As our inclusion on the High-Risk Third Countries list by the European Commission (EC) has been firmed up, it is utmost imperative for the Authorities and Mauritius administration to judiciously address the fundamental issues at stake and implement a rational and bold strategy towards delisting the country from both the Financial Action Task Force (FATF) Grey List and the European Union (EU) Black List.
It is worth to note the Minister of Financial Services and Good Governance’s radical change in tone in his approach to this serious issue – that reforms relating to the five Strategic Deficiencies in Mauritius’ Anti Money Laundering / Counter Terrorist Financing (AML/CFT) framework, identified in the EU Delegated Regulation of 7 May 2020, lie beyond the ambit of his Ministry and have far deeper and wider reach involving all competent authorities / Law Enforcement Agencies (LEAs) in the country.
Walk the Talk: Let Actions Speak
It is expected by everyone that such laudable intentions do not merely remain on paper, but are translated into concrete actions in a timely manner. It is rather unfortunate that our nation has on numerous occasions witnessed successive governments through various speeches both in Parliament and in the public domain, address with passion and conviction about extraordinary intended goals with little or no impact.
At this point, we are past the blame game stage, and a holistic, concerted and multi-pronged strategic approach at the highest national level is required to implement diligently tangible measures. In fact, the adoption of such a strategy should provide a unique opportunity to overhaul the existing regime of the Global Business while securing a robust, effective, integrated and comprehensive AML/CFT framework that goes beyond established international standards.
The intention here is to highlight pertinent issues that need to be addressed while providing constructive and rational strategies that can help Mauritius hoist itself from this potentially devastating quagmire.
New World Order – Economic Diplomacy More than Ever
The Covid-19 pandemic is re-shaping world geo-politics and has precipitated the transition to a more fragmented world order in which the future organizing principles of the international system is unclear. In this new geo-political ecosystem, it is increasingly difficult for any single country, especially island states such as Mauritius, to exercise its will against competition and cooperation from the multiple poles United States, China, Russia and the EU.
Against this state of flux and uncertainty, Mauritius needs to rapidly re-position itself by aggressively building back its reputation. Economic diplomacy is key to nurture relationships between Mauritius and foreign countries, especially with some of our important traditional partners such as the EU and Africa. It is unfortunate that the Government over the past six years has manifestly not invested enough efforts in consolidating and deepening diplomatic relationships with the EU and Africa. Could it be that we have taken for granted the historical links that existed, or has the Government shifted its focus on India more? Having the right friends when it matters does make a difference!
Reputation of Mauritius
Reputation is built on the back of a tortoise but lost on the back of a galloping horse. This perfectly depicts the current situation of Mauritius whereby decades of hard work in building the reputation of the Mauritius International Financial Centre (IFC) is being eroded through this single listing by the EC.
Mauritius has always strived to comply with all relevant international standards relating to the Global Business sector, in particular with respect to AML/CFT, tax transparency and automatic exchange of information (OECD). Over the years, Mauritius has progressively introduced various legislation aimed at introducing new activities in that sector, refining the regulatory and supervisory frameworks, and aligning with new international standards. While successfully establishing itself as a credible IFC of substance, Mauritius continued to remain largely vulnerable to money laundering (ML) and unfortunately the authorities did not always bother to pay much heed to mitigating the ML risks effectively despite the writings on the walls.
As reported in RiskScreen, an international financial crime publication in December 2016, – “Mauritius has experienced less scrutiny from authorities in the US, the UK and Europe compared to offshore finance hubs in the Caribbean. In recent years, this relative obscurity has made it a more attractive destination for money from Europe, the Middle East, India and sub-Saharan Africa.” Unfortunately, Mauritius continued to ride on this wave and consequently has come onto the radar of the EU through the listing.
Mention of numerous cases of fraud, corruption and alleged ML emanating from the Global Business sector came to the surface from years back and have been reported widely in the international press including the Financial Times and Bloomberg. Just to name the varied range of scams: Belvedere Management ponzi scheme, Beaufort Securities laundering through art, Appleby Mauritius with the Crociani case on breach of trust, Dos Santos / Quantum Global in Angola Sovereign Fund scam, Wirecard / Hermes fraud funnelling through a Mauritius fund and the Fishrot Files for laundering proceeds of illegal fishing activities.
On the domestic front, Mauritius has also been hit with ML, fraud and corruption related scandals – the former Attorney General linked with gambling winnings structuring, the State Bank of Mauritius dishing out huge loans to fraudulent international investors without proper due diligence, and the latest being the alleged corrupt and fraudulent practices unfolded by the African Development Bank in relation to a power plant project.
The international community scrutinizes carefully such developments and monitors the efficacy of the Mauritian authorities’ responses on a micro and macro level – that is, how our institutions are handling the cases, and their effectiveness in terms of concrete actions taken. It is clear that the cumulated number of cases has badly tainted Mauritius’ reputation progressively over the years, but more importantly, has sent the necessary signals to the international standard setting bodies such as the FATF of the gnawing gaps present in our overall enforcement and sanctioning systems.
Governance and Independence of Key Institutions
Properly run institutions constitute the backbone of a sound, rigorous, and effective regulatory, supervisory and law enforcement framework for both domestic and Global Business activities. To enable such a framework, the sine qua non condition is to have an unflinching political commitment to establish such a framework, and allow institutions to operate independently.
Over the years most of our investigative institutions – Independent Commission against Corruption (ICAC), Financial Services Commission (FSC), Bank of Mauritius (BoM), Financial Intelligence Unit (FIU), Mauritius Police, and Gambling Regulatory Authority (GRA) – have become increasingly politicised with nominees in key positions lacking the required independence. This all-pervasive situation has been allowed to prevail for far too long and is the main reason of the lack of effectiveness of our institutions. This is confirmed in RiskScreen December 2016 “… Mauritius’ good governance credentials look most patchy when it comes to financial crimes like money laundering…”
The vicious circle continues with impunity of the perpetrators in view of their close political proximity of the regime of the day. Mauritius’ listings should certainly prove to be a catalyst to undertake major reforms to cleanse our institutions. However, the question that is pertinent – does the government have the political courage and will to do so by departing radically from its current way of business? The repeated discourses of the Prime Minister in assuring the population of his government’s “commitment to intensify the fight against fraud and corruption with zero tolerance of corrupt practices”, remain to be proven through actionable and effective sanctions across the board.
It is worth reporting that Ethiopia which was on the EU Black List since October 2017 was removed when Mauritius got placed on that list on 7 May 2020. During that period, Ethiopia demonstrated its ability to effectively utilize AML/ CFT frameworks to detect, investigate and start to root out financial crimes, as evidenced by the high-profile arrests of intelligence, military, and business officials over alleged corruption and human rights abuses in November 2018. Such demonstration sends strong signals to the international community of a country’s political commitment and courage to fight corruption.
Effective Implementation of Laws
Mauritius has over the years prominently introduced numerous sound and modern legislation for AML/CFT and prevention of corruption with the relevant supervisory oversight. The latest being the new AML/CFT Bill which aims to reinforce the existing legal provisions (amendments to 19 laws) for complying further with the FATF requirements.
Merely introducing a gamut of laws without their effective and coordinated implementation will not serve their purpose if full implementation of the relevant legislation does not culminate into any concrete legal sanctions.
For instance, has any Management Company been sanctioned over cases of alleged ML or fraud despite numerous indications of misconduct, and how many ICAC cases have been conclusive and led to convictions? This is possibly explained as reported in RiskScreen, in December 2016 by the “…‘schmoozing’ relationships between regulators and white collar finance professionals in Mauritius… formal legislative limits may not be fully reflected in practice.”
Since the setting up of the offshore sector until the first alleged cases of ML, actions from the authorities have been very limited with no major sanction taken – even if partly attributed to the confidentiality clauses in our laws which protect the disclosure of information on Global Business Companies to the relevant enforcement agency. As it stands information for investigative purposes can only be obtained from the FSC through a court order issued by the Supreme Court. As a result, LEAs find themselves constrained by such protection with the consequence that investigations cannot be probed to conclusion.
Review of the AML/CFT Bill 2020
The objective of the new Bill is to reinforce the legal framework for the financial services sector while aligning it with international norms set out by the FATF. Consequently, the five Strategic Deficiencies outlined in the EU Delegated Regulation of 7 May 2020 are expected to be addressed in the Bill:
- Strategic Deficiency 1: the Bill completes the legislative process of establishing a risk-based supervisory approach for Designated Non-Financial Businesses and Professions (DNFBPs).
- Strategic Deficiency 2: the Bill addresses concerns of accessing accurate beneficial ownership information in a timely manner.
- Strategic Deficiency 3: the Bill provides for the implementation of the FATF Action Plan including through the support of specialised consultants providing technical assistance and the establishment of systems and procedures for all relevant institutions to demonstrate an increased level of effectiveness of AML/CFT.
- Strategic Deficiency 4: the Bill omits to address the implementation of risk-based supervision for non-profit organisations terrorism financing.
- Strategic Deficiency 5: the Bill reinforces the implementation of targeted financial sanctions through the dissemination of public notification of the United Nations Sanctions List.
It is to be noted that the Bill excludes provisions for cryptocurrency transactions being subjected to AML/CFT measures – a sector with growing vulnerability to ML.
In as much as comprehensive legislative provisions and technical support for the execution of the FATF Action Plan are being deployed, it now remains to be seen the implementation of the laws and monitoring the effectiveness of systems in place to address ML risks.
Regulatory and Supervisory Inefficiencies
The regulatory and supervisory systems applied in practice to the Global Business sector do not reflect the well-established rules formally put in place legislatively. The current technical capacity of the FSC staff should be sensibly uplifted and aligned with international best practices and standards. Further, the frequency of thorough onsite inspections of MCs and other Global Business Companies should be increased so as to provide the necessary comfort to the licensees and the international community on the regulatory rigour being exercised.
The DNFBP sector – which comprises of law practitioners (including firms), accounting professionals, gambling entities, dealers in precious metals and stones and real estate agents – has been long identified as a sector vulnerable to ML, fraud and corruption. It has been revealed in the National Risk Assessment Report, August 2019, that the gambling, real estate and jewellery sectors represent “high” risks in terms of vulnerability and threat ratings. The lack of supervision of the sector was flagged to Mauritius since 2008 through the first Mutual Evaluation Report. It took different governments ten years to amend the Financial Intelligence and Anti-Money Laundering Act (FIAMLA) in order to subject the DNFBP sector to AML/ CFT obligations! It is to be noted that following the AML/CFT Act 2019, that all DNFBPs have to comply with guidelines on AML/CFT issued by their relevant regulatory body, the latest being the GRA issuing for Casinos and Game House Operators in May 2020 – they are yet to issue same for horse racing-related activities.
Now that the legislative and regulatory frameworks are in place for a risk based supervision of the DNFBP sector, it is hoped that the respective regulatory bodies demonstrate effective oversight of this sector. The FATF Action Plan is providing the necessary technical capacity building and this should be deployed efficiently and effectively to the highest expected standards.
A Roadmap to Success
As Government has firmed up its declared objective to remove Mauritius from the EU and FATF lists, it will have to embark on a bold and comprehensive multi-pronged strategy in order to tangibly demonstrate its commitment accordingly.
The strategy should encompass numerous simultaneous initiatives :
Independent, Transparent, Accountable and Competent Institutions
As “Governing Beckons Governance”, the practice for governments to nominate political acolytes at the helm of public institutions does not support that such appointees can discharge their mandate in full independence, and without undue interference and influence from the political masters in Government. Unfortunately, under the current government we have witnessed new heights of political interference where the same group of people occupying incestuously high level positions in key institutions. The case in point is the BoM and FSC where the Chairman, Governor, Deputy Governor and CEOs have been positioned in a “musical chair” situation.
A strong and right signal will be sent to the international community and to our nation if Government uses the passing of the new Bill to re-appoint the heads of certain key institutions and provide transparent criteria in selecting the best candidates to deliver the goods. A recent proposal by the Opposition made in Parliament was the setting up of a Select Committee for the appointment of heads of such institutions – this would certainly uplift the lost trust in such institutions. In parallel, all incumbents and / or new appointees should sign a performance contract derived from the new Bill with a “Getting-out of the FATF & EU listings” firmly on the scorecard.
Being Ahead of International Standards
Whether it is AML/CFT regimes, global taxation frameworks or exchange of information programmes, small jurisdictions like Mauritius need not only to be in line with the international standards but where possible accede to the highest level of standards – for e.g. the EU 5th AML Directive which further strengthens the AML framework in the EU.
One aspect of the new Directive is : failure to have appropriate governance framework constitutes a breach as compared to the act of laundering itself. This shows how deep the EU is probing to ensure the right mechanisms are in place to effectively combat ML. It would be in the interest of Mauritius to endorse the highest standards in AML in a proactive manner to show our determination to the international community.
Notwithstanding this, Mauritius must systematically and regularly review its legal and other frameworks in a timely manner to protect our jurisdiction from being used and abused for illicit activities.
Smart Economic & Personal Diplomacy
Mauritius has the inherent advantage of harnessing its historical links with the EU, especially with France. Working with well-respected lobbyists, sending our finest diplomats as well as senior Government officials, and professionals in the sector to lobby for Mauritius in the EU instances, form part of a high-level concerted strategy that could bear fruits.
Improved Efficacy of the National Committee for AML/CFT
As provided for under the FIAMLA, the National Committee is mandated to coordinate and implement national policies and activities to combat money laundering and terrorist financing (ML/TF). The existing role of this Committee needs to be upgraded in fulfilling its mandatory functions. The National Risk Assessment Report and National Strategy 2019-2022, which have been prepared in 2019, should be implemented and monitored in a timely manner.
Professional and Effective Communication
It is important to communicate locally and internationally through various channels including our foreign missions, with well-articulated communication strategies executed professionally.
Concrete measures and success stories to combat ML/TF comprehensively across all economic sectors should be canvassed on the international arena to impress upon the EU and our economic partners that we are forcibly and concretely moving towards zero tolerance of ML, fraud and corruption.
Mauritius has worked hard in making financial services a key pillar of our economy, and our country does not deserve to be on the FATF and EU lists. Coalescing our forces through collective responsibility and bold action might help remove our jurisdiction from these ominous lists and bring back the glorious days of high repute and credibility. This Government and the other stakeholders have the obligation and responsibility of salvaging the Mauritius IFC, and history will be marked if this has been fulfilled or not.