Danger looms for Mauritius, destined for EU’s money laundering blacklist
The EU’s decision to blacklist Mauritius for money laundering and terrorist financing sent a shockwave across the island. The list has not yet been confirmed but, despite Mauritius' best efforts, it looks likely to happen in October. The move could not come at a worse time when the small island is struggling to restore its economy in the aftermath of Covid-19.
On 7 May, the European Commission included Mauritius among a list of 22 countries that “pose significant threats to the financial system of the Union”.
The decision will be confirmed on 1 October. If that is the case, it will not only jeopardise the reputation of Mauritius as a trustworthy financial centre but will also endanger the livelihood of almost 14 thousand people on the island.
The government says it is deploying political, diplomatic and technical pressure to ensure that Mauritius is delisted, so far without success.
“There have been so many wrongdoings in the way the whole process was carried out by the European Commission.”
Europe’s lack of transparency
The minister told RFI that his government was only made aware of the news through a Reuters article published on 5 May.
“The Commission never held any prior consultation with us, nor did it carry out an independent assessment, it only based its conclusions on a list compiled by the Financial Action Task Force” Seeruttun claims.
He added that the European Commission revealed it changed its methodology on the very same day it published its blacklist. It is now based on the work accomplished by the Financial Action Task Force (FATF), the global watchdog on money laundering and terrorist financing.
“But it makes no distinction between the FATF’s two different lists, known in the trade as the grey list and the black list which regroups only two countries, Iran and North Korea,” according to Abdulatiff.
Mauritius is currently on the FATF’s grey list because of its deficiencies to counter money laundering in the country, along with 17 other countries including Panama, Myanmar and Zimbawe.
However, in the last two year, the country implemented 53 out of the 58 recommended actions outlined by the FATF.
The government intends to accelerate the process and complete the five remaining recommendations by August 2020, even though the FATF deadline is September 2021.
“The Commission did not even give us the opportunity to explain how much progress we have made,” says Seeruttun. “And it does not appear to differentiate among the various countries on the grey list.”
Abdullatiff told RFI that the whole process goes against the European Union’s own principles of transparency and fair play.
Throughout its history, Mauritius has always enjoyed cordial relations with Europe. The government appealed to various EU institutions and governments to plead its case but without any positive results so far. It also enlisted the services of a lobbying goup, Avisa Partners, based in Paris.
“Unfortunatey we were unable to convince the different people we spoke to,” says Seeruttun.
“They said that decisions are taken at the level of the Commission and there is nothing much they can do. But we are not going to give up yet.”
Seeruttun told RFI that some of the information Michel “shared with us were inaccurate”.
“We had a different reading of the information he [Michel] had been provided with,” he says.
Saudi pressure works
Unlike last year, when all 28 member states of the European Union rejected the list which included Saudi Arabia and four US territories. They are not to be found in this year’s blacklist published by the Commission.
This reversal prompted Arvin Boolell, the leader of the opposition to ask, in Parliament, why the European Union removed Saudi Arabia from its blacklist when its own institutions said the Gulf kingdom had committed gross violations.
“Because Saudi Arabia can afford to buy arms from EU countries. The time has come for us to stand up and have the guts to ask questions. We cannot be like lapdog to these countries,” declared Boolell.
According to Seeruttun, the EU said its blacklist mirrors the FATF’s grey list but Albania and Iceland are not to be found on the EU list.
“We are not the only one frustrated by the way we are being treated by the EU, we know that Ghana, Bahamas, Barbados and Jamaica also voiced objections and Hungary as well,” he added.
“If the financial sector is in danger, Mauritius will literally be on its knees,” says Abdullatiff.
One of the four pillars of the small Indian Ocean island’s economy, the financial sector represents around 12 per cent of the Gross Domestic Product, registering some 22,000 global business corporations and employing around 14,000 people.
It is also the only sector which has been relatively spared by Covid-19 crisis. Tourism and the manufacturing sector have almost grind to a halt during the months of lockdown.
“Being on the EU list will have a spill-over effect on the whole economy. Our financial sector does not only employ lawyers and accountants but also provides numerous indirect jobs, like taxis, house staff, hotels and so on,” explains Abdullatiff.
“If we are tagged as a country with serious deficiencies in money laundering and financing terrorist activities no country will want to deal with us. Not just EU countries,” he told RFI.
The blacklisting of Mauritius has tainted the reputation of its offshore sector as among the safest in the region, according to economist Dr Myriam Blin.
“It will heavily compromise EU funding; European Development Finance Institutions (DFI) will no longer be able to use Mauritius to channel their funds,” she told RFI.
“Private equity funds will be less willing to invest via Mauritius and might prefer to channel their fund via other jurisdictions such as Singapore.”
Furthermore, as Mauritius ambitions to be the main investment platform for funds to Africa, “the EU move will certainly put a dent on the Mauritius Africa Strategy”.
Exodus of funds
Abdullatiff says that, for the moment, it is a wait and see situation “but certainly not until 1 October”.
“Our investors told us they are willing to wait if they can be assured Mauritius will be delisted. Otherwise, they will start looking elsewhere to conduct business,” he adds.
“The exodus will be accompanied by a withdrawal of bank deposits leading to liquidity issues and shortage of foreign currencies on the market which in turn will lead to a depreciation of the rupee and inflation,” remarks Uteem.
He says that despite Mauritius’ severe laws against money laundering, “there is a perception that there is a lack of sanctions and that we are not doing enough in monitoring suspicious transactions”.
"It's a tax war. Some of the big powers are trying to impose that Mauritius be guided by their own fiscal policy,” Darga told RFI.
“The issue of money laundering is just an argument used because we are a low tax jurisdiction and attract investors.”
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