Preetam Kaushik investigates Mauritius’ history with money laundering and their AML framework.

Mauritius is a renowned tax haven for offshore investing. With an open economy and a strong banking system, its reputation as a lucrative destination for global investors is now well established. However, the very elements that make Mauritius a tax haven – high levels of privacy, asset protection, and negligible taxes – make it particularly vulnerable to corruption and money laundering risks. In 2021, Transparency International ranked Mauritius at 49 in its global Corruption Perceptions Index Rank, with a CPI score of 54 out of 100. In this blog article, we will look at Mauritius’ AML framework, and how it has fared globally as a country with a reputation as a tax haven.

The evolution of the AML system in Mauritius

As early as 1989, Mauritius sought to position itself as a global offshore hub, and a financial gateway to Africa. This plan took a concrete form when the government passed the Mauritius Offshore Business Activity Act in 1992, allowing foreign companies to open local subsidiaries with restricted public disclosure and negligible taxation.

Around the same time as it was reconfiguring its legal framework as an offshore hub, Mauritius was also wizening to the risks of money laundering. Mauritius took its first AML measures in 1995 with the adoption of the Dangerous Drugs Act which criminalized money laundering where the predicate offense relates to drug offenses. In 2000, the Economic Crime and Anti-Money Laundering Act was enacted in response to growing international criticism, including from the FATF. In 2002, the Financial Intelligence and Anti-Money Laundering Act (FIAMLA) replaced the ECAMLA as the main AML legislation. Among other things, the FIAMLA provided for creating a Financial Intelligence Unit, and a prohibition on cash transactions in excess of 500,000 Mauritian Rupees.

In 2008, the International Monetary Fund conducted a comprehensive assessment of the AML/CFT situation in Mauritius. It acknowledged the significant steps taken by the authorities to enhance the AML/CFT framework in the country and found the overall legal system and preventive measures satisfactory, barring a few minor chinks in the armour.

A History of Money Laundering

Despite its sound AML/CFT regulatory framework, Mauritius was consistently battling the scourge of money laundering through several investigations and prosecutions. In 2009, four Canadian nationals, also members of the biker’s gang Hell’s Angels, were arrested on charges of conspiracy, money laundering and gangsterism. The allegations were that they had created trusts and an offshore company in Mauritius for moving their illegal proceeds.

In 2015, former Prime Minister Navinchandra Ramgoolam was arrested and investigated on charges of money laundering after large amounts of undisclosed cash was found at his residence. In 2016, in one of the biggest corruption scams in India, authorities alleged that close to Rs 7400 million of laundered money was paid to the country’s former Telecom Minister and his brother through two offshore companies operating in Mauritius.

In 2017, the Mauritian Attorney General Ravi Yerrigadoo had to step down after allegations that he helped set up a financial structure to enable the transfer of gambling winnings to bank accounts in Dubai and Switzerland. In 2019, an investigation by the International Consortium of Investigative Journalists revealed a sophisticated system in Mauritius’ offshore setup of siphoning tax revenue from poorer nations to powerful corporations and oligarchs.

Mauritius and FATF

In July of 2018, the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) published its Mutual Evaluation Report for Mauritius. The report found that the country’s AML/CFT regime “has not kept pace with the evolving global AML/CFT environment and therefore it has several weaknesses that negatively affect its effectiveness”. The MER found that Mauritius was non-compliant with 13, partially compliant with 13, largely compliant with 11 and fully compliant with 3 of the 40 FATF recommendations. This was a serious indictment of Mauritius’ preparedness to take on money laundering, despite its formidable laws. The findings were reviewed and endorsed by the FATF.

Despite two positive follow up reports by the ESAAMLG in April and September of 2019, the FATF relegated Mauritius to its greylist of Jurisdictions with Strategic Deficiencies in February of 2020. This was swiftly followed by the European Commission adding Mauritius to its list of high-risk jurisdictions from an AML perspective. These two events in quick succession significantly eroded Mauritius’ reputation as a jurisdiction with a robust AML system in place.

A prompt response

Mauritius responded promptly to the global developments by passing the Anti-Money Laundering and Combating of the Financing of Terrorism (Miscellaneous Provisions) Act of 2020, bringing in drastic new changes in the financial services sector to bring it in compliance with the standards of FATF. These included legal obligations to provide beneficial ownership information and more severe penalties for non-compliance.

In its Second Plenary in June of 2021, FATF noted that Mauritius had made several key reforms to its AML/CFT regime and had substantially completed its action plan. This was a sure indication of things looking up again for Mauritius.

In October 2021, Mauritius’s reforms were finally recognized when the FATF removed it from its grey list after almost a year and a half. This was followed by the EU removing it from its list of high-risk jurisdictions in January of 2022. As of now, Mauritius has rightfully earned back its status as a regime with a legitimate AML infrastructure.

Conclusion

The World Bank’s Ease of Doing Business 2020 report places Mauritius at thirteenth globally and at first in Africa. It remains a politically stable and financially attractive destination for offshore investments. A large part of this stability is tied up with the robust AML/CFT safety net that makes Mauritius a legitimate and safe option. The recent turbulence caused by the FATF grey listing has only served to strengthen the AML laws and regulations in Mauritius. Whether it manages to maintain its AML gains or not remains to be seen.

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