Gold from Unknown Sources Can be Risky
A few days ago, the European Union (EU) announced that 17 countries which do not have a transparent tax system are on a black list, , this includesMongolia. Earlier, the EU had warned that Mongolia needs to reform its tax system. However by refusing to takethe EU advise, the financial and economic sectors were in a risky situation. There is information that some EU finance ministers are proposing to impose an additional tax on external transactions with Mongolia and apply other sanctions.
The initiative on the transparency of monetary funds is gaining momentum around the world and includes gold. The London Precious Metal Exchange Association (LBMA) has presented Responsible Gold Guidelines to the accredited processing plants , which will support combating human rights violations and terrorism financing operations and prevent money laundering.
The international community warns that this is the only way for our country to take measures against the risk of the funding crimes. However, the Bank of Mongolia does not request proof of the origin of the gold purchased from citizens, which creates a risk of losing reputation in foreign trade and economic environment, as well as maybe being separated from the global banking-financial network.
In Mongolia, the majority of the gold supply mined by "artisanal mining" remains largely in informal or shadow areas. 85-90% of artisanal miners are "informal" and only about 15% are registered in partnership. Gold trading networks are also non-transparent, irresponsible, and informal. The Bank of Mongolia is unable to monitor the supply of gold transmitted by gold traders because artisanal miners informally produce and sell their gold to traders. The amount of gold purchased by artisanal miners and the amount of gold that has been allocated to the Bank of Mongolia can not be determined. Therefore, it is impossible to know how much gold is being smuggled and exported in Mongolia. The solution to this problem is that gold traders who are involved in the supply chain are also entitled to receive a license to officially be engaged in gold trading. In this way, traders will know the cost of sales and sales of gold and pay the actual profit tax. Gold traders have a tax system that is ready to operate. However, the tax rate cannot be too high in order to compete with the illegal market.
Because of the lack of transparency in the movement of the gold, there is a risk that "dirty" wastes of dirty gold from unknown foreign sources are detrimental to the network. For example, in 2014 Bolivia extracted about 6.6 tons of gold, but it exported 33 tons to the United States.
Therefore, it is imperative that the national system of guaranteeing the origin and extraction of gold in support of the transition to transparency and the "official"legalnetwork is urgently needed. This will ensure international standards, and gold traders will be able to work transparently within the legal framework.
Regarding the famous economist, Hernando de Sato, if costs in the informal (shadow) sector are less than in the formal sector the business transforms into a hidden configuration and magnifies the shadow economy. Therefore, the registration of gold traders in the gold supply chain should be managed by the government in a cheaper and smarter manner. For example, a registration number can be issued by a state organization. The registration number can be the primary source of information for a transparent gold supply network, which can determine the origin of the gold. The Ministry of Mining and Heavy Industry and the Central Bank of Mongolia may jointly develop regulations that could ensure the registration number holder can avoid any additional taxes and bureaucracy.
The fact that the Bank of Mongolia purchases gold only in the capital city is still a huge problem in the system of revealing the hidden network in the rural areas and on a nation-wide basis. In addition, when individuals sell gold to the Bank of Mongolia they do not have to pay income taxes, therefore many companies sell their mined gold through individuals.Some study results show that about a half of the 7 tons of gold sold to the Bank of Mongolia is a gold mined by companies, but sold in the name of individuals, which gives a chance to escape income tax. Local government participation is also important. Some of the revenues will be returned to the area where the extraction has been made according to the Certificate of Origin.
Finally, following well-known international experience, an electronic registration system can be implemented. As a result of this compact, mobile-based, easy-to-use mobile application, gold can be transferred from the mine site to the first commercial transaction, with all levels of gold merchants going to the Bank of Mongolia. Or it can be exported directly to all eligible carriers.Mongolians can use this experience to ensure that the government,, artisanal miners and gold traders are fully accountable and responsible.