A scandal in Mongolia: heads roll in government after US$1.3m SME fund embezzlement

  • Officials have channelled close to US$1.3m in government funds to family and friends
  • The money was meant to be used for the country’s struggling SME sector
PUBLISHED : Tuesday, 06 November, 2018, 6:02pm
UPDATED : Tuesday, 06 November, 2018, 10:26pm

Mongolia’s anti-corruption authority is investigating reports that senior government officials and parliamentarians channelled more than US$1 million in government money to their families and friends, with one minister resigning last week and another expected to step down soon.

The money was from a fund set up 18 years ago to offer loans at 3 per cent interest to owners of small and medium-sized enterprises, as banks and finance companies normally charge between 12 and 30 per cent.

Some 65 billion Mongolian tugrik (US$25.4 million) was allocated to the fund in the 2018 budget.

However, starting two weeks ago it was revealed in reports leaked to the Ikon news website that some of the resource-rich country’s most powerful people have been using the fund to grant loans to their family members’ companies, or putting the money in high-interest bearing accounts.

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Among the accused are government ministers, members of parliament, the general prosecutor, general auditor, and the former head of the intelligence authority.

Amid mounting public anger, four civil servants involved in administering the fund were arrested last Friday.

Last week, Food, Agriculture and Light Industry Minister Batjargal Batzorig, who oversaw the SME fund, resigned under pressure from the ruling Mongolian People’s Party (MPP), which controls 85 per cent of the country’s 76-seat parliament. Parliament officially dismissed him on Tuesday.

He had granted a 1.4 billion tugrik (US$547,000) loan to a transport company run by his wife.

It was also revealed that MPP parliamentarian Enkhbayar Jambal, who owns financing and agricultural companies, borrowed 950 million tugrik (US$371,000) from the SME fund. He insisted the money was used to improve cattle breeding practices, in a country where animal husbandry is the main source of food for the population of 3 million.

Road and Transport Development Minister Sodbaatar Yangug’s job is also at risk, after it emerged that he took loans of 950 million tugrik (US$371,000) from the SME fund and pumped it into a luxury postnatal therapeutic medical centre founded by his wife. The MPP is waiting for the outcome of the anti-corruption agency’s investigation before it acts.

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Yangug claimed poor health had prevented his wife from being involved in the business recently and denied any knowledge of the loans, yet according to the income declaration form he submitted to the anti-corruption authority, he has 100 per cent ownership of the centre.

Mongolia, which has relied heavily on agriculture and mining copper and coal for economic growth, is trying to boost entrepreneurship to diversify its economy. It experienced a sharp slowdown between 2014 and 2016 due to a drop in commodity prices and foreign direct investment, but growth has now recovered and the economy is tipped to expand by 5 per cent this year, according to the International Monetary Fund.

SMEs contribute about 17 per cent of GDP and 2.3 per cent of exports but struggle with high profit taxes and a fluctuating local currency.

Byambadash Dashzeveg, co-founder of Mongolian Charcoal Production and Trade, said his company had been applying for loans from the fund for the past three years, had yet to receive any response. His company produces charcoal for barbecues.

He wanted a loan to improve the company’s decade-old equipment, which would allow it to expand the production of its charcoal from 20 tonnes per month to 200 tonnes per month and tap the export market.

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Mongolian Charcoal Production and Trade said there was demand for their products – a Japanese partner had commissioned them to export 200 tonnes of charcoal every month, while there is a similar amount of demand from China – and they had showed proof of this to the SME fund administrators.

“If we had that 3 per cent loan funding, we would already expanded our production by hiring more people and would have already exported our charcoal to Japan, China, and South Korea,”

Dashzeveg told the South China Morning Post.

The company’s products are currently available on Alibaba – which owns the Post – but its current capacity only allows it to export 20 tonnes per month to China.