(Slightly modified version published in L'Express 24 Feb 2020)
The plenary meeting of the Financial Action Task Force (FATF) will be held in Paris on 16-21 February 2020. At this meeting, it is likely that Mauritius will be included in the FATF list of High Risk and Other Monitored Jurisdictions, known as the FATF Grey List.
The plenary meeting of the Financial Action Task Force (FATF) will be held in Paris on 16-21 February 2020. At this meeting, it is likely that Mauritius will be included in the FATF list of High Risk and Other Monitored Jurisdictions, known as the FATF Grey List.
The FATF is the global standard-setting body for combating money laundering and the financing of terrorism (ML/FT) in order to protect the international financial system from risks associated with ML/FT. It has developed standards known as the 40 Recommendations, which countries should comply with in order to counter ML/FT. These Recommendations essentially relate to the legal, regulatory and operational framework applying for preventive and supervisory measures applicable to financial institutions as well as to non financial businesses and professions.
The FATF reviews countries through a process of mutual evaluation to identify any ML/FT risks and vulnerabilities, and rates countries on each of the 40 Recommendations. As from 2013, FATF revised their methodology to evaluate not only the extent of the country’s technical compliance with FATF recommendations, but also the degree of effectiveness of its existing anti ML/FT system.
Following its plenary meetings, which are held 3 times annually, the FATF publicly announces two lists of countries with strategic anti deficiencies in their anti ML/FT regimes. The first list is equivalent to a blacklist, and includes countries with serious anti ML/FT deficiencies, with a call for action by FATF to apply enhance due diligence or counter measures to protect the international financial system. Such measures include a limitation or prohibition of financial transactions with the identified country. The FATF blacklist currently includes 2 countries, namely, North Korea and Iran.
The second list, known as a grey list, comprises countries with identified strategic anti ML/FT deficiencies that have developed an action plan with the FATF to address these deficiencies, supported by a high level political commitment. Currently, the FATF greylist includes 12 countries, namely, Bahamas, Bostwans, Cambodia, Ghana, Iceland, Mongolia, Pakistan, Panama, Syria, Trinidad and Tobago, Yemen, and Zimbabwe.
In 2017, Mauritius underwent a mutual evaluation by Esaamlg, (Eastern and Southern Africa Anti-Money Laundering Group), an FATF-style regional body of which Mauritius is a member. The Mutual Evaluation Report, dated July 2018, identified a number of shortcomings in the Mauritian anti ML/CT regime. Mauritius was rated non compliant (NC) on 13 recommendations, partly compliant (PC) on 13 recommendations, largely compliant (LC) on 11 recommendations, and compliant (C) on 3 recommendations. A country with more than 20 NC and PC ratings is considered as having poor results.
As regards the effectiveness of its anti ML/FT regime, Mauritius was rated poorly on all the 11 effectiveness criteria, known as 11 Immediate Outcomes. Immediate outcomes are key goals that an effective anti ML/FT system should achieve. Mauritius was rated with Low Effectiveness (LE) on 7 immediate outcomes, and Moderate effectiveness (ME) on 4 outcomes. It had zero Substantial Effectiveness (SE) or High Effectiveness (HE). A country with more than 6 low effectiveness ratings is included among countries with a strategic anti ML/FT deficiency.
Mauritius requested for a re-rating on its technical compliance ratings following several legislative anti ML/FT amendments. An Esaamlg follow-up report was published in April 2019 with an improved rating. A second request for rerating was made by Mauritius and a second follow up report was produced in Sep 2019, further improving the technical compliance ratings. Mauritius now has 26 C, 9 LC , 4 PC ratings, and only 1 NC rating. Mauritius now fares well on technical compliance with FATF standards.
However, the Esaamlg follow-up reports did not cover the effectiveness ratings, which have remained unchanged from the initial mutual evaluation. On the basis of FATF criteria, Mauritius demonstrates strategic deficiencies in the effectiveness of its anti ML/FT regime. The FATF has discussed an action plan with Mauritius to strengthen effectiveness of the anti ML/FT system, to strengthen investigations, prosecutions, and the effective enforcement of anti AML/AFT measures.
The forthcoming FATF plenary session of February 2020 thus proposes to identify Mauritius as a country with strategic deficiencies in its anti ML/FT regime, and list it on its grey list, of High Risk and Other Monitored Jurisdictions. Mauritius will be removed on the FATF greylist, once the FATF considers it has made sufficient progress in improving the effectiveness of its anti ML/FT system, after a subsequent follow up assessment.
Inclusion on the FATF Greylist is bad news for the Mauritian financial services sector. But, it is not in the least surprising. The ill famed Alvaro Sobrino was given full assistance to launder his Angolan wealth in Mauritius, with the wave of a hand and a look into the eyes, with free and open access to the Presidency,. Sobrino was allowed to set up an investment bank in Mauritius, among the first to be given such a licence. A Director of the Economic Development Board sold Sobrino a management company in the global business sector with the approval of the Financial Services Commission. Another scandal involving fishy Angolan money, was Global Quantum, an offshore fund set up in Mauritius by Jean Claude Bastos to manage Angolan oil money, but apparently in league with the son of Santos, the former President of Angola.
Mauritius Leaks gave Mauritius a bad reputation, and more recently, the Fishrot scandal revealed how corruption payments to Namibians were channeled through Mauritian based companies. SEBI, or the Securities and Exchange Board of India, has recently changed its foreign investor classification, whereby foreign investors from Mauritius will be included in the second inferior category, because Mauritius is not a member of the FATF. Singapore is a member of the FATF, just as India. Even if SEBI were to change its classification requirements, its unlikely that it will accept to upgrade Mauritius on the first category of investors while it is on an FATF greylist.
There is an even greater danger ahead. In early 2019, the EU published a blacklist of 23 countries with strategic deficiencies in their anti AML/CFT regime. It is known as the EU ML/FT blacklist. The EU list comprised 12 jurisdictions already on the FATF greylist and an additional 11 countries which the EU considers as equally high risk countries on the basis of its own criteria. Inclusion on the FATF greylist will automatically put Mauritius on the EU blacklist. (This blacklist is different from the EU blacklist of non-cooperative jurisdictions for tax purposes.)
There are grave dangers threatening the development of our financial services sector, all because of the lack of action of our policymakers and the weakness of our regulatory institutions.
