of the shells were created days before a purchase, and some were able to arrange financing in tens of millions of dollars for the purchases. Yet nothing in the couple’s background suggests the business acumen or financial wherewithal to pull off such deals.

A telling indication the deals were anything but legitimate is an email one of those involved in a deal one of the shell companies had with the state-owned company operating the mine.  About problems with some of the copper concentrate shipments, she wrote (here) that they were “not well discussed” and closed by apologizing for raising the issue as:

“I don’t wish to cause any problems discussing the ‘c’ shipments.”

Judge Barry Ostrager of the New York Supreme (the New York court of first instance) has scheduled hearing on plaintiffs’ freeze request for 9:30 on January 6. Mongolian citizens and those concerned about kleptocracy will surely want to logon.