MAURITIUS: INTERNATIONAL LAW

Mauritius was amongst the six jurisdictions which pledged to bring regulations into line with international best practices, and it started doing so shortly after publication of the OECD report. The passing of a bill to counter fraud and corruption was first on the agenda. Under this legislation, international companies were required by law to verify the identity of customers, keep records and make them available upon a court order. Companies were required to report to the authorities any suspicious transaction.

The government also turned its attention to enacting measures on stronger supervision and clearer taxation. A reduction in the tax breaks enjoyed by offshore companies was proposed with tax credits to be diluted. Also part of the government's five-year plan to reinforce the reputation of Mauritius as a financial centre and eliminate money laundering were measures such as precluding international companies from issuing bearer shares, making registered agents of these companies subject to an annual inspection and audit, and requiring offshore companies to submit their audited accounts within six months.

In 2002, the government announced further measures to strengthen its financial supervisory regime, but the body which represents the interests of the non-financial offshore sector, the Association of Offshore Management Companies (AOMC), contested parts of proposals.

The AOMC was mostly concerned about wording which would allow the Financial Services Commission (FSC - the successor to the old MOBAA) to enter information exchange agreements with foreign countries, and give it powers to requisition information from management companies about their clients.

Said Mr Sunil Banymandhub, president of AOMC, at the time: “We’re aware that the global trend requires that countries enter, along with others, into bilateral treaties for exchange of information, treaties which define the type of information and the institutions involved among other things. The problem is that several countries, including those considered as developed [eg Belgium,Luxembourg, Monaco,Switzerland etc] have yet to accept this principle expounded by the Organization for Economic Cooperation and Development (OECD). Mauritius bears the risk of finding itself in a unfavourable position compared to other jurisdictions.”

“The right approach would be to carry out a very thorough survey on what’s being done in Mauritius and elsewhere, particularly on those aspects that render a jurisdictiction more competitive” he added.

Minister for Economic Development, Financial Services and Corporate Affairs, Sushil Kushiram defended the measures, explaining that: “The exchange of information will be exclusively for supervisory purposes and definitely not for tax reasons.” The Minister expressed his conviction that the new measures would help build up the image of Mauritius as a credible financial centre and demonstrate the commitment of the government to create the necessary environment facilitating the integration of offshore companies, which would enable them to make a positive contribution to the Mauritian economy.

Mr Kushiram also pointed out that between 1994 and 2000 almost no amendments had been made to the legislation governing non-banking financial services, bar one minor amendment brought about by OECD pressure.

In November, 2004, Mauritius's Minister of Foreign Affairs, International Trade and Regional Cooperation, Jayen Cuttaree was able to claim that despite vulnerabilities with regard to money laundering and the facilitation of tax evasion by overseas firms in the past, the jurisdiction had now been brought into compliance with international standards in these areas.

"We are now fully compatible with all the international guidelines at the level of OECD to make it a clean offshore," he stated, continuing: "We want to develop ourselves into a financial centre so it is in our interest to see that our reputation stays good. We ourselves, more than anybody else, realise that we need to have a clean centre, which we have today."

In March, 2005, the Mauritian offshore sector received good marks from the IMF in a progress report on its Offshore Financial Centres Assessment Programme.

"The assessment of standards and codes found that the authorities have made substantial progress and are upgrading financial sector legislation and regulations", said the report, which added however that further progress needs to be made, particularly in respect of co-operation between the Mauritian regulators and their foreign counterparts.

"It was recommended that the Mauritian authorities review the laws and procedure for assistance in order to ensure that there are adequate gateways for cooperation at each stage of a money laundering investigation", continued the report.

In the same month, the National Assembly of Mauritius adopted a Financial Services Development (Amendment) Bill which considerably strengthened the powers of the Financial Services Commission. The bill was partly a response to a 900m rupee fraud which took place at the Mauritius Commercial Bank, and had rocked the island's banking sector over the past two years.

In July, 2005, the Mauritius Financial Services Commission issued new versions of its three Codes on the Prevention of Money Laundering and Terrorist Financing, originally issued in 2003, namely:

• The Code on the Prevention of Money Laundering and Terrorist Financing intended for Management Companies;
• The Code on the Prevention of Money Laundering and Terrorist Financing intended for Insurance Entities; and
• The Code on the Prevention of Money Laundering and Terrorist Financing intended for Investment Businesses.

The Codes were revised to meet new national and international anti-money laundering and anti-terrorist financing initiatives, and came into operation on 1 August 2005.

In October, 2005, India and Mauritius, which has an Indian community of more than 800,000, signed a batch of agreements including a Legal Mutual Assistance Treaty aimed at limiting the scope for money-laundering between the two countries.

The agreements were signed in the presence of Indian Prime Minister Manmohan Singh and his Mauritian counterpart Navinchandra Ramgoolam after the two leaders held talks on a wide array of bilateral issues.

Rama Sithanen, Deputy Prime Minister and Finance Minister of Mauritius, told the 3rd annual meeting of the island's Financial Intelligence Unit in April, 2006, that the Prevention of Corruption Act would be amended in order to permit the restructuring of the Independent Commission Against Corruption as a major partner in the fight against money laundering.

The new law aimed to give the courts jurisdiction over those accused of corruption. Previous amendments in 2005 reorganized and simplified the management of the Commission.

Turning to tax matters, in November 2006, Indian financial regulators were asked to prepare a "negative list" of tax havens as the government attempted to get a better grip on the huge tide of anonymous money entering its capital markets every year.

The Finance Ministry requested that the list be drawn up by the Reserve Bank of India and the Securities and Exchange Board of India. The move was part of a wider policy designed to increase scrutiny of India's securities markets and reduce their vulnerability to money launderers.

Given the heavy involvement of Mauritius in India's foreign investment, this jurisdiction was expected to be at the top of the regulators' list; Reserve Bank of India figures for FDI in 2004-2005 showed Mauritius as the lead external investor into India. Mauritius accounted for US$820m out of a total US$2,320 in FDI.

In an attempt to head off pressure from India to change the countries' Double Tax Avoidance Agreement, the Mauritius government announced in October 2006 that it would tighten up rules on the issuance of Tax Residence Certificates, and in future would issue them for only one year at a time.

The Indian tax authorities have believed for years that Indian investors 'round-trip' through Mauritius in order to escape capital gains tax on stock market investments. However, their attempts to re-interpret the treaty through the courts have largely failed.

Returning, once again, to regulatory matters, in July, 2007, the Mauritius National Assembly adopted three financial services bills, establishing the independence of the Financial Services Commission and liberalizing the international 'global business companies' regime.

Introducing the Bills to Parliament, the Deputy Prime Minister and Minister of Finance and Economic Development, Mr Rama Sithanen said: “in line with our philosophy to simplify processes and procedures, to remove hurdles to investment, to facilitate delivery of services, and to achieve international standards in every activity so as to be globally competitive, we are improving and modernising the legal framework that govern the non-bank financial services sector.”

The Financial Services Bill will replace the Financial Services Development Act 2001 and provide a common framework for licensing and supervision of all financial services other than banking and for the global business sector.

The new law specifically provides for the independence of the Financial Services Commission as a regulatory body.

The Financial Services Bill redefines the concept of global business. Under the new provisions, all resident companies conducting business outside Mauritius may opt for an alternative legal regime. The former restrictions on activities conducted by Category 1 Global Business Companies are being removed.

The Bill also provides for the designation of industry associations in all financial services sectors as Self Regulatory Organisations.

The Securities (Amendment) Bill extends the scope of “securities” and “exchanges”, thus enabling the Commission to approve the trading of a wider range of instruments and license Commodity and other exchanges.

The Insurance (Amendment) Bill removes certain administrative obligations on branches of foreign insurers operating in Mauritius and provides for greater flexibility in exceptional circumstances.

In May, 2010, it was announced that the Labuan Financial Services Authority (Labuan FSA) and the Financial Services Commission, Mauritius (Mauritius FSC) had signed a memorandum of understanding (MoU) that will provide the basis for the two authorities to work together, particularly in the fields of regulation, investigation and enforcement.

The MoU establishes a formal framework for mutual assistance and the exchange of information between each regulator to facilitate the enforcement of, and compliance with, the laws of each jurisdiction. Such collaboration should help to protect investors and depositors and to promote the integrity of financial services markets in the two jurisdictions.

Under the MoU, both regulators are committed to providing help within the legal limits of each jurisdiction, and it establishes procedures to handle requests for information needed for tackling financial regulatory offences.

The Labuan FSA has entered into the MoU, it was said, as one of a number of such collaborative bilateral agreements that it wants to complete with other overseas regulatory institutions and agencies. It wishes thereby to demonstrate its commitment to international cooperation, and to establish the reputation and standing of the Labuan International Business and Financial Centre.

The MoU was signed by the Labuan FSA’s director-general, Datuk Azizan Abdul Rahman Azizan, and the chief executive officer of the Mauritius FSC, Milan Metarbhan, on behalf of their respective authorities. the Mauritius FSC has now signed 17 MoUs with other regulators, including India, South Africa, Malta, Jersey, Guernsey and the Isle of Man.

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