James A. Liotta: I have been developing with Mongolia

Mongolian Economy Magazine spoke with James Liotta, the Chairman of the Board of Directors of the American Chamber of Commerce and a partner at the law firm of MahoneyLiotta LLP, about how to improve the judicial system, attract foreign investment and facilitate US-Mongolia trade and investment. 

-Could you briefly introduce yourself to our readers? 

-My name is James Liotta, but everyone calls me Jay. I am a partner at the law firm of MahoneyLiotta LLP. I also serve as the Chairman of the Board of Directors of the American Chamber of Commerce (“AmCham”) in Mongolia. I’ve served as a member of the Board of Directors of Friends of Mongolia, a non-profit organization bridging charitable, educational and development opportunities between the United States and Mongolia, and as co-chairperson of the Business Council of Mongolia’s Legislative Working Group.

-What brought you to Mongolia? 

-Adventure, the unknown and a passion to help. During my final year of college at the American University in Washington, D.C., I was working in the U.S. Senator’s Office. I was sitting in my cubicle writing a speech and realized that I was not ready to confine my work-life to a desk. I wanted to get out and do something different that involved working hands-on with a community, so I signed up for the Peace Corps. Instead of going to Africa like many others, I chose to go to Mongolia even though the Peace Corps warned me that most people tended to terminate their service early due to the living hardships in Mongolia. At that time, I knew nothing about Mongolia other than “Genghis Khan”. That is how I was introduced to Mongolia, as a Peace Corps Volunteer. I am very thankful for that opportunity and experience.

As a Peace Corps Volunteer, from 2000 – 2002, I taught fifth through tenth graders in a local school and worked on community development projects in Uvurkhangai Province. Back then, food was limited to traditional Mongolian meals – not a scrap of lettuce or a chicken in sight, and only dry Russian bread to soak up mutton soup. There were only dirt roads because the Millennium Road hadn’t been built and it took anywhere from 11 – 32 hours to get to Ulaanbaatar on a microbus built for eleven but filled with up to twenty-one people. It was a way of life and I cannot emphasize enough how wonderful it was to live in a ger among Mongolians, to chop wood and collect my drinking water. It was remarkable to experience how the community helps and takes care of each other, having brought me in as family, and to see how friendly and kind the Mongolian people and culture really are. In a city, or while doing business, you don’t get that experience.

After the Peace Corps, I returned home to start my legal studies at the West Virginia University College of Law. I grew up in West Virginia. It’s a wonderful place. However, my desire to experience the world was still tugging at me. So, I did one-third of my credit hours outside the U.S., in Russia, Austria, Hungary, Japan and China. I went on to get a Masters in Transnational Law through Temple University (Philadelphia) while studying at their Tokyo campus and in India. During my studies, I’d go back and forth to Mongolia and became interested in how Mongolia’s legal culture and history shaped and is shaping its society. I started working on a book with the legal faculty at the National University of Mongolia School of Law on the legal culture and role of law in Mongolia. One of the sections of the book required me to research the Yuan Dynasty, so I moved to Beijing to enroll in the first ever Masters in Chinese Law for foreigners at Tsinghua University. After completing my legal studies, I went back to the U.S. and took temporary jobs at the IMF and World Bank while I studied for the New York State Bar Exam – it being the most globally recognized law license.

While I was studying for the New York Bar, I got a call from Lehman, Lee & Xu Mongolia, the first major international law firm in Mongolia. One of the owners at that time was an American lawyer whose husband was the CEO of Boroo Gold LLC – Mongolia’s most well-known gold mine at that time. She said, “I heard that you were in Mongolia with the Peace Corps and have an impressive legal background. Would you like to work as the Director of our law firm in Mongolia?” Without hesitation, I said “Yes!” I worked there from 2007 until the end of 2011, when it was time to leave Mongolia. It was an amazing opportunity, especially since at this time, Mongolia was just starting to thrive and I was able to experience this growth together with the Mongolians – many of whom were my former students from my Peace Corps days.

In 2011, the pace of business was on fire in Mongolia. Quality control and quality of life were paramount concerns. The greatest foreign attorney in Mongolia, Dan Mahoney, had been running a law firm in Mongolia since 1997. He and I got to talking and it turned out that we shared many of the same concerns, as well as many of the same values and a passion for Mongolia. Mongolia was “home” for both of us, we had Mongolian families, and we had a deep appreciation for our Mongolian friends and colleagues – Narantuya Gundegmaa, Enkhtur Demberelsuren, Nomin Dashynam, and other Mongolian leaders in the legal profession. All of us decided to continue the firm established in 1997, and to rebrand as MahoneyLiotta LLP. I believe we were the first law firm in Mongolia to have both Mongolian and foreign equity partners.

-Most Mongolian laws and regulations are not available in English. Does it make your work difficult in a certain way?

-I would say it doesn’t make my work difficult because we have such a great team of legal professionals at MahoneyLiotta LLP. But, for someone who doesn’t have a law firm and wants to do business in Mongolia, it can be quite challenging to make sense of what is going on. That is one of the major reasons why the U.S.-Mongolia Transparency Agreement is so important, and Mongolia will be publishing its legislation and draft legislation on trade and investment in the English language.

Having draft legislation in English allows legal professionals and the community to comment on it which is extremely important because Mongolian legislation is not always drafted well.

Even if it is drafted well, it tends to conflict with other legislation. For example, we have seen legislative conflicts where someone can have land rights, someone else can have subsoil rights, someone else can have minerals rights, someone else can have petroleum rights, someone else can have water rights, and someone else can have uranium rights all on/over the same piece of land. As well, there is a soviet era mentality for each new Parliament and Government to amend legislation – as if the act of amending and enacting legislation is evidence of progress and actually fixes the problems. Unfortunately, more often than not, this disrupts the legislative ecosystem and much needed stability. We also need to see a more coherent macro plan to help guide the legislation. Are we a free-market or state planned economy, driven by the private sector or state owned enterprises, seeking job creation and investment or imposing uncompetitive worker’s rights and discriminatory investment strategies? I don’t think there is a clear direction and this impacts the quality and cohesiveness of legislation.

-You have been at the forefront of numerous legislation initiatives fundamental to investment and doing business in Mongolia. Could you tell us more about your work in that area?

-Certainly. For example, around 2008, MCS Group (one of Mongolia’s best known private sector enterprises) wanted to build a rail to China for exporting coal. This would have done miracles for the Mongolian economy, private sector and environment. MCS lined up the lenders and technicians, but we hit a speed bump because Mongolia didn’t have a concessions law and public private partnership law. Consequently, we had to pause the project and roll up our sleeves to begin working on a draft of the concessions law which was eventually enacted by Parliament to make big projects like this possible. In the energy sector, we worked on the new Energy Law and set conditions for power purchase agreements to better attract investment. Similarly, we worked on the new Petroleum Law and production sharing agreements. I have been asked to comment on tax legislation, corporate and NGO legislation, visa legislation, construction legislation, etc. A lot of legislative initiatives and commentaries can now be done through AmCham. It really helps to combine our resources with all the law firms, accounting companies and businesses. AmCham does an amazing job at helping its members navigate and shape the business and legal environment in Mongolia.

-You have been advising your clients on market entry strategies for quite some time. What are the key obstacles in entering the Mongolian market? 

-There are political risks and regulatory obstacles but the first question foreign investors ask is “Do I need a Mongolian partner on my project?” The response is “It really depends.” Mongolia is set up in most cases so projects and business can be done with or without a joint venture or mixed shareholding. Foreign investors are always happy to hear this as it creates flexibility and in some cases is an incentive to quickly invest and do business in Mongolia. I’ve seen Mongolian partners work both for and against the best interests of the business, and I’ve also seen foreign investors without Mongolian partners make some serious mistakes. From my Peace Corps days, I learned just how important relationships and mutual respect are for succeeding in Mongolia. The same can be said for doing business, either individually or with a Mongolian partner. And by relationships I don’t mean “fixers” or people who have access to certain government officials – that’s the kiss of death. I mean genuine relationships with your business partner.

Secondly, people need to realize that Mongolia is a frontier market where things are not clear and sometimes practice takes over law. Going to court or arbitrating to resolve disputes can be time consuming and incredibly unpredictable. I litigated all the way to the Supreme Court until 2014, when the new licensing regulations for foreign attorneys were imposed following the big influx of foreign law firms into Mongolia. In my experience, the Mongolian sense of justice and fairness greatly influences, and often prevails over, the letter of the law. This creates issues for investors who rely upon the letter of the law and their understanding and expectations of the written law and sanctity of contract. I’d say this is largely what is behind the discussions over the Oyu Tolgoi Investment Agreement.

Fortunately, there is an opportunity for this to gradually change as the legal profession develops in Mongolia and more practitioners and judges look to the letter of the law. As well, they can help to draft legislation to more fully explain the meaning and intent of the written law – incorporating the Mongolian sense of fairness and justice so it is clear to investors.

-Your firm represents clients in arbitration at the Mongolian National Chamber of Commerce and in the courts of Mongolia. How can we improve the judicial system to make it more fair to all players of the economy regardless of their nationality? 

-That’s right. We represent clients in the courts of Mongolia, at the Mongolian National Chamber of Commerce, and at international dispute settlement venues.

Specific to Mongolia, I always found that it is not corruption (bribery) that is the biggest factor improperly influencing court decisions; rather, it is personal connections and political influence. That means we have to make the judiciary impartial from individual connections, politics and politicians. As well, we need to reinforce the rule of law and understanding of the law. In civil law countries professors write treatises that the judges can rely on to guide their understanding of the application of the law. That leads to greater predictability and sound rationale in court decisions. That is not well developed in Mongolia. As well, judges need to examine the elements of the law, apply them to the facts of the case, and map it all out clearly in the rational section of their ruling. In common law jurisdictions it is not the answer but explaining how you get to the answer that is most important. Again, this all leads to creating much needed predictability in the understanding and application of the law.

A separate, but equally important point, is the need for expertise and consistency in civil service and the judiciary. When a new political party is elected or a new person put into office they pretty much wipe out the previous civil service employees and replace them with their loyalists. As a result, it is impossible to build strong institutional knowledge in civil service and the judiciary.

-What distinguishes MahoneyLiotta LLP from other international law firms in Mongolia? How do you reach out to international clients or expand your client base?

-First, we are a Mongolian law firm with international reach. We are not affiliated with any international firms, meaning we are an independent law firm that works with all the major international firms. That makes us different from other international law firms in Mongolia. Second, compared to many other local firms, we have a blend of Mongolian and foreign personalities and expertise. It’s a great advantage. Third, most of our attorneys have legal education and licensing from multiple jurisdictions. I do want to point out that we work closely with other foreign and local law firms and want to see them develop and succeed in Mongolia.  It’s not good when we are sitting at the table with a client and the other side has bad legal counsel. It adds to the time and cost.

Regarding how we expand our client base. We are fortunate in that we have never had to advertise. I guess almost 25 years of MahoneyLiotta LLP in Mongolia, and the quality of the work and projects we have done has given us a solid reputation and created enough word-of-mouth recommendations. In terms of global rankings, the firm, Dan Mahoney and I are ranked Band 1 by Chambers Global, and Dan Mahoney and I are the only two Mongolia based lawyers listed in the Legal 500 Hall of Fame. I believe you could rank almost all the attorneys at MahoneyLiotta LLP as Band 1. We have such an amazing team.

-What needs to be addressed to attract foreign investors and companies to Mongolia?

-I want to start by making the point that we all know what works to attract foreign investment to Mongolia because it was done from 1990 – 2011. It’s not a secret or a mystery or an impossible math equation. The question is, are we willing to do it?  In 2012, I think the politicians really stirred up public anger and frustration towards all foreign investment and investors. And regardless of whether they started this trend, they certainly pushed it too far in the years that followed. I don’t think Mongolia has recovered from that. A new group of politicians is trying to figure out how to unwind that. They need to communicate to the public that Mongolia actually needs and benefits from investment. The issues that need to be addressed in the next couple of years are understanding investment, the importance of it and how it actually works toward the benefit of the Mongolian people.

Also, we need to categorize foreign investment. Where is the investment coming from? As of today, much of the investment is coming from China. We need to establish from where we want new investment. My advice to the Government of Mongolia would be to review the National Security Concept and Third Neighbor Policy. Based on those macro concepts, try to grow your third neighbor investments through targeted legislative incentives aimed only at third neighbors. However, that does not mean we should negatively discriminate or treat Chinese or Russians poorly.

The government will need to ensure that Mongolia’s neighbors understand the legislation is not being passed to target or restrict them, but because Mongolia wants and needs to incentivize third neighbors to invest as a means to balance and diversify the economy and enhance national security.

For example, it would be fair to say that third neighbor investors may qualify for more residency permits at a lower value of investment – which, by the way, is NOT a path to Mongolian citizenship – because it is harder for them to get to Mongolia. Chinese and Russians are direct neighbors who can drive in, bus in, train in and walk in. For someone like me or someone from Europe, getting to Mongolia is a more difficult process. I think Mongolia has a compelling state interest to allow greater numbers of residency permits at lower investment thresholds for third neighbors. This is designed to incentivize third neighbor investment, not to limit Chinese or Russians from coming to Mongolia. It’s small things like this which may help to grow third neighbor investment. This however is just one example and in and of itself will not be enough to attract substantial investment.

-How many US companies are operating in Mongolia? What has AmCham done to boost trade and investment between the United States and Mongolia?

-By operating in Mongolia, do you mean incorporated in Mongolia or doing business in Mongolia? I don’t have an exact number but I always say there is not enough. US companies are great for Mongolia economically and technologically, and they adhere to the Foreign Corrupt Practice Act when doing business in Mongolia which helps to eliminate corruption.

AmCham promotes the transparency agreement and hopes that it will help to increase the number of U.S. companies doing business in Mongolia. If Mongolia successfully implements the transparency agreement we really want to push for a free trade agreement between the U.S. and Mongolia. We also support the Third Neighbor Trade Act which is designed to help Mongolia export cashmere to the U.S. Every year we lead a team from Mongolia to Washington, D.C. and meet with the executive and legislative branches of the U.S. Government to reinforce the relationship between our two countries.

We also meet with some of the largest and most successful private sector companies in the world, such as General Electric, pharmaceutical companies, tech companies, etc. to develop business to business relationships. Furthermore, for our members, we try to find financing or put them in touch with public and private lending institutions including the Export-Import Bank of the United States (EXIM) and the Development Finance Corporation (DFC).

Regionally, we meet with members of the AmChams of the Asia-Pacific (AAP) which represents 28 American Chambers of Commerce in the Asia-Pacific. That is a good way to know what is happening in the region and to integrate business in the region. We are also affiliated with the U.S. Chamber of Commerce which is the largest business federation in the world. We work with them a lot and when Mongolian politicians pay an official visit to the U.S. AmCham Mongolia plays an essential role in enhancing trade and investment between our two countries.

-Does Amcham support Mongolian companies that want to enter the U.S. market?

-AmCham provides assistance to Mongolian companies who are interested in entering the U.S market. Whether it is Mongolian cheese or meat, entrepreneurs have poured an enormous amount of effort into trying to export Mongolian products to the global market. The hurdles they hit are usually because of the Mongolian regulatory environment or because of the Mongolian politicians who think that state owned enterprises should do it instead of private companies. As well, investors from the U.S. have tried to manufacture commodities in Mongolia and export them to China, having obtained the cooperation of the Chinese government, but the Mongolian government didn’t take the necessary actions. People and companies come to us saying “We have purchase orders from China for tons of Mongolian meat and we have a factory in Mongolia to produce the meat, however we can’t export the meat due to Mongolian regulatory hurdles.” I think it is odd because you hear Mongolian politicians saying they want to increase exports but in reality they stand in the way and are not making this happen. The private sector needs certain certifications and permissions from the Government to export Mongolian products to other countries. This disconnect is troublesome and needs to be resolved. We are undeterred and we will continue to work to address these issues.

-AmCham has organized a Mentor Day 2021, could you tell us more about the event? Who can participate in Mentor Day?

-Mentor Day is a day-long mentoring event that gives university students the opportunity to learn about personal development and get career advice from our member companies. It was a member generated event. It is really great to see how our members take initiative. Each of our members contribute and want to help the students who will be the future workforce of Mongolia.

We decided to do Mentor Day 2021 in person since these types of events are less effective virtually. Every participant took a COVID-19 test at the entrance to the conference and we followed health and safety protocols. Everyone had a great time and learned a lot. Next year, I hope we can have a much larger event.

-Do you collaborate with other International Chambers in Mongolia? 

-Yes we do. Having multiple chambers with independent voices is a hallmark of a healthy democracy and we encourage their growth and participation. As mentioned before, we are affiliated with the U.S. Chamber of Commerce and AmChams of the Asia-Pacific. That’s a form of regional and global collaboration. Recently, AmCham and the Office of the Parliament Secretariat organized a forum on legal reform to promote investment which was attended by EuroChamber, the Mongolian National Chamber Of Commerce And Industry and other key stakeholders. That is a great example of how AmCham reaches out to work together with other chambers in Mongolia.

-AmCham had a meeting on Addressing City Development Issues with the Mayor of Ulaanbaatar. What were the key points of your discussions?

-We talked about how we can make the city more livable because the city right now creates so much tension and stress. This has a major impact on quality of life and health. Also, we discussed what we can do to try and alleviate the traffic congestion. The takeaway from the discussion is that everyone acknowledges that the city needs to be more friendly and healthier for its residents. There is no one or easy solution and we will continue the discussion.

-If it is not a secret how long do you plan to work for MahoneyLiotta LLP?

-MahoneyLiotta LLP is getting ready to celebrate our 25th anniversary and we continue to grow.  I’ve spent half my life living in Mongolia. It’s an energetic place, filled with a youthful population that aspires to achieve the next great thing. I love that. You don’t necessarily experience that energy in other parts of the world. Our firm continues to play a key role in helping with Mongolia’s development. It’s a secret even to me how long I will work with our wonderful colleagues at MahoneyLiottta LLP.

-Now that we have reached the end of our interview, could you give some advice to law students who are about to graduate and thinking of pursuing a legal career?

-A legal education is a good education whether you are going to be a lawyer, regulator, or even a teacher. Whatever you are going to do,  I would say, pursue legal education because you are passionate about it. Also, look for opportunities to help Mongolia change and develop with the skills you have learned in law school. We need a strong and vibrant private sector driven economy to produce good jobs in all sectors.