EU BLACKLISTING OF MAURITIUS: A TALE OF DOUBLE STANDARDS AND GROSS INJUSTICE

In the late nineties, the Organisation for Economic Co-operation and Development (OECD) fired the first shot, denouncing what they termed "Harmful Tax Competition", and listing over 50 countries, including Mauritius, as causing prejudice to the world economic order. NOT INCLUDED in the list were countries like Switzerland, Luxembourg, Hong Kong, Singapore, the Netherlands, who have for decades practiced the most aggressive forms of tax competition on an uneven playing field. Many of these countries were members of OECD.

It was an opening salvo which sent the clear message that the big countries were out to get the small ones, whilst remaining free to continue with their own "harmful practices". If you were a tiny country, even though by your very size, you couldn't do much harm anyway, you were on the hit list. Never mind that some very large countries hardly taxed international business at all, and the best jurisdictions to launder huge sums of dirty money are the main financial centres in the world, where even billions would be "lost" amidst the sheer volumes of transactions.

Mauritius passed a spate of legislation in 2001/2002, followed by regular updates, to comply with best international practice. In most cases, we were ahead of the pack.

Never mind! It served us well, and helped us obtain a fair chunk of the international flows into India and the East, which re-started in 2004, after the Far East financial crisis of the late nineties. The smaller countries are often the first to adopt the latest and tightest standards of regulation and compliance. There are foreign company owners who closed down their Mauritius entities, and migrated to... London, where fewer questions were asked. There are UK tax practitioners presenting the UK as an ideal tax haven for overseas investors.

So...

Dear European Union

You are all powerful. You can make or break countries, you can make or break the livelihoods of millions around the world, and this imposes on you a duty of fairness and justice.

You are destroying Mauritius. The word is not too strong.

A few questions are called for:

Have you carried out an INDEPENDENT assessment? Do you HAVE the institutional capability to carry out such an assessment? If not, on what basis have you blacklisted the country?

If you have relied on the Financial Action Task Force (FATF - the international watchdog against money-laundering and terrorism financing) reports, have you taken into account that:

Over the past twenty years, Mauritius has always been at the forefront of compliance with international standards on anti-money laundering, and the fight against terrorism.

FATF have placed Mauritius not only on the grey list, but also on the "light grey" list, requiring NO ENHANCED DUE DILIGENCE in third party dealings with the country. In other words, the FATF deems Mauritius to be a low risk, not far below the "white" list. How does the EU transition Mauritius from the FATF light grey list, straight down two levels into a black list, unilaterally, without carrying out an independent assessment? This smells either of arbitrariness, or institutional dysfunction.

In addition, your classification came at the same time as your declared methodology, and with no clear road map as to how to get out of the black list.

This is heavy-handed, unprofessional and grossly unjust.

Mauritius is cooperating fully with FATF, and with the Eastern & Southern Africa Anti Money Laundering Group (ESAAMLG). Out of 58 issues raised by the latter, 53 have been resolved, and the Government has made commitments to address the remaining five, which do not relate to the legal framework, more to policing and supervision. In October 2019, FATF gave Mauritius a time line of TWO years to align its legal framework, and its supervision and enforcement. We are ahead of the curve in this respect.

It behoves those who exercise such enormous power as the EU does to provide an opportunity to anybody accused of a crime to defend himself. Has Mauritius been given ANY opportunity to make representations to the EU, prior to finding our name on any potential blacklist, arbitrarily? Was it a case of the EU shooting first, then asking questions?

Directives such as issued by the EU carry a per-ception of guilt, and brush aside the presumption of innocence. Has the EU taken due notice of the impact of its actions and decisions on a whole country? This threat does not just affect our Global Business sector. It will affect the way all our overseas business partners view this country, our re-insurers, our correspondent banks, indeed all our trading partners! It is nothing short of a death threat to the economy. Considerable da-mage has been done already, through the EU acting with total disregard to the most elementary principles of natural justice.

Let's look at the list of countries you are blacklisting: Virtually all small economies.

MAURITIUS HARMFUL?

A statistical analysis of investment flows through Mauritius clearly shows that between 1992 and 2010, the flows have been largely India-bound, with a lesser percentage towards China and Asia. More recently, funds have flowed into African countries, as they start attracting more private investment.

The quantity and percentage of funds flowing into the EU from Mauritius is, to all intents and purposes, de minimis.

Does Mauritius, grey-listed by FATF, have the power to harm the European Financial Order in ANY MEANINGFUL WAY? I dare say, Dear EU, that you are perfectly capable of inflicting a lot of harm upon yourselves, without any help from us.

Perhaps the biggest money-laundering scandal in history was perpetrated by Danske Bank's operations in Estonia, laundering USD 200 Billions! Are there any sanctions against Denmark, given the failure of its Financial Supervisory Authority to oversee the overseas operations of its largest bank? And what about the FSA of Estonia, whose failure to effectively monitor the banks over a period of EIGHT YEARS led to the scandal. I don't suppose that there is any talk of blacklisting Denmark or Estonia. They are both European countries. What about the long-awaited report on the scandal from the European Banking Authority, the watchdog for the sector? Apparently, the report has been shelved. Is it to keep the dirty linen wit-hin the family, and avoid the glare of public scrutiny?

The name of Mauritius is now being linked to the Wirecard scandal. What the sensationalist article fails to report is that Wirecard represents, first and foremost, a massive failure by the German Regulatory Authority, BaFIN. To add insult to injury, when the Financial Times of London flagged the possibility of fraud at Wirecard 18 MONTHS AGO, BaFIN responded by slapping criminal lawsuits on two FT journalists!

Tiny Mauritius would have been taxed with crimi-nal negligence in such cases.

So, Dear EU, why is it that you just go after the minnows? Is it because you are unable, or unwilling, to go after the big sharks, so you go after the small fry, to be seen to be doing something, whilst hardly making a dent into the problem?

What will blacklisting of these countries achieve? Very little, because the financial criminals are still roaming the streets of Europe, Asia and America.

HOT MONEY FLOWS - 21^ST CENTURY VERSION

Dear EU, how does money flow between the re-source-rich countries of the Eastern bloc, or the Central Asian Republics, into the developed world? Through European banks and with the help of European professionals and consultants, eager to assist any scams from which they can take a juicy cut.

Some erstwhile great European banks participated freely in the "Mirror Trades" scandal, which siphoned billions of dollars away from these countries into the West, often in total breach of local exchange control regulations. Now, I guess these are OK, because they bring untold riches to Europe and the USA, and prop up real estate prices in the "quartiers huppés" of European and American cities.

And, dear EU, if European regulators are unable to effectively monitor European banks and operators, to such an extent that USD 200 Billion got laundered through a European bank, operating in a country member of the European Union, over EIGHT years, on what moral ground can you victimise a small island economy which will find it equally, if not more, difficult coping with sophisticated financial criminals who have most probably learnt their trade in European jurisdictions?

Bernie Madoff perpetrated his Ponzi Scheme in New York, taking investors for a ride to the tune of USD 50Billion. In his book on the scam, Harry Markopolos mentioned having flagged the Ponzi to the SEC years before it officially came to light. Another failure of a major and highly-regarded Regulator to act on red flags? Even the mighty Securities and Exchange Commission of the United States sometimes goes to sleep. How did the EU respond, given that lots of Europeans lost billions, and one investor even committed suicide?

Mauritius is a good country. It is at least as good as any country in Europe, and I dare say, better than many as regards compliance.

The attack on this country is unwarranted, vicious, grossly unfair, and certainly totally out of proportion to any minor harm which the occasional financial criminal could cause by making misuse of the jurisdiction.

Dear EU, by all means, push for improvements, but at the very least, you have a duty to give countries the chance to put matters right. When a scandal occurs on your turf, what do you do? You try to identify the culprit, and apply sanctions. You DON'T close down a whole economy.

This is what you are doing to us.

We have the disadvantage of being small and weak, easy for people to trample on!

THE LOCAL PRESS

Dear EU, it is truly sad we face threats not only from external actors like yourselves, but also from the enemy within! I have never seen ANY country where some sections of the press seem to take perverse pleasure in running down the land of their birth, cheering on every attack from external sources, however unjust or unjustified.

This debate is not about patriotism, or the lack of it. Patriotism smells of irrational or unconditional support of one's motherland, no matter what. It is about professionalism, objectivity and balanced reporting.

Mauritius has provided for 30 years a very high level of service to major multinationals, and fund houses across the whole spectrum. Thousands of professionals provide real and often high value-added services, of a quality comparable to anywhere in the world. The global business sector has been the main gateway to financial and social mobility. For the past fifteen years now, we have started hedge fund accounting and administration, a highly lucrative niche. That is the untold story!

We cannot compete with Luxembourg or Dublin, who are far bigger, but we have carved out a small niche for ourselves. Good healthy business.

None in the vast army of quality clients who have used our jurisdiction over the past 28 years would have dealt with Mauritius if they felt that we were poorly regulated, and had a significant proportion of bad apples in our portfolio. What is not recognized is that Mauritius DID NOT have the most advantageous Double Taxation Agreement with India. Yet, we attracted the bulk of investment flows, until India abolished long term Capital Gains Tax on listed securities, and Singapore signed an equivalent treaty. Why did these eminent world-renown investment houses, who are household names in the industry, NOT domicile their funds in a EU member country which had the most advantageous DTAA with India? That is the untold story!

For the past 30 years, Mauritius has attracted investment flows from a number of the Develop-ment Financial Institutions themselves! I dare say that a number of European DFI's, plus IFC and others, have channelled investments through Mauritius. I'm sure that all this was done after proper due diligence of the jurisdiction. That is the untold story!

More recently, international groups like Sanne, IQEQ and Ocorian have paid top dollar to buy local service providers, not because they were desperate to part with their millions. They felt, after a consideration of all aspects, including availability of local expertise, and the quality of our legal and regulatory framework, that the country was worthy of being part of their interna-tional footprint. That is the untold story!

It would not have taken much effort to uncover these untold stories. Just a few minutes of research, driven by a modicum of good faith, fa-vouring professionalism and well-balanced reporting over sensationalism and destructive negativism.

GOING FORWARD

Of course, there is no cause for complacency. Regulation of money-laundering and terrorism financing has to keep evolving. The financial world attracts crimi¬nals in every country.

There will in future be other Bernie Madoffs, other Enrons, other Satyams, other Danske Banks, other Wirecards, other Imbd's. This does not mean that all the countries who have hosted these scandals are basket cases and deserve black-listing. Mauritius will have its share of bad apples, which proper laws, regulations, and enforcement will go a long way towards eliminating. Our institutions have a huge responsibility on their hands.

Financial criminals will devise increasingly imaginative ways of stealing. It takes time to design the tests for the latest doping substances. Similarly, laws, and detection methods, always lag slightly behind the sophisticated criminal, who is advised by highly skilled lawyers, IT, and tax specialists, VIRTUALLY ALL OF WHOM have been educated in the best universities, and live and practice their trade in the world's largest financial centres.

The only action possible is to work hand in hand with the main international organs of control and monitoring. Organisations like FATF and OECD operate in a truly professional manner, with strong institutional capabilities, and set clear road maps for correcting any weaknesses, whether in the legal framework, or in supervision and enforcement.

This is where the EU has let us down. Badly. Sadly. The behaviour of the EU towards this country is nothing short of shocking! It is most likely illegal!

The EU has destroyed the sector which was the only avenue of hope for the next generation of graduates and professionals.

We fought Covid-19 by putting aside our personal and political differences. The threat of black-listing by the EU is nothing short of existential. It is our responsibility to unite and oppose such threats in the strongest possible terms, using diplomatic, political, and legal avenues.