(Published in a truncated version in MTimes 02 08 2019)
The arguments of many of our outraged operators of global business and defenders of our "clean jurisdiction" do not hold. They argue that we are being picked out of the many other financial centres that are doing the same thing-that is tax-centric centres, if tax haven is too offensive for them. If they care to read carefully, they will note that we are one of the many but we are one of the worst elements among the many offshore centres- “the lynchpin of many tax avoidance structures in Africa,” and among ”the most aggressive corporate tax havens responsible for large revenue losses across the African continent.”
The Corporate Tax Haven Index ranks the world’s most important tax havens for multinational corporations, according to how aggressively and how extensively each jurisdiction contributes to helping the world’s multinational enterprises escape paying tax, and erodes the tax revenues of other countries around the world. It also indicates how much each place contributes to a global ”race to the bottom” on corporate taxes. Mauritius is ranked 14 out of 64 countries, and is also considered, after the UAE, as having the most aggressive double taxation treaties towards Africa.
As regards a complementary index compiled by the Tax Justice Network, namely the Financial Secrecy Index which focuses on tax avoidance by individuals instead of Multinational corporations, Mauritius is ranked 49 out of 112 countries. it highlighted that “The Corporate Tax Haven Index (CTHI) by Tax Justice Network launched yesterday shows how the United Arab Emirates (UAE) and Mauritius are among the most corrosive corporate tax havens against African countries. …..”
Of the 64 countries examined from around the world 9 African countries namely; Botswana, Gambia, Ghana, Kenya, Liberia, Mauritius, Seychelles, South Africa and Tanzania, the CTHI revealed weak tax systems that are constantly exploited resulting to illicit financial flows. Specific to Africa, the UAE and Mauritius, are the continent’s most aggressive countries in terms of driving down the withholding tax rates of countries’ through treaties. It also underscores the position that DTAAs are often abused and provide loopholes for tax avoidance practices taking away revenues these countries direly need to finance their government programmes.
Comme disait l’ex MOF, Vishnu Lutchmeenaraidoo in one of his rare moments of lucidity “La perception est une réalité.” If we are regularly in the news because of foreign tax dodgers and fraudsters, our detractors tend to perceive us as a secrecy jurisdiction thriving mainly on tax arbitrage.
Back in 2010 or 2011, Mauritius, courtesyof Wikileaks.org, was classified as the Switzerland of Africa in the murky world of offshore banking and India, for its part, was showing a growing preoccupation with the Mauritius investment route, which it had looked upon benevolently so far. Public concerns about corruption and black money, round tripping practices, as well as tax sovereignty issues, were some of the key factors driving the Indian authorities to consider possible changes in the double taxation treaty, and curtail the relevance of the Mauritius route. The Mauritian offshore sector was caught in the midst of a series of financial scandals, including India’s biggest-ever corruption case, linked to the awarding of second-generation telecommunications licenses. There was also the case of a German banker who allegedly made huge personal gains in a 2005 deal that shook up the ownership of Formula One to the extent that the French investigative magistrate Renaud Van Ruymbeke joked that … “I recommend Mauritius to those with dirty money to launder. Whenever a judge asks for information from Mauritius during an investigation, there’s no response.” and more or less during the same period “The Economist” had commented that “Mauritius is a conduit through which Indians send and bring back black money”
I had argued at that time that “We may continue to hold the fort warding them off with arguments that these are mere speculations, that there is lack of evidence especially in the cases of round-tripping of resident and non-resident Indian investment to India and that we have a number of agreements on exchange of information with regulators across the world. This is not the issue. The issue is that all these are the consequences of locking the offshore sector in “low-value added, passive administrative of foreign accounts established to benefit from double taxation treaties and agreements.” (Re: The Export of Tradeable Services in Mauritius: A Commonwealth Case Study in Economic Transformation).” Another avid commentator of the Mauritian scene had also recommended then as follows “there is no uncertainty about our options. Mauritius must press ahead beyond the offshore concept and develop into an international financial centre of substance and integrity, providing a deeper and more diversified range of activities and services. Mauritius should overhaul its business model for the financial sector once more, especially towards greater openness in order to attract world class players and skills.”
If we now fast forward to 2018 , you would have expected the policy paralysis that has gripped the sector for years would have given way , to counter some of the criticisms , to a more diversified Global Business sector playing a larger role in international finance and forging the synergies between the export of commodities, financial and business services, and a more active domestic capital market. Instead we just got illusions wrapped up in rhetorics. We get so carried away by our rhetorics that we start believing in them and the clichés that we readily churn out. But reality soon caught up with us.
In 2018 itself, we have been ”involved” or rather named, in a series of financial scams from Beaufort Securities to the alleged $2bn fraud of the Punjab National Bank and the jeweller Nirav Modi, to Ireo- one of India’s biggest property developers, one of Donald Trump’s business partners in India and more recently Alvaro Sobrinho and Jean-Claude Bastos de Morais of Quantum Global.(We all aware of the allegations about their dealings in Angola and these people were very welcome in Mauritius despite the due diligence reports carried out by the BOM which were ignored. ) If these are not illegal activities, then we are surely confused about what should be a clean jurisdiction!
We also had the case of Mauritius being classified as a high-risk jurisdiction by a few global banks, namely Deutsche Bank, Citi, Standard Chartered and JP Morgan. Mauritius was one among the 25 countries in the list of high-risk jurisdictions compiled by these global banks in India. Next, we had a dig from our dear African brothers that the Global Business Companies (GBCs) would be just doing ‘brassplate’ operations in Mauritius and that many of them would be“relatively financially secretive conduits” to illicit financial flows.
This was followed by the Eastern and Southern Africa Anti Money Laundering Group’s Mutual Evaluation(ESAAMLG) Report (an exercise to assess whether the necessary laws, regulations or other measures required under the essential criteria of the Financial Action Task Force (FATF) Methodology are in force and effect, whether there has been a full and proper implementation of all the necessary measures, and whether the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) system as implemented is effective ) which was quite damning for Mauritius. You recall that the mutual revaluation report (MER) in its assessment of our AML/CFT regime found that we “have not kept pace with the evolving global AML/CFT environment and therefore it has several weaknesses that negatively affect its effectiveness”.
Equally worrying was the fact that Mauritius is ranked 51th in the Global Real Estate Transparency Index, and is considered as “semi-transparent”, i.e. with existing risks of money laundering.
But some will argue that there are many other centres, including Singapore, which have had such cases. But for them these are exceptions rather than the rule. Whenever there is a big fraud or scam somewhere, there is always somehow a link to our GBC sector ! And why was India so adamant to renegotiate our DTAA to the extent of bribing us out of it ? What happened to our DTA with Indonesia, South Africa and Kenya among others? Why is Senegal pressing us for a new treaty? If your only criteria on how to pick up the genuine investors from fraudsters is by looking at them straight in the eyes, then why are you so obfuscated when we are being branded as a tax haven depriving poor African countries of their dues?
Please do not go about saying that you have all the required legislations or the four OECD litmus tests for a clean jurisdiction ! We need to realize that laws and regulations are not the end of the story, only the beginning. We must put greater efforts at ensuring that these laws and regulations are effectively applied, and not meant for show. What the use of having these legislations when we cannot ensure the effective application of laws and regulations to ensure the effectiveness of the AML/CFT regime. Who seriously believe that the law enforcement agencies and other relevant institutions in Mauritius have been or are up to this task? And for how long has this been going on! Suffice it to say, that we have been incapable of ensuring the right environment and conditions for institutions in Mauritius to function independently, to perform efficiently, and to deliver effectively on their mandate to combat ML/TF and be up to task on the laws and regulations.
The very people who are saying today that “Mauritius is not a tax haven but a competitive and attractive cross-border investment platform” failed in providing a new road map for the financial sector that was long over due; we have been waiting for a reengineering and modernization of the sector since 2006 with aim of transforming it into a financial services sector that is characterized by speed and continuous innovation- and reviewing the whole institutional framework with a view to enhancing performance and bringing concrete results, with the injection of additional human and financial resources, greater capacity training, and greater cooperation between law enforcement agencies- a sector characterized by its increasing ability to leverage capital markets, specialized skills and technology to innovate and create new products, processes and services- These are the prerequisite to being a sustainable premier financial centre that has both width as well as depth.
We fooled ourselves into believing that we were not a tax haven because there is no secrecy. We kept repeating to potential investors that “Yes, you can’t open a bank account here without giving your full details,” or that“we are happy to exchange tax information with all our partners.” But we allowed foreign companies to fragment themselves and register as shell and holding companies in our jurisdiction where not much tax is paid, and then allow these companies to artificially send profits made elsewhere to the offshore fragment in order to avoid tax. And for years, we have been pretending that we are pushing for more tangible commercial substance in the global business sector and that it was beingoriented towards more value addition but till today the relative shortage of highly skilled and specialised legal and financial expertise represents a potential bottleneck to rapid growth of higher value added global financial services.
It is true that we have moved to a new threshold now, and our less tax-centric financial industry (Grudgingly responding to international initiatives on the conduct of offshore business in emerging international financial centres, like Mauritius ,and in other so called tax havens, some of our local smart alecks misread the OECD BEPS initiative, and miscalculated the determination of the EU to deal with profit shifting to low tax jurisdictions. They thought they could dupe the EU with their usual half-baked and duplicitous schemes, with ad-hoc nominal changes to our tax regime . We were thus put under a “watch list” to be closely monitored by the Code of Conduct Group of ECOFIN while some of the previously blacklisted countries like Tunisia, Grenada and Panama were upgraded to the white list because they have enacted the required reforms in 2018.)is at a crossroads but we are committing yet another aberration by again deluding ourselves about our rapid transformation to a more diversified hub driven by Fintech, Cryptocurrency Exchange and Blockchain. Our priorities should be in improving the business and regulatory environment, the professional skills and talent, the infrastructure and connectivity, and the depth and breadth of financial activities. The sooner we acknowledge our weaknesses and squarely confront them, the faster we can chart a more diversified and sustainable course of development in financial services.
