A U.S. citizen Justin Kapla and two other ex-employees of Canadian miner SouthGobi Resources Ltd. were found guilty of tax evasion by a Mongolian court, ending a three-year investigation that’s been scrutinized for its impact on investment and the nation’s treatment of foreign nationals.

Kapla and two Philippine nationals, Hilarion Cajucom Jr and Cristobal David, each received jail sentences of between five and six years, while the company was fined 35 billion tugrik ($18 million), said court spokeswoman Jamsranjav Enkhbayar. The prison terms start immediately, she said.

SouthGobi, controlled by Rio Tinto Group unit Turquoise Hill Resources Ltd., has denied the charges against it and its employees, who have been held in Mongolia since 2012. Free to move around the capital, Ulaanbaatar, but not to leave the country, the three weren’t formally charged until May last year.

SouthGobi spokesman Altanbagana Bayarsaikhan said he could not immediately comment on the court’s decision.

The verdict could have major repercussions for Mongolia’s struggling economy. Even some members of government say it has been handled badly and has sent the wrong message to foreign investors. It has also put the spotlight on a legal system that makes employees liable for a company’s wrongdoing and allows authorities to prevent witnesses from leaving the country.

The case has coincided with Mongolia’s conflict with Rio Tinto that’s blocking $4 billion in project financing to develop one of the world’s largest copper and gold mines. Foreign investment has plunged more than 85 percent in the past two years, sending a once-roaring economy into a tailspin.

Case Resonates

“It is an unusual practice in Mongolia that tax and other disputes are classified as criminal cases,” said Chuluunbat Ochirbat, economic adviser to Prime Minister Saikhanbileg Chimed. Chuluunbat, who was previously head of the country’s central bank, spoke by phone on Monday, before the court case began. “This is a wrong practice and we have to make changes,” he said.

The SouthGobi tax case resonated with the engineers, lawyers, accountants and other foreign professionals that mining companies and others need to do business in the country, which besides copper and gold has some of the world’s biggest coal deposits.

“A criminal conviction would make huge waves internationally,” said Dale Choi, founder of Independent Mongolia Metals & Mining Research in Ulaanbaatar, speaking ahead of the court case. “It would create very negative publicity. Foreign investors and executives would be scared of signing documents in Mongolia.”

Rich Elite

Within Mongolia, some politicians are tapping into a nationalism that portrays foreigners as a rich elite robbing the country of resources, said Choi.

U.S. ambassador to Mongolia, Piper Anne Wind Campbell, was at the court and drew attention to problems over interpretation. “The defendants stated during their trial that they could not understand the interpretation provided or express themselves clearly,” Campbell said in a statement from the U.S. embassy.

Commenting on Chuluunbat’s remarks, Campbell said the economic adviser had “reiterated what international investors have long made clear - that exit bans on foreign business executives whose companies are involved in business litigation in Mongolia have had significant, detrimental impacts on foreign direct investment.”

Other foreigners have been detained in similar circumstances. A former lawyer for SouthGobi, Sarah Armstrong, was held in late 2012 as a witness in the case concluded today. Following weeks of interrogation and considerable media attention, she was allowed to leave.

United Nations

Banking consultant Chris Bradley was in the country at the end of 2013 as part of a team investigating loan defaults for Standard Bank Group Ltd., Africa’s biggest lender. He was banned from leaving for six weeks after police said he had become part of a corruption investigation. After the New Zealander got home, he said he wouldn’t go back.

In October, the Office of the United Nations High Commissioner for Human Rights said it would investigate a claim by Kapla that his detention violates the International Covenant on Civil and Political Rights.

Prosecutors had alleged that SouthGobi evaded taxes of 230 billion tugrik and that it was involved in money laundering. The laundering charges were dropped in December and the alleged tax evasion was cut to 35 billion tugrik.

The defendants have two weeks to appeal to a higher court, spokeswoman Jamsranjav said.

Come spring, Mongolia’s Parliament will review legal changes related to commercial disputes and if passed, the amendments will end the practice of detaining individuals without charges, said Chuluunbat.