By Rattan Khushiram
Laws and regulations are not the end of the story, only the beginning. We must put greater efforts at ensuring that these laws and regulations are effectively applied
The arguments of many of our outraged operators of global business and defenders of our “clean jurisdiction” do not hold. They argue that we are being picked out of the many other financial centres that are doing the same thing that “tax-centric centres” — “tax haven” is too offensive for them.
The Corporate Tax Haven Index ranks the world’s most important tax havens for multinational corporations, according to how aggressively and how extensively each jurisdiction contributes to helping the world’s multinational enterprises escape paying tax, and erodes the tax revenues of other countries around the world. It also indicates how much each place contributes to a global “race to the bottom” on corporate taxes. Mauritius is ranked 14 out of 64 countries, and is also considered, after the UAE, as having the most aggressive Double Taxation Avoidance Agreements (DTAAs) with Africa.
Former Minister of Finance Vishnu Lutchmeenaraidoo, in one of his rare moments of lucidity, said: “La perception est une réalité.” If we are regularly in the news because of foreign tax dodgers and fraudsters, it’s because we are perceived as a secrecy jurisdiction thriving mainly on tax arbitrage.
Back in 2010 or 2011, Mauritius, courtesy of Wikileaks.org, was classified as the Switzerland of Africa in the murky world of offshore banking. India, for its part, was showing a growing preoccupation with the Mauritius investment route, which it had looked upon benevolently so far. Public concerns about black money, round tripping practices as well as tax sovereignty issues were some of the key factors driving the Indian authorities to consider possible changes to the Double Taxation Avoidance Agreements (DTAA), and curtail the relevance of the Mauritius route.
The Mauritian offshore sector was caught up in the midst of a series of financial scandals, including India’s biggest-ever corruption case linked to the awarding of second-generation telecommunications licenses.
I had argued at that time that “We may continue to hold the fort warding them off with arguments that these are mere speculations, that there is lack of evidence especially in the cases of round-tripping of resident and non-resident Indian investments to India and that we have a number of agreements on exchange of information with regulators across the world. This is not the issue. The issue is that all these are the consequences of locking the offshore sector in ‘low-value added, passive administrative of foreign accounts established to benefit from double taxation treaties and agreements’.” (Re: The Export of Tradeable Services in Mauritius: A Commonwealth Case Study in Economic Transformation)
Another avid commentator of the Mauritian scene had also recommended as follows: “There is no uncertainty about our options. Mauritius must press ahead beyond the offshore concept and develop into an international financial centre of substance and integrity, providing a deeper and more diversified range of activities and services. Mauritius should overhaul its business model for the financial sector once more, especially towards greater openness in order to attract world class players and skills.”
If we fast-forward to 2018, you would have expected the policy paralysis that had gripped the sector for years would have given way to a more diversified Global Business sector playing a larger role in international finance and forging the synergies between the export of commodities, financial and business services, and a more active domestic capital market. Instead we just got illusions wrapped up in rhetorics. And we get so carried away by our rhetorics that we start believing in them and the clichés that we readily churn out. But reality soon caught up with us.
In 2018 itself, we have been “involved” or rather named, in a series of financial scams from Beaufort Securities to the alleged $2bn fraud of the Punjab National Bank and the jeweller Nirav Modi, to Ireo (one of India’s biggest property developers and a business partner of Donald Trump), and more recently Alvaro Sobrinho and Jean-Claude Bastos de Morais of Quantum Global. We are all aware of the charges slapped on them in relation to their dealings in Angola, yet they received a red carpet treatment here despite the due diligence reports carried out by the Bank of Mauritius, which were ignored. If these are not about questionable activities, then we are surely confused about what should be a clean jurisdiction!
We also had also the case of Mauritius being classified as a high-risk jurisdiction by a few global banks, namely Deutsche Bank, Citi, Standard Chartered and JP Morgan. Mauritius was one among the 25 countries in the list of high-risk jurisdictions compiled by these global banks in India. Next, we had a dig from our dear African brothers that the Global Business Companies (GBCs) would be just doing ‘brassplate’ operations in Mauritius and that many of them would be “relatively financially secretive conduits” to illicit financial flows.
This was followed by the Eastern and Southern Africa Anti Money Laundering Group’s Mutual Evaluation (ESAAMLG) Report, which was quite damning for Mauritius. The ESAAMLG report comes out following an exercise to assess whether the necessary laws, regulations or other measures required under the essential criteria of the Financial Action Task Force (FATF) Methodology are in force and effect, and whether the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) system as implemented is effective. Readers will recall that the Mutual Evaluation Report found, in its assessment of our AML/CFT regime, that we “have not kept pace with the evolving global AML/CFT environment and therefore it has several weaknesses that negatively affect its effectiveness.”
Equally worrying is the fact that Mauritius is ranked 51th in the Global Real Estate Transparency Index, and is considered as “semi-transparent”, i.e. with existing risks of money laundering.
But some will argue that there are many other centres, including Singapore, which have had to deal with such cases. But why was India so adamant to renegotiate our DTAA to the extent of bribing us out of it? What happened to our DTA with Indonesia, South Africa and Kenya among others? Why is Senegal pressing us for a new treaty? If your only criteria on how to pick up the genuine investors from fraudsters is by “looking at them straight in the eyes”, then why are you so obfuscated when we are being branded as a tax haven depriving poor African countries of their dues?
Please do not go about saying that we have all the required legislations or that we have passed the four OECD litmus tests for a clean jurisdiction! We need to realize that laws and regulations are not the end of the story, only the beginning. We must put greater efforts at ensuring that these laws and regulations are effectively applied, and not meant for show. What’s the use of having these legislations when we cannot ensure the effective application of laws and regulations to ensure the effectiveness of the AML/CFT regime? Who seriously believe that the law enforcement agencies and other relevant institutions in Mauritius are up to this task? And for how long has this been going on?
The very people who are saying today that “Mauritius is not a tax haven but a competitive and attractive cross-border investment platform” have failed in providing a new roadmap for the financial sector that was long overdue. We have been waiting for a reengineering and modernization of the sector since 2006 with the aim of transforming it into a financial services sector that is characterized by speed and continuous innovation, and an enhanced ability to leverage capital markets, specialized skills and technology to innovate and create new products, processes and services — the prerequisites to becoming a sustainable premier financial centre that has both width and depth.
Grudgingly responding to international initiatives on the conduct of offshore business in emerging international financial centres, like Mauritius, and in other so-called tax havens, some of our local smart alecks have misread the OECD BEPS initiative, and miscalculated the determination of the EU to deal with profit shifting to low-tax jurisdictions. They thought they could dupe the EU with ad-hoc nominal changes to our tax regime. We were thus put under a “watch list” to be closely monitored by the Code of Conduct Group of ECOFIN while some of the previously blacklisted countries like Tunisia, Grenada and Panama were upgraded to the white list because they have enacted the required reforms in 2018.
* Published in print edition on 2 August 2019