Stopping The Rot

Government has itself to blame for the current disquieting situation. From the outset, a lax stewardship caught napping failed to discipline and bring restive mavericks and overzealous apparatchiks into line

The last few weeks have depicted Mauritius in a very bad light. The country has been shaken by a series of alleged wrongdoings by Ministers and members of the Government. There have been startling accusations of underhand stratagems and covert plots concocted within the government top hierarchy. Enquiries have been opened resulting in Ministers, the CEO and cadres of a major bank and senior officials being summoned by the Independent Commission against Corruption (ICAC) for interrogation. The partisan press is obviously having a field day, adding their daily load of sensational news to fuel the crisis and exploit the discomfiture of the government to the maximum. Out for blood, the opposition is clamouring for resignations and arrests. Public trust has taken a hammering.

It must be said that government has itself to blame for the current disquieting situation. From the outset, a lax stewardship caught napping failed to discipline and bring restive mavericks and overzealous apparatchiks into line. Too many young Turks and inept foot soldiers have been allowed too much leeway and not been promptly upbraided for repeatedly talking poppycock and taking controversial initiatives on highly sensitive issues.

In a worsening world context when the IMF has once again lowered its growth forecasts to 3.2% for 2016 and 3.5% in 2017 (against 3.4% and 3.6% estimated previously) owing to a widespread slowdown affecting all types of economies, the priority of government should have been to focus on cogent actions and measures to urgently create employment and boost growth in order to honour the commitments and promises made to the people. Instead, there looms a growing picture of disarray and an image of sordid infightings within government ranks.

No government can function efficiently if loose cannons are allowed to wreak mayhem and leave an impression of muddled incoherence. It is not too late to set things right. The onus is on the Prime Minister (PM) to urgently hold the wayward troops on a tight leash and ensure that every member of government acts as one to achieve the agreed goals of the government within established timelines, bearing in mind the public interest. The PM must therefore monitor the progress of government actions through regular monthly meetings with all the Ministers and MPs of government and ensure through a stringent shepherding that there are no further mishaps. Beyond the fixation about high end ‘smart cities’, government must above all urgently ensure that early harvest deliverables meet the expectations and existential needs of the people.

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Snuffing corruption: Need for a new approach

It is becoming more and more evident that the current approach to stem corruption in the country is not working. The endless array of cases of impropriety, alleged malpractices and favouritism under the previous government being uncovered is now joined by cases of alleged misdeeds under the present government as well, despite the latter being in office for only some sixteen months. Malpractices therefore seem to continue unabated in spite of the change of government.

The main bulwark and deterrent against corruption must first and foremost be a robust system of checks and balances to assure the highest standards of good governance at all levels of decision making in both the public and private sectors. Such a rigorous system is the first line of defence to thwart any intent of corruption. How can we stem corruption if a lax system of checks and balances which spawns licence, corruption, political interference to favour cronies and other malpractices, is instead allowed to prevail?

The truth is that no anti corruption system can efficiently snuff corruption if it depends on whistleblowers and denunciations or an anti-corruption body (ECO, ICAC, Serious Fraud Office) which hangs as a chastising Damocles Sword ready to strike the corrupt, after the damage is done. We therefore imperatively need a new approach to stem corruption and other misdeeds in the country. This new approach is based on a stringent system of checks and balances operated in accordance with established rules and a transparent process of objective audit and scrutiny by a caucus of senior civil servants protected by law.

The object of such a system is to ensure that all tenders, contracts, permits, projects, decisions involving public funds are allocated or approved only when they have been vetted after undergoing a process of independent verification. Similarly, all recruitments, appointments, nominations or promotions should be independently audited to ascertain that they have strictly adhered to a transparent and merit based process. The diligent implementation of a rigorous system of checks and audit should by itself act as a potent deterrent against corruption and malpractices.

Such an approach which is preventive rather than repressive should also substantially reduce public costs, significantly reduce instances of malpractices which impair the standing and repute of Mauritius as a clean and transparent jurisdiction to do business in, bearing in mind our ambition to make Mauritius become an East-West platform of investment and trade flows from the Indian Ocean countries into Africa.

In the light of past events and experience, it is also timely to have a rethink about how best to ensure that the anti-corruption body (ICAC or other) is truly independent, impartial and carries out its investigations in strict compliance with the law. More importantly, it should not be perceived as being a political instrument in the hands of those in power. Over the years ECO and ICAC have been reshaped in response to various criticisms relating to political interference, heavy-handedness or its substantive powers including that of arrest. It is therefore evident that ICAC must be recast if it is to gain public support.

A recast anti-corruption body must be anchored on three key principles. It must be independent and seen to be so. Secondly, it must carry out its key role of investigation impartially and lawfully under a system akin to a ‘juge d’instruction’ or examining Magistrate heading an investigative team. Thirdly, the investigative function should be kept separate from the legal decision to arrest and prosecute or otherwise after an assessment of the evidence and merits of each case by the Judiciary and in particular the Director of Public Prosecutions. As a consequence, shouldn’t the anti-corruption body be headed by an examining Magistrate chosen on the basis of a transparent selection process based on merit by the Judicial and Legal Service Commission?

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The insatiable greed for more

A T-shirt printed with the logo of the Panamanian law firm Mossack Fonseca at the centre of the recently leaked Panama papers carrying the caption ‘Because taxes are for poor people’ became an instant protest slogan among the multitude, amid the global indignation at the covert methods used by such companies operating in multiple tax havens to help rich clients launder money, stash wealth and evade tax. In 2012, global firms such as Starbucks, Google and Amazon or Topshop came under fire for avoiding paying tax on their British sales and substantial business interests in the UK. A nation-wide name and shame campaign was launched against them which promptly elicited tax settlement agreements. It is unacceptable that multinational firms operating profitably in a particular country should not pay their fair share of taxes in that country.

In a globalised world, multinationals are shifting substantial income from high tax to low tax jurisdictions. By doing so, they basically ‘rob’ the public services and the welfare state of the unjustly treated country of valuable funds. This constrains the government’s ability to provide social security and social welfare benefits to the poor and vulnerable badly hit by austerity measures and the adverse impact of the international financial crisis.

The leak of some 11.5 million confidential documents of the law firm Mossack Fonseca which was made anonymously detail the activities of more than 200,000 offshore companies, 143 politicians including twelve national leaders. The leak which is the largest in history has revealed how the wealthy use tax havens to get around the law and evade taxes. They inter alia use a maze of shell companies often layered in several offshore jurisdictions or anonymous company structures fronted by nominees or use instruments such as bearer bonds to hide their identity as actual owners of funds. They rely on the strict rules of secrecy and non-disclosure of tax havens to hide assets and income from the tax authorities.

It should however be underlined that offshore jurisdictions are also used for a range of legitimate financial services such as setting up of an investment company to harness investment funds from different countries to invest globally, for wealth management, for inheritance and estate planning, etc.

Thus, whilst the income earners pay taxes, too many of the wealthiest taking advantage of the services of tax havens do not pay their fair share of taxes. No wonder that Oxfam had last year warned that unless the growing income inequality and divide in the world is checked, the combined wealth of the richest 1% will overtake that of the other 99% by 2016.

The Panama Papers are therefore a salubrious kick in the hornets’ nest. They expose all those incriminated who thought that their financial secrets were safe, to investigation by the tax authorities of their countries. They have also re-opened the debate about transparency, reporting and an automatic transmission of information about financial assets and the identity of the beneficial owners of companies domiciled in their jurisdictions, etc., on the part of tax havens and the imposition of sanctions against those tax jurisdictions that do not comply.

A system whereby the very rich conceal their wealth in tax havens through avarice to evade honouring, like any other taxpayer, their fair share of taxes when they have the ability to do so in a world promoting transparency and good governance, is untenable. Nothing short of full disclosure and an end to all illicit financial activities in tax havens will quell the furore at the scale of the funds and financial assets tucked in tax havens and which like all monies received should be made to bear their fair share of taxes. The world must take whatever steps are required to ensure that this is urgently so.

Taxes should not be paid by the poor but most certainly by the well-to-do.

*  Published in print edition on 15 April 2016