The matter arose in early May when the European Commission said it had come up with a new methodology for defining countries that had “strategic deficiencies in their anti-money laundering and counter-terrorism financing regimes”.
This saw it put Mauritius on a blacklist, along with The Bahamas, Barbados, Botswana, Cambodia, Ghana, Jamaica, Mongolia, Myanmar, Nicaragua, Panama and Zimbabwe.
The Mauritian government responded quickly.
In a statement, it pointed out that the EU did not speak to it about its concerns and that this move could have far-reaching implications for the economy.
“Placing Mauritius on the blacklist will cause irreversible damage to our reputation. This will undermine investor confidence, reduce cross-border investment flows and lead to a severe disruption of our banking system. As a result, further harm will be caused to our economy.”
Mauritius’s ministry of financial services and good governance has since said it was working closely with the Financial Action Task Force (FATF) to address its concerns.
It says it remains confident that Mauritius will be removed from the blacklist, and very soon – possibly by the end of this year or February 2021 by the latest.
The concerns over the blacklisting should be taken seriously, as Mauritius has ambitions of becoming an important financial centre.
Its favourable tax regime and increasingly sophisticated financial sector has seen it grow from a tax haven into a hub for investors to distribute funds around the continent over the past few years.
Aside from the impact on Mauritius, the blacklisting also looms over South African fund managers that have set up offshore operations on the island.
Jersey Finance’s survey of over 60 investors and fund managers operating in jurisdictions worldwide and with a connection to South African managers found that local funds were not shy when it came to setting up there.
“For our sample, fund managers with a base in South Africa and raising capital globally, we found that the vast majority, currently around 75% to 80%, have a preference for and presence in Mauritius, given the exposure to Africa.”
There is now, however, a growing concern that the blacklisting could have a notable impact on their operations.
In the survey, some advisors said it had taken them years of convincing the European Investment Bank (EIB) to approve the domiciliation of funds in Mauritius.
But after finally succeeding, this might now be all for nought, they said. “EIB might now prefer structures based in the EU.”
The report noted that aside from the blacklist, there are also concerns about the performance of its regulator, the Financial Services Commission.
“One lawyer surveyed said they actively advise their clients not to use Mauritius given the problems with the quality of some service providers and the regulator.
“The regulator, for example, has often made mistakes where funds are thrown out because of shoddy paperwork. The result of some of these issues has been Mauritius ending up on the blacklist.”
Another issue noted in the survey is that though Mauritius sells itself as a ‘gateway to Africa’, in some respects it falls shor
t. The tax treaties that Mauritius has in place with African countries are not comprehensive and it does not have a treaty in place with Nigeria, Africa’s largest economy – which seems a significant oversight.
There are also questions over its commitment to becoming an International Financial Centre (IFC) in terms of the International Monetary Fund’s classification.
“One should not discount the importance of politics in the background to some of these issues.
“The attitude to IFCs is still antagonistic in many quarters and apparently half of the government in Mauritius does not support the vision of it becoming a financialised state,” according to the report.
“If not everyone in the government is pulling together in the same direction the lack of political will to continue making it the leading IFC for Africa hangs in the balance.”
But even if the government fully commits to it becoming a financial centre and gets it off the blacklist, doing so could come at a steep price as it could end up pushing up costs for fund managers.
Despite the blacklisting, the report notes that not everyone in Mauritius is despondent.
“The Mauritius route for investing into Africa is also very much entrenched and another respondent remarked that he gets daily emails from service providers soliciting for Mauritius.”