SouthGobi Sands accused of evading taxes of Tgs35 billion

On January 22, a trial for the tax evasion case against SouthGobi Sands LLC (SGS) and three of its former employees started at Second District Criminal Court of Justice. SouthGobi Sands LLC, a Mongolian subsidiary of SouthGobi Resources Ltd, has been accused of dodging taxes worth Tgs35 billion. However, at the request of the prosecuting attorney and defendants, judges postponed the trial until January 28. The prosecuting attorney requested the attendance of experts at the trial, while defendants requested attendance of experts and witnesses. Defendant Justin Kapla also asked to add a number of translators. On January 16, the State Prosecution Office reported that the SouthGobi Sands LLC case has been transferred to a primary or district court as additional investigations completed and prosecutors issued a conclusion. Initially, the Investigation department of the Anti Corruption Agency filed a case against D.Batkhuyag, former chairman of the Mineral Resources Authority in May 2012 and during the investigation, a tax fraud case related to US citizen Justin Kapla was revealed. The State Prosecution Office claims that during his post as President and CEO of SouthGobi Sands LLC, Justin Kapla organized a crime conspiring with then general Financial Manager Hilarion Cajucom Jr. to intentionally evade taxes worth Tgs17.4 billion by concealing taxable income of Tgs90 billion when presenting their financial report in 2011. Moreover, Philippine citizen Hilarion Cajucom Jr. also dodged taxes worth some Tgs17 billion together with another Philippinese national Cristobal David, the general accounting manager. Therefore, SGS is accused of dodging taxes worth a total of Tgs35 billion. Investigating the case took time and the prosecutor sent the case back twice for additional investigation to check proof and evidence completely. In the process, it was discovered that translations of relevant materials were not certified and translations were made by a person with a conflict of interest. On December16, 2014, prosecutors issued a conclusion that the alleged people in this case dodged a significant amount of tax. In connection to this case, the Prosecutor’s office denied some foreign media’s accusations that Mongolia persecutes foreign investors. T.Sukhbaatar, head of the press and communication department of the State Prosecution Office underlined that these accusations were groundless. The Prosecution Office also reported that during the investigation, the alleged perpetrators were banned from exiting Mongolia, immoveable property of SGS was detained, and their bank accounts in Khaan, Golomt, and the Trade and Development Bank have been frozen. Sarah Armstrong, an Australian lawyer for SouthGobi Sands Company was stopped at Chinggis Khaan airport in mid-October 2012 because the Anti-Corruption Agency wanted to question her in relation to corruption allegations. However, the Anti Corruption Agency allowed her to exit Mongolia at the end of December 2012 after ending its questioning of the lawyer. At that time, the Capital city Prosecutor’s office said that the case related to Sarah Armstrong was cancelled because her charges were not proven and investigations connected to other suspects continue. On May 7 of that year, the ACA sealed off the office of SouthGobi Sands LLC on the 10th floor of Monnis Tower to conduct the investigation. During the ACA’s investigation process for criminal cases, it was necessary to investigate SouthGobi Sands Company in relation to the case committed by those including D.Batkhuyag, former head of Mineral Resources Authority. D.Batkhuyag, abused his official position by illegally issuing about 120 exploration licenses to companies. Among the licenses, it was found there were five exploration licenses of SouthGobi Sands Company of which four licenses were illegally extended and one was taken for himself. In the process of investigating SouthGobi Sands Company in D.Batkhuyag’s case, the company was found to have evaded Tgs150 billion in taxes, reported deputy head of the Ulaanbaatar Prosecutor’s Office on October 19, 2012. SouthGobi is listed on the Toronto and Hong Kong stock exchanges, in which Turquoise Hill Resources Ltd, also publicly listed in Toronto and New York, holds a 47.9; percent share. Turquoise Hill took management control of SouthGobi in September 2012 and made changes to the board and senior management. Rio Tinto has a majority shareholding in Turquoise Hill. SouthGobi is focused on exploration and development of its metallurgical and thermal coal deposits in Mongolia’s South Gobi Region. It has a 100 percent share in SouthGobi Sands LLC, Mongolian registered company that holds the mining and exploration licenses in Mongolia and operates the flagship Ovoot Tolgoi coal mine.