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A stitch in time for the Mauritius IFC – The FATF/EU episode

Today marks the return of the Mauritius International Financial Centre to FATF’s white list after months of successful monitoring from the organisation. The financial sector in Mauritius for the past twenty months felt the pinch of being the black sheep in the financial space, especially in Europe and other developed countries. Representatives of the global business in Mauritius acknowledged the fact that the jurisdiction took the back seat for some time and grappled with dwindling hopes from stakeholders abroad, but the country understood the voyage of being bruised and not beaten. As we go into the history to the inclusion of Mauritius in these lists for a recap, we wanted to highlight the struggle of the country to come to better days for the financial sector which is a beacon of hope for the island’s prosperity and progress.

FATF

Financial Action Task Force (FATF) as the global money laundering, terrorist financing and proliferation financing overseer, has for objectives to set standards, to monitor the progress made by the countries in Implementing the FATF 40 recommendations and review their AML/CFT regimes. Those countries under the scrutiny and increased monitoring of this international agency are thereof called upon to address and quickly resolve any identified strategic discrepancy within agreed timeline. FATF may in the process identify these jurisdictions as falling either in their white, grey or black lists.
Mauritius came under the close monitoring of FATF in February 2020 when the country was placed in the FATF grey list. In an effort to quell away further consequences of having the country tagged as a jurisdiction of loose ends for the conduct of financial activities, Mauritius expeditiously plied to its strong commitment to strengthen the effectiveness of its AML/CFT regime under the supervision of the FATF and Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) which is a FATF style regional body.

Of note, in 2018, the Mutual Evaluation Reports (MER) for Mauritius had already recommended the following actions to improve the technical compliance and effectiveness of the country’s action plan:

  1. Demonstrating that supervision of its global business sector and Designated Non-Financial Business and Professions (DNFBP) implement risk-based supervision;
  2. Ensuring the access to accurate basic and beneficial ownership information by competent authorities in a timely manner;
  3. Demonstrating that Law Enforcing Agencies (LEA) have capacity to conduct money laundering investigations, including parallel financial investigations and complex cases;
  4. Implement a risk-based approach for supervision of its Non Profit Organisations (NPO) sector to prevent abuse
    for terrorist financing purposes; and
  5. Demonstrating the adequate implementation of targeted financial sanctions through outreach and supervision.

In terms of technical compliance, Mauritius was still showing some delays in its applications towards some of the FATF 40 recommendations.

Time for due diligence

During the year 2020, post the grey listing of Mauritius, the Government made several contacts with the FATF and FATF style regional bodies (FSRBs) for requisite measures which will assist Mauritius in its exit from the grey list. Following two virtual meetings in September and November 2020, there were remarkable tinges of progress made by the Mauritian authorities. FATF hailed the various efforts put forward by the latter, especially in a period of one of the worst pandemic to hit the financial landscape in decades.

In January 2021, the FSRBs had made another assessment of the situation and on how the authorities were assuring sustained progress in their due diligence exercise. ESAAMLG has released its latest report on Mauritius in September 2021, namely, 4th Enhanced Follow-up Report & Technical Compliance Re-rating, whereby it has acknowledged the actions taken by Mauritius to improve its compliance to Recommendations 8, 24 and 33, and has re-rated them positively. Only Recommendation 15 (New Technologies) has remained as Partially Compliant.

The EU List

Back in mid-2019, Mauritius adopted additional regulations through its Finance Act with regards to its Freeport zone and partial exemption regimes. Soon after, in September 2019, the EU Code of Conduct Group assessed these amendments and positively identified commitments to address deficiencies. A month later in October 2019, the Economic and Financial Affairs Council of the EU declared Mauritius compliant with European Union (EU) Tax Good Governance Principles.

However, the fifth EU anti-money laundering directive, named the AML 5 or Directive (EU) 2018/843, came into force in 2018 and had a direct impact on the European financial markets whereby EU member states were required to enact this directive in their respective jurisdictions by January 2020. The introduction of AML5 had a direct impact on third world countries as the non-disclosure of additional information on the customer, beneficial owner, the nature of the business relationship and other peculiarities were to be construed as deficiencies to the enhanced due-diligence regime portrayed by AML5.

Unfortunately, the FATF listing of Mauritius on its grey list had a subsequent fallout whereby the EU had relegated Mauritius to its black list in May 2020. The European Union officially justified the enlistment as being based on its new methodology for its members who would henceforward be interested to consider cross-border investments.

Mauritius which has been an important corridor for European investments for the past decade took a hit. But on a positive note, the community of investors, as it unfolds, could be of the opinion that this ephemeral patch on the financial sector has been short lived.

Finally, the Mauritian jurisdiction was re-assessed positively following the onsite visit of the FATF team last September 2021. An important threshold has been crossed then as Mauritius is geared again to embrace a clearer legal, compliance and regulatory chapter. The level of effectiveness of its AML/CFT system bodes well for a healthier financial hub in the making.

The country now awaits the European Union to follow by reinstating Mauritius on its white list. Just like it did in the case of Ghana in June 2021. Therefore, the probability that Mauritius be removed from the EU’s blacklist as soon as it is delisted from FATF grey list is very strong. Thus putting an end to this chapter for our financial sector before the end of 2021.

The long standing collaboration with European countries had previously propelled the country as being a prominent place of domicile for investments on the island and subsequently for Africa and Asia. The DTOS Group shares this vision and as this waiting period is now coming to an end for its European partners, DTOS would seize this opportunity to thank its well-wishers and clients who have been patient for rebooting business relationships in the Indian Ocean in the coming months.

DTOS is a proudly independent Management Company founded in 1993. We capitalise on our strategic location in Mauritius and take pride in our heritage. Whether you are a corporation or an individual, our specialists provide tailor-made solutions to ensure you are always prepared for the journey ahead.
We always put clients’ first, safeguard their assets and help them navigate each regulatory landscape while striving to exceed expectations. Nurtured in the highest ethical standards, our people thrive to protect and manage your business with exemplary professionalism.
Contribution: Surya P. Foollee
The Business Development Team
21 October 2021