One of the important elements of the anti money laundering and terrorism financing framework is the requirement for the financial institutions and the dealers in precious metals, real estate agents, lawyers and notaries etc. to report the transactions regarded as potential or suspicious that may be related to money laundering or terrorism financing. Because of strict traditions of keeping customer privacy and their accounts and transactions, it is difficult for financial institutions with no available tools for undercover operation to directly disseminate information to the state law- enforcement organizations in order to investigate suspicious transactions. For that reason, countries need to establish own national, central and specialized agency - Financial Information Unit (FIU) responsible for analyzing the potential information that may related to money laundering and terrorism financing.
The core functions of Financial information unit is to receive reports of suspicious transactions from financial institutions, other natural persons and entities, to analyze them, and to disclose the results to local law-enforcement organizations and foreign FIUs to combat money laundering. A financial information unit must have enough independent status in order to implement its purposes in the manner of free from unnecessary, wrongful interference and influences. Egmont group, an informal international group of Financial Information Units of the world, has officially fully admitted the Financial Intelligence Units of 121 countries that are in the different stages of development are operating through the international formulation. The international central organization for combating and preventing money laundering and financing of terrorism - The FATF (Financial Action Task Force) calls upon the countries to establish and operate the Financial Information Unit that in compliance of principles and definition issued by Egmont /from the publication of International Monetary Fund/.
Pursuant to the approval of Parliament of Mongolia on “Law on Combating money laundering and financing of terrorism” in July 8, 2006, the Financial Information Unit was established and built the foundation of combating money laundering and financing of terrorism.
This law is chiefly based upon the FATF Recommendations (49 recommendations). Pursuant to the law, the Financial Information Unit was established within the structure of the Bank of Mongolia. The creation of FIU is divided into three types based on its structure and function including the law-enforcement (law-enforcement-type FIU), the administrative (administrative-type FIU) and the judicial (judicial- or mixed-type FIU).
- Law-enforcement-type FIU conducts operations that are in compliance of the Egmont principles and usually a part of an investigation, police agency which is responsible for undercover operations and investigations.
- Administrative-type FIU performs its duties in compliance with Egmont principles within the structure of Central bank, financial supervisory committee or works as an independent FIU. This type of FIU typically enforces compliance with preventive measures for the banks and financial institutions although does not have the functions concerning investigation and undercover operations.
- Judicial and mixed-type FIU conducts all the above-mentioned operations, additionally carries out confiscation and seizing within the structure of the judicial or prosecutorial authority.
The grounds of establishing law-enforcement-oriented, neutralized agency –FIU is created upon the reasons to support the development of banking and financial system, keep the citizens’ trust in financial system within the structure of Central bank, Ministry of Finance and financial supervisory committee which have duties to provide the reliability and security of banking and financial system and have similarities in them.
As a result of the FIU created within the structure of Bank of Mongolia has been performing its activities for ensuring the implementation of the international principles and standards pursuant to the Law on Combating Money Laundering and Financing of Terrorism, it has admitted by the Egmont Group as the second (with Kyrgyzstan) in Central Asian countries and the fifteenth in Asian countries.