Seychelles AML
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Seychelles has a long history intertwined with corruption. However, despite another scandal breaking earlier this year, not all hope is lost as the nation pushes to move on from its troubled past.

The nation of Seychelles was rocked by a major corruption scandal recently, involving money laundering to the tune of $50 million by six extremely influential and high worth persons, over a period of 19 years. These include people in the innermost circle of ex-President France-Albert René, including his widowed wife, his economic advisor and a former finance minister.

This comes in the wake of the European Union removing the Seychelles, along with Anguilla and Dominica from its blacklist of tax havens in October 2021. This was a controversial move as the Pandora Papers leak, which implicated Seychelles as well as an illegal tax haven, had been released just one week before it.

In this blog post, we trace the history of corruption and money laundering in the Seychelles, as a major global offshore banking capital. We also look at recent developments in the political climate and how that has affected Seychelles’ complicated history of corruption.

A History of Trouble in Paradise

The history of corruption in the independent Seychelles begins with its longest serving President, France-Albert René, and his dubious man Friday Giovanni Maria Ricci. Ricci, a foreign national, set up the first offshore financial centre in Seychelles, the Seychelles Trust Company (STC). René’s government gave sole rights to the STC to incorporate off-shore companies and to act as resident agent for foreign companies and foundations registered in Seychelles, which could operate free of tax.

Ricci, in fact, had been a financial criminal before he came to Seychelles. In collaboration with René, he was preparing the blueprint for Seychelles to become a global offshore tax haven. The country’s offshore industry was likely used by South Africa to circumvent apartheid era economic sanctions. In the early 1980s, the US ambassador to the Seychelles claimed to have found ample evidence of money laundering in the Seychelles by the New York mafia.

In 1995, Seychelles passed the Economic Development Act, granting broad immunity from prosecution and extradition to foreigners investing more than $10 million, a literal carte blanche to launderers looking to channel their illegal proceeds to a safe haven. Bowing down to international pressure, the law was repealed in 2000.

President Michel’s Troubled Tenure

In 2004, René’s Vice President James Alix Michel took over as President of Seychelles. His tenure till 2014 saw Seychelles’ reputation taking further hits with several incidents of global corruption coming to light. In 2010, Kazakh tycoon Mukhtar Ablyazov was charged with using Seychellois shell companies to launder billions of dollars. In 2012, two Israeli entrepreneurs in the US admitted to operating an illegal internet pharmacy that laundered its profits through Seychelles.

In 2016, the famous Panama Papers leak released by the International Consortium of Investigative Journalists revealed that powerful political figures in Syria had been using shell companies in Seychelles to move their proceeds while circumventing the pressure of global sanctions.

The ICIJ report also indicated President Michel’s own hand in the illegal offshore industry, with documentation showing that he had unaccounted offshore holdings.

Seychelles and the OECD

Seychelles joined the Organization for Economic Co-operation and Development in 2001, committing to eliminate all its harmful tax practices by the end of 2005. It also committed to bring its standards of transparency non-discrimination and effective exchange of information at par with the OECD’s standards.

In 2013, the OECD blacklisted the Seychelles – along with three other tax havens, Cyprus, Luxembourg, and the British Virgin Islands – as non-compliant jurisdictions for not complying with international standards of tax transparency. As a result, the island nation had to reform its domestic laws to bring them in compliance with OECD’s standards of financial transparency. In 2015, Seychelles was rated as ‘largely compliant’ by the OECD, mainly because of the improved regulatory regime introduced by the government.

However, by April 2020, Seychelles was downgraded to ‘partially compliant’ by the OECD because of concerns around its opaque offshore sector, and the lack of supervision and enforcement efforts.

Seychelles’ New Resolve to Fight Corruption

The history of corruption in Seychelles is tied up with the history of its longest ruling party, the People’s Party and its two presidents- France Albert René and his protégé James Alix Michel. The growing public frustration over economic inequality and corruption translated into political change in 2016, when for the first time in the country’s history, the opposition party- the Linyon Demokratik Sesenwa (LDS) – won the parliamentary elections and took control of the National Assembly. This shook the political landscape of Seychelles to its core, and brought a new impetus to its fight against corruption.

2016 also saw the establishment of the Anti Corruption Commission of Seychelles, the country’s premier investigating and prosecuting agency in its fight against corruption. This was a key turning point in stemming the tide against corrupt tax practices and money laundering. This is reflected in global corruption watchdog Transparency International’s rankings in 2012. Seychelles was ranked 51 in the list of least corrupt countries that year. In 2017 that number came down to 36. In 2020, Seychelles was at 27 worldwide, and at number one in Africa.

As of June 2021, Seychelles is not listed by the FATF as a ‘Jurisdiction under Increased Monitoring’ for money laundering issues. The list includes several other tax havens and offshore centres like Panama, Cayman Islands and Mauritius. The FATF reported that from 2018 to 2020, Seychelles had made progress in its commitment to comply with the FATF’s recommendations. Its Follow-Up Report in 2020 showed Seychelles in full compliance with several recommendations.

Parting Thoughts

With a relatively new political set up under LDS President Wavel Ramkalawan, Seychelles is working hard to completely erase its reputation as an illegal offshore tax haven. Its removal from the EU’s blacklist of tax havens, as well as its steady improvement in AML compliance with FATF’s standards are both reflections of the new regime’s earnestness in dealing with the problem at hand.

Exorcizing the ghosts of several decades of corruption will not be an easy task. Successfully prosecuting and bringing to book six of the most powerful actors from the previous ruling party embroiled in the recent corruption scandal would be a good indication of the nation’s resolve to wash off the stains of corruption that still continue to haunt its image.

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