Financial sector: Are we losing the plot?

A place to organise, as alleged, the rip-off of the poorest African countries by depriving them of their due national taxes, is not the sort of story-line we can afford. That this story-line is gaining ground should be of serious concern

It is no doubt true to recognise that there has always been some element of international hypocrisy and perhaps envy in the success of our patiently and intelligently crafted financial and offshore jurisdiction. Some of our sly or outspoken critics are not themselves beyond reproach as regards the operation of their own financial centres. However, it cuts no ice to moan about the reality of such a state of affairs, but to consider how to keep charting the boat onto safe channels and, pre-emptively where possible, address the international or regional concerns in a coherent longer-term strategy, while responding effectively to quell short-term challenges in international fora of substance.

That, one would assume, remains a cornerstone of economic diplomacy which every incoming government has to keep buoyant. The offshore financial pillar representing more than 12% of our economy, and probably the major source for graduate employment opportunities, it would be dangerously rocky and a significant failure on our economic and strategic vigilance to allow the muffled barks and muted threats to turn into actual bites.

“The Paradise papers of International Consortium of Investigative Journalists (ICIJ), the Africa Report, the West African press are beginning to question our offshore financial policies and the guardrails to prevent abuse. Oxfam, which has observer status and a watching brief on many developmental issues in influential international fora, now ranks us among the worst 15 offenders and tax havens of the world. A place to organise, as alleged, the rip-off of the poorest African countries by depriving them of their due national taxes, is not the sort of story-line we can afford. That this story-line is gaining ground should be of serious concern…”

Every government, every past Minister of Finance and all top administrative cadres of our jurisdiction have usually gone the extra mile and acted swiftly and effectively upon recommendations of either the World Bank or the OECD to keep the reputation of our international jurisdiction reasonably above suspicion.

The last evaluation round of the international Financial Action Task Force (FATF) mechanism to combat money-laundering and its associated evils (notably black money, drug trafficking, occult funding of terrorism) conducted for Mauritius on or before 2010 was satisfied with our compliance level on the majority of criteria and the plan to address any remaining issues. So were the OECD and India with our efforts to assuage their different concerns. Our operations could be held to be as compliant or better than the likes of Jersey or Channel Islands, Cayman and Cook Islands or even Liechtenstein for that matter.

Local financial authorities or Ministry of Finance and Economic Development could easily list the measures taken over the past ten years to respond to continuous OECD demands or to India’s pressing demands to upgrade financial information sharing, prevent treaty shopping, provide greater transparency and tackle those who are tempted to abuse the system, process or institutions. Yet, despite that picture, a number of separate alarm bells on different international fronts may point to a drift that should spur the highest authorities to refocus their attention on the recent challenges as a matter of priority.

Our economic and geo-political relations with the African continent were always a conundrum. We are members of various regional groupings (SADC, COMESA or even Indian Ocean Commission) and no doubt active participants in African Union’s structures and geopolitics. We seek and welcome African solidarity in the battle to regain or respect our national sovereignty over Chagos or to fight off piracy on the high seas. We have ratified several individual treaties regarding investment promotion and protection or DTAA and our private sector has invested in some ventures or economic zones set up to accelerate development over the continent.

Yet, when our authorities have taken to boisterously present ourselves resolutely as a “corridor” or a “gateway” for international or Asian firms to use Mauritius as a convenient, stable, hassle-free, minimal tax jurisdiction to structure their investments into Africa, the risks of distortion of the brotherly image have risen. Increasingly reports from international NGOs and African media are presenting us as a platform for unscrupulously allowing multinationals, conglomerates or dubious investors to minimise their taxes to African recipient countries by using our offshore financial structures.

The Paradise papers of International Consortium of Investigative Journalists (ICIJ), the Africa Report, the West African press are beginning to question our offshore financial policies and the guardrails to prevent abuse. Oxfam, which has observer status and a watching brief on many developmental issues in influential international fora, now ranks us among the worst 15 offenders and tax havens of the world. A place to organise, as alleged, the rip-off of the poorest African countries by depriving them of their due national taxes, is not the sort of story-line we can afford. That this story-line is gaining ground should be of serious concern.

Of course, the matter has received considerable boost from our own actions over recent years regarding the red-carpet treatment granted to buccaneers who have ripped off the economies and amassed colossal corrupt fortunes from resource-rich countries in Africa. Angola is the most epic example and none of the shenanigans regarding Senor Alvaro or Quantum and the high-level facilitation of their financial activities will have escaped the attention of international media.

Could it have been otherwise when the Alvaro affair brought even the Presidency into total disrepute, while the Vice Prime Minister is still shaking off his particular and personal brand of investor vetting? Could it have been worse when the national budget found it appropriate to propose to go much further and put our nationality or passport for sale in EDB-operated schemes without any counterpart productive investment or track record in the country? Our brotherly African image is taking a bad turn: we are increasingly looking like an unscrupulous paradise for any corporate raider of dubious repute, with perfunctory questions asked and a shroud of secrecy over their activities.

It is in this back foot defensive position that government has been assailed by the 2018 FATF-Eastern and Southern Africa Anti-Money Laundering Group’s negative interim status report in circulation and which will be presented in three months’ time at the next high-level meeting in Seychelles. Even if the Minister may have his grounds to contest the mutually agreed process of evaluation, and we wish him well in that critical juncture, well-trained international auditors may hardly be impressed and neither may country representatives when the Mauritian image is taking such a downturn. Could matters get more worrying, one wondered?

The simultaneous volley from the Mumbai-based Securities and Exchange Board of India (SEBI) provides a disturbing answer and we will quote below from the reputable Economic Times and Business Standard press articles. It has been coming since at least this April when SEBI, proceeding with diplomatic caution, nonetheless decided to ramp up its act on guidelines that were issued in 2010.

“Mauritius is back in focus, though in a hush-hush way. Custodians of foreign funds are at a loss whether to classify Mauritius as a ‘high-risk jurisdiction’ — a tricky call that has diplomatic and business repercussions.”

“Large banks and local financial services houses will have to identify high-risk jurisdictions on the basis of the Sebi master circular of December 2010,” added the Economic Times issue of 30^th April.

Despite the warning bell sounded three months ago and the closeness of our traditional ties and friendly relations, SEBI announced this week that

Mauritius, Cyprus, Cayman Islands, UAE and China are among 25 “high-risk jurisdictions” identified by global banks, acting as custodians for offshore funds…”

“It is very likely that existing offshore funds from high-risk jurisdictions migrate to Singapore,” commented a seasoned analyst in the Business Standard of July 10^th.

Is the SEBI pronunciamento entirely innocent one may wonder or is it a warning shot, a sign of disquiet, perhaps unexpected and perhaps not irreversible, that has crept into the India-Mauritius equation? There is no reason to suspect that the authorities were unaware of the possible damaging outcome of events either on the regional African front (FATF/ESAMLG) or the upcoming SEBI announcement from India. One must assume that mitigating actions and policies, if any taken to date, have been largely unsuccessful.

These are unprecedented challenges that have developed in the recent years and they require concerted and effective strategies and responses at the highest decision levels. Obviously they have to go beyond knee-jerk, defensive attitudes more apt for local consumption.

* Published in print edition on 13 July 2018