By E.Enerel and L.Munkhtur
February 20 (Udriin Sonin/Daily News) We’ve interviewed the CEO of SouthGobi Resources, S. Enkh-Amgalan
- Three foreign citizens and ex-employees of SouthGobi Sands LLC were sentenced in the court of Mongolia. How would you explain this situation?
This case has been investigated for a quite long time. We’ve been going to the court for 31 months or almost 3 years. I wasn’t here when this case started. At first, the IAAC started investigating for bribery. But it was proven that our company was not related to the bribery case and was dismissed. The SIA continued the investigation for alleged money laundering which was dismissed later. This so called “money laundering of MNT 6.1 trillion” equals to the annual budget of Mongolia of that time. Prosecutors dismissed this case on December 20, 2014 by the investigator’s recommendations, which were made on June 2013 and January 2014. Tax case has been continuing until today. They started talking about MNT 234 billion at first. Actually, our company made sales revenue of MNT 400 billion in total between 2007-2011 and paid tax over MNT 100 billion. If we add the amount of MNT 234 billion on the actual taxes paid, taxes will go over MNT 300 billion which would equal to 75% of our total sales income. Therefore, it shows that how this number is made up and based on false calculations. The amount of alleged tax evasion had been decreasing every time experts made reports. There were total of four groups of experts worked on the case and lastly they came up with number of MNT 35 billion. Our company is a public company that is registered to 2 international stocks. The main requirement for being public company is to have an annual audit by the independent financial audit organization that can be trusted by its shareholders. For our company, the world’s reputable audit companies such as PWC and KPMG have worked as the independent audit company to conduct annual audits and sometimes they even conducted double inspections. These audit companies have never found any tax evasion instances during this time. SouthGobi’s shareholders and their representatives in the board of directors are acquainted with all reports. We are fully confident that we’ve been operating in accordance with the taxation law and other related laws of Mongolia. Therefore, the company’s position is that allegation of evading MNT 35 billion of tax payment is absolutely baseless and we reject this verdict.
- The court concluded that many provisions of VAT Law and Taxation law were violated. What provisions is the prosecutor saying that you have violated? What are your explanations?
There are several thousands of tax issues arise in Mongolia every year. As of today, there are about 60 thousands of registered business entities in Mongolia. Tax disputes related to these business entities arise and get solved within certain time period. When there is tax dispute, it must go to Tax Arbitration Council for solutions. If the council can’t solve the dispute, it is decided through the administrative court. For a case like, first the state tax inspector must conduct tax inspection and make an official act. Based on that act, the tax dispute begins. But there was not any tax inspection on our company. So the question rises on why the tax case was created when there was no tax inspection and no valid act was made on our company. SIA and the prosecutor are not the subjects with the right perform tax inspection. But these organizations are creating a case by stating that they appointed independent experts. I understand that the independent experts must have ability to perform inspection independently. For example, let’s say that there was an argument between two people and one of them suggested to get it solved by his brother. It would be obvious that the brother would solve the issue in favor of his sibling. Just like this, officials of the government agency which is the plaintiff to this case is not able to work as the independent experts and prepare independent reports. Therefore, we reject that these experts prepared an independent report. I view that these “not-independent” experts prepared reports that are aimed to put faults on our company in anyway.
- In what way do the prosecutors claim that you evaded tax payment of MNT 35 billion?
Actually, MNT 25 billion out of MNT 35 billion is unrealized loss from the currency exchange rates. Mongolia is importer country. We don’t produce in the country and therefore we use foreign currency to purchase from foreign countries. USD, RMB, etc. Business entities obtain investment or loan in foreign currencies. Or exchange their MNTs into foreign currencies. The currency exchange rate fluctuations create an unrealized loss on the loan that SouthGobi Sands LLC received from its head company. Between 2007 and 2011, the rate of MNT has started weakening. During that period, we record the transactions in MNT on our financial statements. We convert our loan, which is in USD, to MNT and the amount increases each year due to the weakening MNT rate. The prosecutor calls it “false payables”. We are still wondering about what they claim. For example, there is almost MNT 300 billion of differences since the “Chinggis bond” was built. So, does that mean we also arrest and sentence people, who built that bond, for creating false payables? Does that mean we punish all those business entities in Mongolia? We provide two different type of report according to law. We prepare tax report for Tax department and financial report for the Ministry of Finance. Mongolian Ministry of Finance accepts the financial reports prepared according to the IFRS. We prepare our two reports according to the required methods. Both of them are prepared according to the related laws in Mongolia. It makes me wonder that if there is a conflict of interest because these experts have ignored accounting primary documents and reports and are trying to prepare a report to wrong us.
- I see that’s what happened to MNT 25 billion. So what about the other MNT 10 billion? What do experts say about that and what are your explanations on that?
Our company was alleged for evading tax payments by transferring goods and services to others for free of charge. But this includes burnt excavator with value of MNT 17 billion, MNT 1.5 billion donation that includes kindergarten in local soum, feed and coal given to local herders, and other donations to the local communities. The IAAC came and conducted investigation on that burnt excavator and sealed it. It is in the parking space of our mine-site. We didn’t sell it because it is unusable. So why must we pay for the imposed VAT on that? Just like this, there are also tires, which were depreciated and were deducted from balance.
It has become a tradition that mining companies support and make donations to local communities. Mining companies are building schools, kindergartens, roads therefore supporting their soft and hard infrastructures. Similar to this, we’ve done number of activities in Gurvantes soum including the building of kindergarten. But they are saying that they’re going to impose taxes on our support works, and even on our donations. We don’t quite understand about this. Therefore, we and the independent audit organizations, which conducts investigations on our company, believe that we are not required to pay any kind of tax on this.
- This case started with bribery and in the end, it turned to tax evasion case. The defendants were sentenced to imprisonment. Do you think there is another interest behind the scene?
I don’t know about that. When the government officials started corruption case, several companies were investigated. But that case were not proven and the government officials were found that they abused their powers and put pressure on companies. Our case turned to money laundering case and the amount of alleged money reached to our country’s annual budget. Eventually, it has come to the situation that we have to pay MNT 300 billion when we made MNT 400 billion of sales. That’s what I don’t understand. It surprises me that why this has been going on for this long and why the defendants were sentenced when even a simple person can see that there isn’t any crime.
- Wasn’t there any opportunity of understanding during this past 3 years?
We have been fully cooperating with the related organizations and providing whatever documents they wanted and. We’ve made several requests for tax inspection. We told them that if they make an act, there will be basis for the tax dispute. But the Tax department responded that they will not conduct tax inspection due to the ongoing investigation. I wonder that what the relationship between conducting tax inspection and investigation is. Two different organizations should do perform their own duties.
- Even though you are still wondering about this issue, the court decision has already been made. Three ex-employees of your company were sentenced and decision on your company making the tax payment of MNT 35 billion has finalized?
We’ve been declaring where we stand for a long time. “This issue should be solved according to the laws and procedures of Mongolia. Tax payment is not determined by you. Professional tax organization determines that. Therefore, General Tax Department must conduct inspection and make an act if there is any violation. But this issue didn’t proceed according to the legal process. There are only reports prepared by the “independent” experts who are actually not independent. Tax case is completely solved by the administrative court. It is very unfortunate that they intentionally aggravated this case, turned it into a criminal case, and imprisoned 3 foreign citizens. Justin Kapla worked in the company for last 6 months and Cajucom for last 4 months of 2011. This case covers the period of time, in which those employees weren’t with the company. Actually, I doubt that there is a single citizen of Mongolia, who is imprisoned according to the article 166 of the Criminal Law, such as this. But three foreign citizens are imprisoned for what they didn’t commit.
- There was a talk about imposing penalty of MNT 35 billion firstly. But why would they suddenly sentence the defendants to imprisonment on January 30th?
The prosecutor’s sentence recommendation at first was to impose penalty. But she changed her recommendation at the last day. Actually, the prosecutor recommends the sentencing before and attorneys argues on the sentence. Everything becomes wrong when the prosecutor changes the sentence recommendation after everything is finished in terms of principles of trial argument. Basically, we are surprised that the lawyers were not granted with the opportunities to defend their clients when the prosecutor changed her sentence recommendation and judges made the final decision on that. There is also a question arises that whether the trial proceeded according to laws and procedures. We are consulting with our lawyers on this issue. You can also take a look at the trial video recordings and protocol to find out the truth.
- Three convicted are ex-employees of your company. What relationships do you have with them now?
We are not related as of today. They had a labor agreement with us at that time. All three of them are foreign citizens. One of them worked at the company between 2007 and 2011, and other two are worked at the company from middle of 2011 until the year-end.
- What are histories of these people? Might they be the fellows who committed economic crimes?
There is no such thing as that. Financial professionals are the citizens of the Philippines. They have worked for internationally reputable companies in their country and other countries with their professions. The American who worked as a director of SouthGobi Sands has a mining profession. Been working in Mongolia since 2003 and was appointed as director of the company in later half of 2011. Also has professional skills and were not accused of any crimes.
- These people couldn’t leave Mongolia for last three years?
As they say, they have spent three Christmases here. During this time, a lot of hardships happened to their family. People who were close to them have passed away. They couldn’t go back home for them. By that, their human rights are being seriously violated. It is hard to say that it would be humanly if we were banned from traveling outside when something bad happens to our family. They had been interviewed as witnesses at first and their status had changed to suspects. In the end, they are convicted and imprisoned.
- Justin Kapla has pleaded for a pardon from the President. It looks like he really was guilty and therefore pleading for pardon?
I received information that all these three people pleaded for pardon from the President. Obviously, no one would want to stay imprisoned. If the quickest way to get out of prison is to plead a pardon from the President, it would be their lawful rights to do that. They don’t have any faith left for the next stage court, since the primary court made an unjust decision.
- How have these three people been living in Mongolia for the past 3 years? I believe they spent most of their time to visit inspectors?
The two worked different companies. Registered with police regularly. Also notifies and registers when they need to leave Ulaanbaatar. One is 60 years old. Also one’s health is not so good. So it’s obvious that last three years have not been pleasant for these people.
How human rights are regulated under such circumstances?
I don’t have detailed knowledge about that. I have heard that Justin Kapla made a complaint to the Human Rights Committee of United Nations through his lawyers stating that he’s been illegally banned for traveling outside of the country for long period of time. Relevant organization of UN sent official questioning letter regarding his statement. I told you earlier. Tax disputes often happen to business owners. I think the question is on whether it was necessary to restrict human freedom for this long for such issue. Furthermore, there is a question that whether it was necessary to ban them from traveling when some bad things happened to their families.
- The USA is pursuing this matter real good and looking after their person. Did they contact you?
Both countries are working to protect their citizens’ rights. There is no Embassy of the Philippines in Mongolia. Their consulate in Beijing came here and worked for number of days on this issue. They have been in constant contact with their lawyers. When I look at the news, online posts and some people’s discussion, there’s a lot of comments about US being overstepping the boundary. I believe it would be a good thing that the countries pursue to protect their citizens’ rights if any of their citizens gets into trouble. Wouldn’t we be glad when one of ours gets into trouble in some foreign country, someone from our embassy goes there for his/her well-being? We really don’t need to criticize them as “a big country is bullying us” for them doing what they must. Neither the ambassador nor the consulates said “We want to take back our men or we will not get this case solved by your court”. What they said only was “we want a fair trial for our men”. I think that it is a very simple thing to understand when the US Embassy officials are asking questions such as “Did the defendants correctly understand what judges asked? Was what they said correctly translated?” In democratic society, there should be an opportunity for everyone to protect their human rights. It is simple understanding that any embassy would worry about whether “their citizen’s human rights were ensured”, or “their citizen was judged according to the laws of Mongolia”, or “whether the trial went according to the legal procedures”. US Embassy officials were present in the trial for three whole days. There hasn’t been any media engagements made by the Embassy of the Philippines. But they are doing the same thing to protect their citizens’ rights. There’s no such thing that the US are having more rights than the Philippines.
- What will your company do now? Will you lodge an appeal?
We said we will lodge an appeal. We have just received the court verdict. We will lodge the appeal within 14 days after we get acquainted with the verdict and trial protocol.
- What are the positions of your company’s shareholders or owners?
Our company is registered in Canada. SouthGobi Sands LLC in Mongolia is 100% foreign invested company. There has been a wrong idea among people lately. They are saying that foreigners are taking all our wealth away. Those foreign investor have already made a direct investment of MNT 1.4 trillion. The company has made local procurement of MNT 1.2 trillion since its operation started. You know, there are many businesses that follow mining industry, such as equipment, safety clothes, food, and etc. The company was the “The best tax payer” of 2010-2011 when the mining industry was booming. When we were in full mining operation, we had 700 employees at the company, but now there are about 400 employees. Even though we have only 400 employees now, if we include all supplier companies, lives of thousands of families are related to SouthGobi Sands LLC. Positions by the shareholders and their representatives in the board of directors are definite: “if we did not violate any law, it is right to lodge the appeal”. We are confident that we didn’t violate any law because we have reports from the most reputable and independent audit companies. They wouldn’t lie or make false report because their whole operation of business is based on trust. Investors hire them to conduct audits if their investments are being spent properly. If these audit organizations lie about the reports, no one would hire them. Once they receive bad name for preparing false report, they don’t have any other way but to bankrupt. Therefore, the only way they make a living is to conduct legal, legitimate, and trusted audits. On the other hand, the way these so called “independent experts” make a living is not an audit. So for the investors, an answer to a question of who would tell the truth: ones who make a living or ones who were appointed somehow is obvious. Wouldn’t the ones who make a living by audit, tell the truth? Therefore, the management of the company believe that it is right to lodge the appeal since the company didn’t violate any laws of Mongolia.
- Outside world is interested in this case. There are reports saying that Mongolia is being harsh to foreign investments and foreign citizens?
Even though our company is 100% foreign invested, 99% of the employees is Mongolian. We absolutely don’t want to tarnish our country’s reputation. It would be misunderstanding if you say that the reputation of Mongolia is being tarnished by us. The accused happened to be foreign citizens. And they would definitely defend their rights. Their families and even some of the senators of US are trying to protect their citizen’s rights. They have put this case in spotlight which attracted worldwide attention. They doubt the court decision because the reports by international audit companies and our country’s experts are differing. It is a question of “Would you believe in the reports prepared by the reputable and trusted international audit company?” or “Would you believe in various reports made by officials who work for government organizations therefore have conflict of interest”? For this reason, international media is making this case sensational. They have the rights to do that. It is investors’ and convicts’ families’ rights to make an announcement wherever they want. We made announcement from the company. I haven’t given interview in foreign media so far. I wanted to give information regarding this issue to Mongolian media first; therefore I am giving an interview to “Daily News”.
- They’re a report that the court didn’t make smart decision when investments are down, and economy is in bad shape?
During Mongolian Empire period, there was Pax Mongolica, which allowed the foreign traders to make trades in Mongolian territory without fear from anyone. They had a special signed tabula that brought them a freedom of trading. The say that, due to this Mongolians’ initiative, the technological exchanges between the east and the west advanced and thus helped development of world. It is unfortunate that the foreign investors are being chased and driven off the country by Mongolians who had started the free trading thousands years ago.
- There is an idea that someone who wants to buy your company, is creating this situation intentionally?
I have been working as the Executive director of SouthGobi Sands LLC since July of 2013. The mine operation resumed in 2013, after one year the mine operation had completely halted. Main purpose of my job is to continue company’s operation sustainably. I am not politician and I have never held any political position. I worked in big Mongolian business companies. I have been striving to keep the operation of the company stable during this difficulty faced by coal market. Since my appointment as the President and CEO of the parent company, SouthGobi Resources LLC in December last year, my participation in this issue has increased. It is hard to say who is interested in what because I wasn’t there in the beginning. Even it is hard to say when I look at it today. But, in my personal opinion, it is not important whether it was an issue between two people or an issue between two business entities. The most important thing is the way the court of Mongolia operates. Are they really being equally fair to Mongolian and foreign citizens? Are they fairly judging the case of foreign and domestic companies? For this, we are rejecting the reports prepared by these so called “independent experts”. Why did they reach this conclusion? This is the issue in front of me. Solving the issue of made-up amount of MNT 35 billion.
- This case has been going on for a long time and had some entanglements. Do you think that every stage of the court would keep the decision as it is?
We will go to the end until this case is solved according to the law. There are two steps for an appeal. If the truth is not found in there, we will go wherever we see there is possible a just solution.
- Well, I see, that was basically all about this case. So how is the current condition of SouthGobi Sands LLC when the economy is down and mineral price is also down?
We’ve made total of MNT 700 billion of sales since 2007 and made tax payment of MNT 200 billion to the state budget. 200 schools can be built by the taxes we paid. As I said before, we’ve made local procurement of MNT 1.2 trillion. I believe that was a big contribution to Mongolian economy. Besides, we spent MNT 8 billion for donations and investments to the local area development. We are one of four leading companies in terms of mining coals and exports. We sold 3.2 million tons of coal in 2013 and it was reduced to 2.1 million tons in 2014. But we didn’t stop our operation. We aimed for more this year. In conclusion, who would think about violating law when you already have made investments of MNT 1.4 trillion? There’s no stupid person to do that.