SouthGobi Resources loses appeal in Mongolian tax case

In late February Mongolian President Elbegdorj Tsakhia may have pardoned three former employees of SouthGobi Resources (TSX: SGQ) who were convicted in a tax evasion case on Jan. 30, and handed jail sentences of between five and six years, but the coal miner has lost its appeal of a related ruling in the country’s Supreme Court.

A panel of three appointed judges in a hearing at the 10th Appeal Court for criminal cases in Ulaanbaatar, on March 25, has upheld the initial verdict of the country’s Second District Criminal Court of Justice, which found SouthGobi guilty of tax evasion and fined the company US$17.9 million.

In a news release, SouthGobi said it firmly rejects the appeal verdict and reiterated that it has not committed tax evasion and “is resolute in continuing to defend itself through all available legal means, including an appeal.”

SouthGobi said the panel of judges from the Appeal Court “has not provided any explanation whatsoever on the reasoning to uphold the initial verdict,” adding that the initial verdict and the appeal verdict were reached “on the basis of the same erroneous and false reports, and it has been demonstrated that there is a complete lack of evidence to support both verdicts.”

In an email response on Feb. 4 to questions from The Northern Miner about the court’s initial verdict and the jailing of U.S. citizen Justin Kapla and two Philippine nationals, Cristobal David and Hilarion Cajucom Jr., all former employees of  SouthGobi, said it had “sent shockwaves across the Mongolian and international business community,” and that “the harsh verdict — and a complete lack of evidence to back up the court’s findings — has added a fresh layer of uncertainty to the investment equation in Mongolia … the court’s verdict has left investors with many questions about transparency, governance and the rule of law, not only for companies, but also for individuals. We should not underestimate how damaging this decision is for the Mongolian investment outlook.”

Following the pardon of SouthGobi’s former employees on Feb. 26, the American Chamber of Commerce in Mongolia called the investigation and trial “flawed,” and said the pardon “comes at a time when many others remain subject to travel bans, and international business executives are reluctant to travel and do business in Mongolia.”

The company’s Ovoot Tolgoi coal mine started production in April 2008.