Grey Suits and Grey Lists

Financial operators and banks will remain guarded at the risks of further procrastination by greenhorns on the undoubted dangers lurking ahead for the economy, our jurisdiction and its reputation

By S. Callikan

The Bank of Mauritius, the FSC and the Ministry of Finance and Economic Development seems to constitute the favourite breeding ground for the selection of government’s high-flying financial regulators and administrators of our public funds. If you are dizzy at the musical chairs keeping all financial and regulatory levers and decisions to a tight circle of Men in Grey Suits (MIGS), so are we. Although government may have its reasons for such restrictive inbreeding, international agencies may remain unimpressed.

At a time when the Minister of Financial Services is himself a “new kid on the block” and seems out of that musical-chair decision loop, our jurisdiction is facing stiff uphill battles to restore credibility on all fronts. To wit, EU’s announced inclusion of Mauritius in its upcoming money-laundering blacklist, India’s SEBI and Reserve Bank cross-bow shots, FATF/ESAAMLG’s watch-list for delayed compliance with some key action plan deficiencies and, lately, Senegal’s worrying dismissal of our mutual DTAA.

It will be recalled that around February 2020, FATF determined that Mauritius has not made sufficient positive and tangible progress on several effectiveness and compliance issues: lack of effective risk based supervision, lack of access to beneficial ownership information, lack of capability to conduct money laundering investigations, lack of control and oversight over non-profit organizations on terrorism financing, and lack of implementation of a targeted financial sanction regime. These FATF deficiencies have been repeatedly brought up and corrective action urged by the EU and the IMF since 2018. They should not have been intractable hurdles with a purposeful and savvy government fully aware of the risks and dangers of any nonchalance.

The EU/OECD sanction was expected to follow and so it did in May 2020. We had up to now avoided being on the EU tax-haven grey or blacklist, but this announcement about placing Mauritius in October on the more recent EU money-laundering blacklist is already taking its toll. It comes as the European Commission is known to be working to establish its own, centralized, anti-money laundering task force, akin to the FATF. As for African Union states, there have been repeated grumblings and a few, like Senegal, have been painting their respective DTAAs with Mauritius as one-sided rip-offs of taxation proceeds due to them for inward investment. Here again we may have been insufficiently proactive in our counter-narrative and correcting any imbalance. Such broad-based nonchalance is hurting.

Government and its Men in Grey Suits are clearly in the docks over the financial services sector of our economy. The required adjustments are possibly intricate involving multiple agencies. They may have burned the midnight oil on them but the outcome after three years is hardly a proud testimony. Constant ministerial and MIGS personnel changes, lack of a credible champion in Cabinet and the election campaigning in 2019 are perhaps partly to blame. But they must intensify efforts to correct those deficiencies at the earliest without trying to shift the blame or look for scapegoats: the current Minister has been a senior Cabinet member for six years now.

No need to play down the truth about the catastrophic negative consequences of current FATF grey-listing and potential down-the-road EU blacklisting. While we wish that invigorated efforts of our MIGS limit the damage, financial operators and banks will remain guarded at the risks of further procrastination by greenhorns on the undoubted dangers lurking ahead for the economy, our jurisdiction and its reputation.

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Has the BOM become government’s ATM?

The unprecedented post-Covid situation was certainly going to require massive mobilization of funds. Last week I estimated the elbow room at the disposal of the Minister of Finance and Economic Development at a colossal Rs 100-150 bn, but was definitely on the short side. The MIGS have turned the taps already above Rs 150 bn, excluding foreign assistance or injection by international agencies which could add a further Rs 50 bn to the kitty.

With the Rs 18 bn of its Special Reserves transferred early this year, the Rs 60 bn “one-off” grant from Bank of Mauritius (BOM) to government recurrent fund, whether raised through Bonds or other BOM instruments, have to be paid out from the BOM coffers, albeit on a staggered time-frame. Injection and usage of such twin massive grants from our collective reserves to government recurrent funds are naturally subject to budget and Parliament oversight. But we know what Audit Reports repeatedly bring to light after the damages are done: some Rs 14 bn wasted or improperly dished out in 2019 is not what we should expect as normal. With the exceptional post-pandemic times and hardships, the MIGS would do well to address the issue of exemplary management head-on, even with the advice and experienced input of past Finance Ministers.

The separate creation of a BOM-subsidiary, an investment structure (Mauritius Investment Corporation Ltd, MIC), with an additional Rs 80 bn allocated from the public reserves at BOM, has created far more anxiety and raised several justified questions.

For instance, after the beeline to the Rs 18 bn, have the MIGS found the honey-pot of our national reserves, estimated at Rs 270 bn, tempting? Are proposals to deplete them to the tune of Rs 158 bn in one fell swoop pregnant with unprecedented risks? Since the stated aim is to inject capital in cash and debt-strapped large conglomerates, is the population bailing out the corporate sector? Will the latter be called upon to at least matching capital injection from past profits or dividends? What returns and conditions will be attached to people’s generosity in these hard times? Has the BOM been granted unchecked license to operate as an unregulated mega investment bank? Has the BOM become government’s ATM? Despite the nominal chair of Lord Desai, a highly respected economist, how can it be that the MIC would only report to its parent BOM, which only reports to an anonymous MIGS Board, peopled by political appointees?

The questions underline the utmost prudence, fairness, exemplary management and total transparency about the functioning of the MIC at far more regular intervals than an annual audited account published months after the facts. As for reassurances offered by the BOM Governor, he has only to consider Audit Reports or those top-notch professionals who were dispatched by the MIGS to State Bank, SBM Holding, Air Mauritius, FSC, FIU to name a few and their performances.

As an aside, if conglomerate and business-sector support has been largely off-loaded to the MIC, government should have more than ample room in the upcoming budget to focus on SMEs, technology startups, agriculture and food security, green issues and the many ordinary businesses and countrymen losing jobs or toiling hard to make ends meet.

* Published in print edition on 2 June 2020