‘When Destruction is near, Understanding is turned upside down’ – Old Sanskrit Proverb
ENDEMIC FRAUD CULTURE?
Over the last few decades, Mauritius has been prey to shifts in its global financial image and goodwill on international financial markets: black-listed, then grey-listed as an offshore tax haven for tax evasion; suspicions of round-tripping in Foreign Direct Investment to India via Mauritius Offshore; Money laundering international markets tag on our Offshore activities; Country Residency Certificates and Tax Residency loopholes for black money funneling through the Mauritius Financial System; Banking Scandals- (National Pension Fund-Mauritius Commercial Bank 2003; Mauritius Co-operative Commercial Bank; BCCI; STC Foreign Currency deals with Commercial Banks); Air Mauritius Hedging Contracts; STC Hedging Contracts; SICOM financial engineering and its fiduciary responsibility pertaining to balance sheet book value profit-taking schemes – A tip of the perceived frailty in the degree of stringent standards of normal practice in financial services? Or a misplaced ‘Fraud culture’ image of our business environment?
It is bewildering to the seasoned observer that Government, through its Central Bank, has set a loose trend in granting banking licenses to large oligopolistic conglomerates, mainly family dynasties, who are market movers and shakers in key commercial and industrial sectors of the Mauritian economy and wielding substantial muscle in terms of cash flow liquidity, both in local rupee terms and in foreign currency reserves. The financial system thus has engineered, within its very walls, the seeds of loose partition between the commercial, banking, speculative, and due diligence roles of large family conglomerates (across all communal and racial groups in the country , presumably for ensuring poise and subtle balance in financial politics?).
It is thus a herculean task to track the flow of funds audit trail in a corporate maze that regroups business segments, domestically and internationally, and, funneled into a banking organization that is niched within the Group’s stable of companies. Creative accounting and dubious auditing standards make regulatory laxity a norm rather than the exception.
OFFSHORE TAX HAVEN STATUS
GAAR has sent shivers down the offshore sector’s spine mainly due to the lack of economic substance and demonstrable commercial activity within our local offshore jurisdiction. Local auditing firms and Management Companies have been labeled as mere post office box addresses for offshore funds seeking TRC (Tax Residency Status) in our offshore jurisdiction. Our Trust Legislation has left ample room for offshore operators to make use of colorable devices that includes using local auditing firms as local directors and administrators of offshore funds that carry international suspicions of tax evasion with no commercial substance, despite Government reassurances to the contrary.
The Government of India insistence on GAAR benchmark in the near future and the meek posture in our international economic diplomacy does not bode well in our bid to rid our image of money laundering and other dubious round-tripping and financial scams within our financial system.
Why has the Financial Services Commission not exercised caution via prudent stringent procedures to hinder the use of colourable devices devoid of commercial/economic substance beneath the Corporate Veil? Who will bear the responsibility of a rigorous assessment and a formal regulatory ruling pertaining to the adequacy of commercial and economic substance of a Third Party seeking the cloak of a TRC [Tax Residency Certificate]?
Has the FSC relinquished its prerogative to establish a comprehensive list of all Global Business transactions which could be legally construed as colourable devices [a dubious method or subterfuge clothed with apparent dignity] as per the Mc Dowell ruling? Is it not an opportune moment for FSC Mauritius to upgrade its own operational standards to internalise the core essence of GAAR, without duress or undue external diplomatic pressure?
RS 1 BILLION FRAUD
Structured Financial Instruments have been termed as Instruments of Mass Destruction. The Financial Services Commission has a duty of care to protect consumers of financial products. In collaboration with the Bank of Mauritius, FSC is responsible for identifying and taking necessary measures to eliminate business abuse. Above all, the FSC has the duty to ensure the soundness and stability of the financial system in Mauritius.
The Investment companies, not licensed by the FSC, and suspected of committing a criminal act pertaining to deceit and fraudulent misrepresentation in the proposed structured returns on investment linked to the financial products under offer for contractual consideration between the parties, may assuredly be brought under the long arm of the Law and the Financial Intelligence Unit (if the latter has any significant role still). It is not a matter of regulation but of sheer criminal behavior.
In terms of normal banking due diligence procedures and KYC litmus test, the Bank of Mauritius Supervision Department has to carry an urgent investigation into the Bank who failed to trigger a STR (Suspicious Transactions Report) in view of an alleged 23 year old Director who, along with his fellow Directors, carried out bank deposits and impending transfers circa MUR 700 Million (estimated to exceed MUR 1 Billion).
BOM has to severely reprimand and apply strict sanctions against the Bankers, who, as account managers, have implicitly condoned purported criminal behavior pertaining to the fraudulent transactions and transfers.
Should Accountants and Lawyers who advised in this business transaction and contractual clauses, terms and conditions, not be named and held legally liable for knowingly facilitating misrepresentation in a fraudulent business model, purportedly intended to induce unsuspecting investors, who relied on their professional integrity, to enter into a valid contractual relationship with the proposed fund managers in what effectively was a Ponzi Scheme?
Have fraudsters not taken advantage of the undefined territory between the regulatory space of the Bank of Mauritius and the Financial Services Commission? Is there not a serious case for reviewing the Unified Regulatory Framework for banking and non-banking services? (I have supervised postgraduate research verifying this Regulatory Model hypothesis for the Mauritius Financial System- 2011).
Is it not high time to also implement the Asset Recovery Act, and apply the most stringent litmus test to Government Officials and Ministers who should be above all suspicion?
INCEST or CHAOS?
Is it not high time we regulate to thwart corporate incest that hook political sponsors in a web of financial influence that spans from electoral funding to shady shareholding and baksheesh, to a barter system that trades tenders and licenses for political wealth and financial reward beyond ethical standards?
BLACK MONEY CURSE
This Ponzi Scheme Episode serves to prove a blatant fact: Mauritius is awash with black money desperate for elaborate investment schemes to undergo dirty cash laundering. Our tax authority, financial intelligence and banking regulators have to be summoned to enhance our goodwill as a credible world financial centre. The irony being that many significant Ponzi Investment Fraud Victims will not testify due to their illegal source of funds. Dirty money laundering is on a regional scale in foreign currency. Mauritius has woed Russian, Gulf, South African and other unverified jurisdictions funds; we need to be seriously concerned as to when the bubble will burst and Cyprus contagion reach our financial shores.