On the horns of Dilemma

We will know by tomorrow the decision, if any, the PMSD has taken on the fate of Minister Sik Yuen. The latter is a member of the PMSD and, in the context of the Labour-PMSD alliance in power, he has been given the responsibility for the Ministry of Tourism. The PMSD is reproaching the Minister his repeated absences from meetings of the party’s Bureau and also the fact that he was absent on the 1st May when the party went out to pay respects to its founder member, late Sir Gaetan Duval.

Relations between the Minister and his party have tensed up ever since he took the decision to revoke the Chief Executive of the Tourism Authority, Robert Desvaux, a close friend of the leader of the PMSD. It appears that the Prime Minister endorsed the Minister’s decision which was seen as an act of defiance vis-à-vis the party leadership. This has created a delicate situation in which Minister Sik Yuen has the Prime Minister’s support but not that of his party. His act has thus driven a wedge between the Prime Minister and his coalition partner, the PMSD.

The PMSD Bureau meeting, scheduled for yesterday, was expected to cut the Gordian knot. If it decides to throw Minister Sik Yuen out of the party and the latter is maintained as Minister nevertheless, the PMSD might be asking to be compensated by way of a ministerial appointment from within its ranks after it would have repudiated Sik Yuen as a party member. Now, it is the prerogative of the Prime Minister to appoint or revoke a Minister. He may not oblige if PMSD were to ask for another appointee from within its ranks to accede to the status of Minister. Further, it is for the Prime Minister to decide which portfolio to allocate to which elected member, not that of the PMSD. In which case, the PMSD would be treading on his toes if it were to ask that the portfolio of tourism be given to one among its extant members.

For the government which is operating with a relatively thin majority, it would have served a good purpose not to be unsettled by such situations. For instance, the PMSD could bring it to a make-or-break decision. In such a case, if it decided to walk out of government, a number of existing stabilities in government would have to be cast up once again. The government may compensate any risk of the PMSD quitting the government on this issue by inviting Eric Guimbeau of the MMSD to fill the gap so that the government’s majority would not come under threat. Eric Guimbeau has already made a deal in the past with Labour with regard to the coalition between his own sole elected member in the Municipal Council of Curepipe working together with Labour deputies to form a slim majority of one to enable Labour to take control of the Council.

However, it is not quite clear whether the PMSD could take other decisions if it decided to break away from government in the light of the Sik Yuen issue. So, there might be other clouds on the horizon needing to be dispersed if the Labour-PMSD tie-up were called into question. In that sense, it may be said that any breakup between the PMSD and Labour in the prevailing tense conditions could spark off other realignments of political parties, given the capacity of our political parties to renege on friends and foes alike when it comes to their private interests. The drama is unfolding and it might precipitate some arrangement or other that would have taken place at some later stage. This, if it were to happen, will go on to show how ubiquitous our political landscape can be.

* * *

“Financial business”: Theft and the Betrayal of Trust

If you want to run a small shop, you need a licence from the District Council or the Municipality or the government agencies vested with oversight on the specific line of activity. You have to show to the police, whenever so requested, the official authorisation you formally hold for carrying on the business. Those in authority should know what kind of business you want to run and, before allowing you to operate, they have to make sure that you meet the basic criteria for engaging in that line of business. They will impose conditions accordingly.

The question then arises as to how certain companies have engaged in as sophisticated a line of business as finance (popularly being referred to as Ponzi schemes) without seeking any authorisation from anybody. Finance is a particularly sensitive area in which financial intermediaries link up those having savings to invest with those borrowing money for undertaking all sorts of activities. Savers place their funds on trust with the authorized finance institutions. Therefore, those who receive the placements should have been vetted beforehand by regulators authorizing them to undertake the business as being worthy of trust. They have to be tested whether they are fit and proper to take up the public’s money on trust. They need to hold the necessary qualifications and experience with a proven track record to demonstrate that they have the capacity to take sound decisions through an accountable and expert decision-making internal body.

It has been said that the illegal financial operators would have taken advantage of a gap between the regulatory responsibilities of the Bank of Mauritius and those of the Financial Services Commission to engage in financial business without seeking approval from either of the regulatory authorities. If that is so, they would have done their work in the open on the assumption that their product was not amenable to regulatory supervision and that it was perfectly legal. Let alone the fact that there is no such gap in Mauritius’ existing financial regulation so that no financial product could have been offered to the public without explicit authorisation from one or the other of the two regulators. The question to ask is: if it was really perfectly legal to do such business, why was it being conducted by word of mouth and not by coming out in public as it is the case, for example, for banking, insurance, pension and investment products?

The fact is that all of this was a scheme not founded on any sound real life business model capable of yielding those high rates of return that were being promised to clients on an individual basis. It was based on thin air with the objective of the promoters both of not making themselves accountable to any regulator and cheating credulous unsuspecting clients. The promoters should have been nabbed for openly acting contrary to the provisions of both the Banking Act and the Financial Services Act, even if it was left to be proven in court at a later stage as to which specific Act they were offending. They were acting without authorisation or outside the precincts of their authorisation. They ought to have been instantly charged and dismantled before the harm done took on larger proportions.

This point was missed by a few who posed as experts in the field of finance and started targeting the regulators for having failed on their duty. Others went as far as to conclude that we should be having only one regulator for the entire financial sector. Would that have prevented the thieves from doing their shady business on the sly? Instead of concentrating on the thieves, they were concentrating on pinning down the regulators. Had they known that the job of regulators is not to police operators but rather to lay down the rules for running authorised businesses soundly, they would not have rushed to indict the regulators rather than the thieves themselves.

The only thing a regulator ought to have done, once it became aware of the fact that unlawful financial transactions were being undertaken, was to make a statement to the police for it to investigate it out. That would have stopped the rot before it spread out further. In our case, it seems the police did not have that kind of statement on which to act and that is why the harm became so extensive. Or, having such a statement in its hands from one of the two regulators, it did not promptly proceed to stop the schemers from continuing to suck up money unlawfully from clients.

* Published in print edition on 31 May 2013

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