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Mauritius: offshore finance watchdogs sniff close to home – Financial Times

In 2020, the “grey” listing of Mauritius by the Financial Action Task Force, and a tougher blacklisting by the European Union, both on anti-money-laundering grounds, represented the greatest threat to the island’s status as Africa’s offshore centre of choice.

The warnings — one from a leading watchdog tasked with sniffing out illicit finance, the other from the world’s biggest economic bloc — caused investors to worry about an offshore centre that, in the same year, was home to more than $500bn in business assets. They also struck the economy just as another critical sector, tourism, ground to a halt amid the pandemic.

But, since then, efforts by the Mauritian government to clear its name have paid off. This year, the EU dropped the island from its blacklist. And the FATF judged six months ago that the country merited coming off its grey list, thanks to progress in ending specific money-laundering weaknesses.

Such developments demonstrate “the commitment of Mauritius to improve its legal, regulatory and enforcement measures in the fight against money laundering, terrorist financing and proliferation financing,” says the Financial Services Commission — the Mauritian financial regulator.

Mauritian reforms to meet FATF recommendations have strengthened the country’s oversight of the potential facilitators of corrupt and illicit flows outside the core banking system — from accountants and lawyers to non-profits and trust companies. At the same time, they have left few in the island’s financial services industry that are under any illusions about how quickly the image of Mauritius as an offshore centre can suffer, if it does not keep up with the regulatory frontier.

“The hit in our reputation as a nation has been tremendous — indeed, and it is true that we shall carry some scars for some time ahead,” said L Clensy Appavoo, chief executive of business services group HLB Mauritius, as a result of the island’s period on the FATF list.

Mauritius competes against other offshore centres for the attention of investors. For example, shortly before it listed in New York last year, IHS Towers, Africa’s biggest independent mobile phone tower operator, moved domicile from Mauritius to the Cayman Islands in order to woo US investors used to offshore centres closer to home.

Analysts say the Mauritian authorities have work ahead of them to bolster the island’s international reputation. “Yes, they have complied with the recommendations of the FATF, but there is more to it,” says Richard Chelin, organised crime and corruption researcher for South Africa’s Institute for Security Studies. “Passing legislation is not enough.”

It has been made more difficult by some offshore organisations domiciled on the island playing a part in recent regional corruption scandals.

In Zimbabwe, Mauritian trusts and shell companies were critical to how Kudakwashe Tagwirei, an adviser to President Emmerson Mnangagwa (who has been accused of cornering access to state resources), disguised control of an offshore business empire, according to documents seen by the Financial Times.

In Namibia’s “Fishrot” scandal, a Mauritian shell company — and alleged abuse of a double taxation treaty — have featured in accusations that Samherji, an Icelandic fishery, secured fishing rights in the country’s waters in return for kickbacks.

The Icelandic company has denied criminal wrongdoing, but has admitted “there was a lot of chaos” in how it did business in Namibia.

Mauritius is far from the only offshore haven to be enmeshed in international scandals. In recent years, however, there has been a spotlight on domestic graft that has shown why transparency in the running of the island’s financial centre has to go beyond regulatory checklists.

Despite its reputation as one of Africa’s best-governed countries, Mauritius has in the past had to deal with corruption, but “over the past couple of years, some of the scandals that have come out have dwarfed [former examples]“, said Chelin.

In 2020, Mauritius was embarrassed when the African Development Bank debarred Scandinavian contractor Burmeister and Wain, which it said had “financially rewarded members of the Mauritian administration and others” to win a contract to develop a power station in Port Louis, the capital.

Burmeister and Wain alerted the AfDB and accepted a 21-month debarment from work with the bank after its own investigation, prompted by a whistleblower, found what it called “unacceptable” behaviour.

Also in 2020, a contractor who appeared to be about to expose corruption in Covid-related procurement was found dead in a suspected murder.

Both matters have underlined the importance of whistleblower protection in corruption cases. But Mauritius does not have dedicated legislation to help whistleblowers — beyond giving them legal immunity.

Such instances show broader reform and cultural change are needed to restore trust in Mauritius as a financial centre, Chelin says. “The government needs to be commended for the work it is doing in addressing concerns — but I think there is more work to be done.”

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