Interview: Anil Gujadhur, Former Chairman, FSC & Deputy Governor BOM

Interview: Anil Gujadhur, Former Chairman, FSC & Deputy Governor BOM

“We don’t have to be ashamed of our Global Business sector”

* ‘But we have to be more on the alert in specific cases… You actually don’t know which baskets the snakes are coming from…”

 * ‘Is the Management Company not aware that Mr Sobrinho is a Politically Exposed Person (PEP)? Don’t the regulatory rules require them to double check and cross-check PEPs?’ 

Our guest this week, Mr Anil Gujadhur, former Deputy Governor of the Bank of Mauritius and Chairman of the Financial Services Commission, is well versed in both the banking and regulatory aspects of investment proposals that are made to the Mauritian jurisdiction. He is thus eminently qualified to comment on the ongoing so-called Sobrinho scandal, and he gives a good insight into the various details and checks of crucial interest that Management Companies and regulatory bodies such as the BOM and FSC must scrutinize before any licence is issued in the Global Business sector.


Mauritius Times: The March 2 communique of the Financial Services Commission (FSC), in relation to recent media reports involving Mr Alvaro de Oliveira Madaleno Sobrinho, would suggest that the Commission would have done whatever was required from a financial services sector regulator before the licences applied for had been issued to Mr Sobrihno’s companies. Do you see any shortcoming in the manner in which the FSC has proceeded in this matter to date?

Anil Gujadhur: You may ask the question in reverse. Did the FSC fail or omit to do what it was expected to do before giving those licences? Did it, in the teeth of evidence to the contrary, maintain its decision? As far as one can make out, nobody has pointedly proved that the FSC has wilfully overlooked a material fact that it should have considered before giving the licences. If such were actually the case, not only I but the whole world would agree that the FSC hasn’t done what it ought to have done when giving the licences.

If it came to the notice of the FSC, for example, that Mr Sobrinho couldn’t satisfactorily explain the source and provenance of his wealth or that it was tainted with malfeasance and it decided nevertheless to grant the licences asked for, the FSC failed to do its duty as it should. The fact that it maintained its decision would indicate that it had satisfied itself that such was not the case. Hearsay is not stronger than facts. Did the FSC have all the facts?

The FSC has privileged access to its counterparts in other jurisdictions. It would be denied such access if it were to disclose who said what in response to its queries about Mr Sobrinho’s standing, good or bad. That it did not reverse its original decision after its own inquiry seems to point out that its own due diligence conducted, after so much noise was made locally about Mr Sobrinho, did not give it fresh grounds to do so. I have to trust our regulator on this point, until proof to the contrary is shown to me.

* The profiling of suspects in matters of drug trafficking is usually heightened by anti-narcotics agencies especially when it concerns passengers travelling from “high-risk” countries. There must also be high-risk countries in relation to money laundering, fraud and various kinds of scams, and one would expect our financial services regulator to exercise extra vigilance and caution when it comes to potential investors from a number of places like Ethiopia, Indonesia, Myanmar, Pakistan, Angola, isn’t it?

No. Our financial services regulators should exercise the same level of scrutiny, and run through the standard regulatory checks which must be applied indiscriminately irrespective of where the investors come from. I would agree that we have to be more on the alert in specific cases if we have received advanced warning of wrongdoing in those particular cases. You actually don’t know which baskets the snakes are coming from. So, you can’t be more lenient towards some of “high-standing” and harder against others of well-publicised bad repute. It’s the professionalism in presenting different applications that makes the difference: some are skilled in hiding sore points; others not so and therefore we’ve got to be careful.

Did you know that something like $120 billion of corruption money is paid out by EU corporates annually? In such a case, that money should be finding a berth in some of the “respected” jurisdictions of the world, not necessarily in Angola, Pakistan, Myanmar, specifically. To convince yourself of this, you just refer to the big names from the best political establishments of the world which surfaced from the Panama Papers leaked out last year.

Self-inflicted prejudices have been killing small places like Mauritius trying to find a place under the sun which others have been occupying for long without being questioned or tarnished. It’s easier for the others to cast the less bright spots of the world in bad light. Why should we join the game, to our own detriment, leaving them full scope to shift the burden elsewhere when they are embarrassed? Our regulators should do their utmost – do all they can or not do anything – to avoid the risk that we might be dragged down.

* Isn’t it an accepted but unspoken belief that, in the Global Business sector, the credentials of quite a good number of potential investors are really questionable, but there is only so much that management companies (MCs) and the regulator can do and no more to ascertain the validity of those credentials?

Not necessarily. Organisations like Tax Justice Network go as far as to taint everybody who has dealings with low tax jurisdictions, such as British Virgin Islands, Panama, Mauritius,… with ill-gotten money. But that is not true. Global Business is a tax efficient business optimisation platform available to all. Our MCs are required to check and ascertain fully the credentials of their clients before applying to the FSC for a licence on their behalf. Obviously there are black sheep who exploit loopholes. Our job is to plug them. The more our MCs scan carefully the client they propose to the FSC for a licence, the less the risk that we invite to ourselves investors with bad credentials.

MCs can scrutinize applicants on the basis of data supplied by clients and data obtained independently to ensure that key regulatory parameters are being strictly respected, bearing in mind that there are competing other jurisdictions which will not make it as hard as that for the client to pass the due diligence test over there. So long as MCs will maintain a reasonable threshold for vetting clients, and not foil the established rules, we should be safe.

For example, in the present case, is the Management Company not aware that Mr Sobrinho is a Politically Exposed Person (PEP)? Don’t the regulatory rules require them to double check and cross-check PEPs before they recommend their applications to the regulator? Have they actually assured the regulator that despite all the checks they’ve carried out, there is no misgiving and that the licences applied for may be granted?

Of course, they could obtain unsettling information later on, if not at the time of application, about clients they’ve already recommended for licences. Reason dictates that they denounce such cases and have the licences revoked. This practice needs to be enforced in Mauritius.

One should not however be so biased as to think that everybody who comes in for Global Business should be tainted with malfeasance outright. The best known companies of the world, Amazon, Google… you name it, work with Global Business centres like the ones we have in Mauritius. British Virgin Islands hosts over a million companies whereas we are not even at 50,000. We don’t have to be ashamed of our Global Business sector.

* The resistance of the Indian tax officials to the extension of the Mauritius-India DTAA in its earlier format must have also been motivated by the Mauritian jurisdiction’s inability to put to rest India’s concerns about the risks of round tripping and money laundering, isn’t it? And rightly so?

Not rightly so, but we have to pick up the blame for not doing enough to protect our reputation when the huge Indian media onslaught about round-tripping and money laundering was going on and we are to blame.

The tax officials’ primary concern was with incomes generated in India they were unable to tax to their benefit. This is because the DTAA was residence-centred and not source-based. Indian tax officials wanted to reverse this, an opportunity for them to make more money by depriving Mauritius of the taxing rights it had thus acquired in the Treaty as originally stated. We resisted this for long as it was the main attraction for international investors employing the Mauritius platform to invest in India. In the end, the applecart was upset, to India’s tax advantage. Now it is history.

As regards issues like round-tripping and money laundering, these were added on as arguments later on to weaken us in the face of the resistance we were putting against changing treaty provisions the way Indian tax officials wanted it. As anyone can make out, round-tripping and money laundering, in so far as they were there, are issues for countries of origin where those offences are committed, not of those which become part of the chain originating in India.

On this chapter, our main weakness as regards the DTAA with India was not to have countered efficiently the negative and almost hostile publicity that was regularly employed for long to publicly present Mauritius as a wrongdoer making abuse of the Treaty. After some time, the public start believing that we would be encouraging such negative things. Anyway, we paid the price and it’s over now!

* The communique of the FSC in relation to Alvaro Sobrinho states that “the scrutiny of Mr Sobrinho revealed ‘In June 2011, Alvaro Sobrinho, President of the Banco Espirito Santo de Angola, was suspected in the Portuguese investigation to 48 million euros illegally transferred from Banco Nacional de Angola (BNA) to the main national banks through the BES (…)’” The Commission requested the Management Company for an enhanced due diligence to be conducted on Mr Sobrinho, and thereafter “based on the submissions and on being satisfied that the applications were in order, the Commission granted the (…) licences…” The FSC therefore went by the book: it was satisfied that everything was in order. Is that also the correct way to go about it?

God knows what happened after the 2011 case came out in the public sphere. It looks like Mr Sobrinho had ‘no case to answer’ for the alleged illegal transfer in countries outside of Mauritius where it is said to have happened. Mauritius, however, has a ‘case to answer’ due to the public perception created that our financial regulator, the FSC, would have been over-accommodative to the applicant, given this past burden Mr Sobrinho is saddled with. There is a presumption he would not have passed the test of fire.

The best thing would have been for the FSC to have come out with a full regulatory statement establishing beyond the least reasonable doubt that we are not exposing ourselves to blame for not exercising the required due attention and care the situation called for. We are waiting for that. If that happens, the FSC will come out aggrandised in the eyes of all, for having thrashed out all possible issues and cleared the deck of all sorts of suspicions which have arisen concerning its licensing action.

* Wouldn’t it have been much safer for the regulator to keep such and other potential investors at bay given that earlier scrutiny had pointed to suspicious transactions? Or is it that an overzealous integrity watch of the jurisdiction does not sit well with the promotion of business for the Global Business sector?

I mentioned to you earlier that certain applications for a licence call on the regulator to be more alert than cases that pass ordinary muster. Here is a case that has gained some international public notoriety for allegedly having trespassed normal limits. One has to go the whole hog in such a case to demonstrate both at home and internationally that no stone has been left unturned, and, hence, the decision to maintain or otherwise the licences previously granted.

Public accountability for strong decisions taken is sometimes a superior form of no-nonsense publicity for the jurisdiction’s regulators. Ask Singapore. Even if the FSC were to reverse its previous decision, after conducting more careful examination of fresh evidence giving rise to grey areas, then politely but without harming the applicant for business, we would still stand to gain as a jurisdiction. But facts are facts, after all. Let us stand by them, no matter what.

* Management companies have a statutory obligation to conduct due diligence checks on their client’s credentials to ensure compliance with the law. But what you are saying is that, in such high profile cases, one would expect the FSC, as the licensing authority, to look at the bigger picture. This cannot be a mere formality, isn’t it?

Yes, when there are serious considerations at stake, the regulator should go beyond the bounds of the routine and sheer formality. It should look beyond the MC in a bid to protect the country’s image, should that prove necessary. The MC can do so much and no more. The regulator should always look further ahead to protect the jurisdiction’s good international standing when doubts persist in the public.

* There is also the issue raised by Prof Mohamedbhai and Senior Counsel Iqbal Rajahbalee about their names having been used allegedly without their consent for the purpose of application for the different licences. Mr Sobrinho has stated during his press meet that his team would be “comfortable” insofar as this matter is concerned. Somebody is clearly not telling the truth here. The FSC has referred the matter to the police. If proved, this would amount to an arrestable offence. Who should do the explaining?

I may not be fully in the picture but the FSC would have referred the matter to the police concerning an internal mail which was leaked out. That’s obviously bad manners, if so.

As regards the use of a person’s name without his prior commitment, you are right, it’s the MC’s responsibility that personal authorisation must be obtained in writing before filing of the same with the concerned authorities. MCs know that verbal commitments, if any, should be backed by writing. As regards law firms, I reckon they would want a prior contractual undertaking with anybody presenting them as their legal advisers; you can’t jump stages. I am not sure these are under police purview, though.

* The Bank of Mauritius (BoM) came forward on 9 March 17 with a communiqué to state that no application for a banking licence had been received by the Bank from Mr Sobrinho. What would explain the silence of the Bank for so long?

Mind you, the BoM has stated this concerning a ‘banking licence’, not an ‘investment banking licence’ which is a different kettle of fish. BoM is not empowered to entertain applications for an investment banking licence which the Sobrinho group was presumably interested in.

A ‘banking licence’, the domain of the BoM, gives the licence holder the right to raise deposits from the public and employ those deposits to give loans, along with other activities which may also be undertaken. On the other hand, Investment Banking, (domain of the FSC) which is apparently what the applicants are seeking to undertake, gives the licence holder the right to raise capital for mounting designated projects (ports, roads, industrial space, etc., in different countries), underwriting i.e. guaranteeing, public issues of shares, issuing securities on behalf of clients, etc.

Maybe the rumours in public that the BoM would have earlier refused giving a “banking” licence to the group, presumably because they were not ‘fit and proper’ to receive such a licence whereas a “banking” licence would have actually been granted to it by the FSC, was becoming too persistent for the BoM to keep remaining silent. It had to set the record straight. It was necessary perhaps to clear the amalgam being created between two regulators proceeding in opposite directions.

That said, it is becoming an increasingly common phenomenon in Mauritius for anybody to pose as an expert of opinion in whatsoever field. Especially so when it comes to negative statements. People amalgamate everything, anything, to win over their side of the argument. We’ve got to be wary of this trend, despite the fact that, in a democracy, one has to accept that there might be different shades of opinion on an issue.

Some do not hesitate to step into the shoes of the regulator while not being expert in financial regulation. There are others who take advantage of favourable headwinds to let things play in their favour so long as it does, to pass off for non-pareils.

Do we, as a jurisdiction, bear in mind that when the onslaught of international backlash befalls on us, we’ll stand isolated trying to defend a position that, through nobody else’s fault, we’ve aided and abetted until the country has reached a point of no return? Do politicians realise the consequences when they’ve already interfered and undermined institutions that should have been among the best in the world from a credibility point of view? Is it fair towards the country to keep scoring credit at each other’s expense, no matter the huge bill the country as a whole will pay up eventually?

* The need for coordination amongst the different agencies and regulators operating in the financial services sector with a view to protecting the sector’s integrity was called for in the wake of earlier Ponzi-like scams that had been uncovered. It’s doubtful if this has been put in place. We have not learnt our lessons…?

The requirement for the FSC and the BoM to cooperate in regulatory matters to ensure that nothing untoward is undertaken by persons of doubtful integrity or that financial activities harmful to the public are not arbitraged due to regulatory gaps, is here since long, maybe since the Financial Services Development Act 2001. This need for regulatory coordination has been restated in different forms since then, notably in the Financial Services Act 2007 and in the Banking Act 2004. Regulatory cooperation goes routinely since long beyond national borders, so what of local regulators cooperating?

But, in the present case, the FSC could have simply asked the BoM whether it sees any objection to it –  the FSC –  proposing to give an investment banking licence to the group. The more so as the authority to grant ‘investment banking’ licences had only recently been transferred from the BoM’s portfolio to that of the FSC; the FSC could have sought an opinion from the BoM.

If the BoM was privy to any misgiving disqualifying the applicant, it would have confidentially shared the info with the FSC. That could have been done formally in the legal contexts I cited before or perhaps it was just a phone call away to gain the assurance that everything was in order or otherwise. Consultations of the sort help sort out bad outcomes before they occur.

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