Another case of financial fraud: Inklings of a Ponzi scheme

By Murli Dhar

Financial frauds are not unknown. They occur from time to time. We are informed that a company called White Dot International Consultancy Limited has been operating in Mauritius for some time now and that it was offering fabulous rates of returns to those who were depositing their money with it for different fixed terms and in varying amounts going into the millions in certain cases.

We understand that the company, when it started taking local deposits, was very regular towards meeting its commitments to depositors. The regularity with which the company returned the deposits initially to the depositors, together with the promised returns, appears to have constituted the confidence-building block behind the scheme. As in the case of the notorious Bernard Madoff’s Ponzi scheme, the assurance thus built in depositors’ minds became the person-to-person advertising launching pad for the company’s transactions.

Naturally, the alleged swindlers behind it were busy extending the terms of the deposits so as minimize their short-term repayment commitments. This should have been in anticipation of their eventual exit and flight without redeeming the deposit obligations they had been taking up. This strategy would enable them to repay upfront some small sums only to walk away with the bigger prize, vanishing into thin air.

It is being stated that the company is no more around and that several hundreds of millions of rupees entrusted to it by the depositors have disappeared. Those who had placed their monies with it have apparently lost it all. It is difficult to gauge how much has been lost, whether 700 million or more or less. The exact amount lost would have come out from the deposit register of the company, if any such genuine register exists. This may be too much of an expectation.

The question arises as to how the company could have acted with such impunity at a time when financial activities are subject to serious scrutiny by regulators. If it is deposits that the company was taking from the public, this activity is governed by the Banking Act 2004. The Act states, in its definition section, that –

“deposit” means a sum of money paid on terms –

(a) that it is to be repaid in full, with or without interest or premium of any kind,

and either on demand or at a time agreed by or on behalf of the person making the payment and the person receiving it; and

(b) that are not referable to the provision of property or services or the giving of security,

whether or not evidenced by any entry in a record of the person receiving the sum, or by any receipt, certificate, note or other document.

Persons placing their money with White Dot expected to be repaid in full with interest or premium as agreed with the company. In that case, the company was indulging in deposit-taking.

Moreover, once the Bank of Mauritius issued a communiqué on 19th March 2013 to the effect that the public should carry on deposit activities only with authorised deposit-takers, a list of whom was provided, White Dot decided to pack off. In other words, it should have been aware that it was unlawfully engaging in an activity for which it was not authorised by the regulator or by the existing framework of law.

The Banking Act is specific as regards persons who are authorised to raise deposits from the public. There are only two such persons, in addition to those authorised to carry on Islamic Banking activities. Section 5(2) of the Act states that –

“subject to section 12, no person, other than a bank licensed by the central bank, shall engage in receiving deposits… from the public.”

Section 12(1) of the Act supplements the provisions of section 5(2) to allow a further category, notably authorised non-banks, to undertake deposit taking –

“No person other than a non-bank deposit taking institution in operation at the coming into force of this Act shall carry on deposit taking business in Mauritius”.

It is surprising therefore that White Dot had the audacity to collect deposits from the public, despite clear legal provisions to the contrary. The fact that it was doing so by word of mouth shows that it should have been aware of the prohibition of unauthorised persons to take deposits in Mauritius. By not advertising publicly, it gave itself the aura of respectability and also did not take the risk of being exposed until such time as the mischief had been done and the real culprit had walked away from Mauritius with the pot of money deceitfully obtained from Mauritian depositors.

There is no need to add that the activities of such operators in Mauritius do not help improve our international image as a financial centre, let alone the loss occasioned to many who allowed themselves to be tricked in by the lucrative offer of fabulous returns. Further, post-event investigations may turn out to be a wild-goose chase. It is only pre-emptive action to prevent the company from undertaking the illegal activity in the first place that could have saved the situation.

* Published in print edition on 29 March 2013