Mauritius on the EU Black List, what impact since October 1st, 2020?

1. DTOS News Desk: Was there an impact after October 1st for the global business industry?

Vinod K Bussawah, CEO ATCM: The GB sector had started feeling the effect of FAFT/EU listing following the announcement made in May 2020. We are officially on the list as from 1 October 2020. Although we are not in a position to quantify this impact in terms of loss of revenue to the industry/country, we have noticed that quality business is not coming to our jurisdiction, existing businesses are feeling uneasy with current situation and large institutional clients are considering alternatives to Mauritius. If this trend continues, FDI will go down and put a pressure on our forex.

2. DTOS News Desk: As CEO of the Association of Trust and Management Companies, what is the temperature check with the global business operators?

Vinod K Bussawah: We are managing with the current business we have and working with the regulators to reassure our clients that Mauritius is committed to “get out” of the black list ahead of the time frame set by EU. You will have also noticed that the Ministry of Financial Services and Good Governance has issued a Communique on 1 October 2020 to reassure the local and international investment community that Mauritius remains actively engaged in the implementation of the FATF Action Plan reiterating Government’s commitment to continue in its endeavour to fully implement the FATF action plan at the earliest. This communique has been well received by the operators and their partners. However, we are awaiting for further similar communications from the authorities to keep everybody abreast of the progress being made.

 3. DTOS News Desk: Have bankers seen any reduction in the investment flows in, and out of, Mauritius since 1^st Oct? If yes, was this linked to our inclusion on the EU Black List?

Yogesh Gokool, Senior Executive - Head Global Business at AfrAsia Bank: I think it might be untimely to gauge the impact of the EU blacklisting on the investment flows, or flow of capital, through the Mauritius jurisdiction.  The Country has been officially placed on this blacklist for only about two months now and so far, banks in general have not faced major operational issues.  While I certainly cannot speak on behalf of all the banks operating from the jurisdiction, I can say, from AfrAsia Bank’s perspective and, relying on information gathered at industry level, that the banking sector has faced only minimal disruption, or no disruption of significant concern, at least up to now.  Bearing in mind that the potential blacklisting of the financial centre was announced as far back as 7 May 2020. 

It is true that, from a reputational perspective, a lot of the international investors and investment managers, who are familiar with Mauritius, have tried to understand the impending implications of this listing on their operations and whether they should be redomiciling their special purpose vehicles.  For instance, Mauritius-domiciled Private Equity funds receiving EU funding are technically affected by the blacklisting of Mauritius.  However, I also understand that existing structures have been grandfathered and new succession funds have received derogation for a certain timeframe.

On the other hand, we should be mindful that, amidst this COVID-19 recessionary period, where interest rates and yields are going down, investors are very cautious about investment.  The focus today is more on asset protection rather than growth and yield; 

now more than ever, we are faced with a need for financial security in an insecure market. Today, investors are more risk-averse and it goes without saying that globally, the level of investment is probably at its lowest and that uncertainty can have long-lasting negative impact. With the resurgence of the pandemic in some parts of Europe and the ensuing implementation of mitigation and lockdown measures, economic recovery is expected to stall, affecting in the near-term outlook.

4. Have you seen yet any slowdown in the incorporation of structures or Funds in the past weeks?

Yogesh Gokool: The Financial Services Commission statistics of new incorporations in Mauritius reveal that on average, some 130 GBL Companies and Authorised Companies, and 6 investment funds have been set up on a monthly basis since the beginning of this year.  This represents a 18% fall in the number of incorporations relative to the same period last year.

That said, facing a volatile cocktail of the aftermath consequences of the pandemic coupled with the blacklisting, Mauritius is bound to see a slowdown in new incorporations and more voluntary winding-up actions during the current investment climate.  This downturn of activity does not apply to Mauritius only but to all international financial centres.  In the private equity space, deals are very scarce and General Partners (GPs) are facing certain dilemmas: valuing targets without the COVID-19 effect and deploying funds in the current environment; eventually, these shall affect IRR, performance and fees.  Transactions on the secondary market are becoming difficult, resulting in the life of existing funds being extended and exits being delayed.

However, in every challenge there are opportunities.  The risk appetite of investors is likely to change in the medium term.  For instance, opportunistic investors are currently hungry for distressed assets whilst others are exploring new investment sectors like pharmaceuticals and technology.  Those who have a buy-and-hold strategy and are invested in the defensive sector have not churned their portfolios a lot because of the long-term investment horizon.

Irrespective of the EU blacklist, I see this trend perpetuating in the short term.  However, by 2022, things would have changed and the negative economic growth is likely to be reversed, leading to a surge in cross-border transactions and an increasing demand for investment vehicles.

5. DTOS News Desk: What would be the measures that the Mauritian Management Companies could be taken to eliminate the deficiencies identified by the FATF?

Vinod K Bussawah, Amendments have been made to several aspects of our legislations and this also means that there will be more compliance checks and balance imposed on our industry. Our members embrace these changes which are meant to be beneficial to the sector.

We have and will need to continue cooperating and work hand in hand with the regulators to win the common battle called “EU Black List”.

6. DTOS News Desk: Are you confident on the withdrawal of Mauritius from the list and the given timeframe?

Vinod K Bussawah: The significant upgrading of our regulatory framework and the significant outreach by the regulator demonstrates the willingness of Mauritius to get out of the FATF and UE.  There are still other sectors that are undergoing the same process, like the real estate, jewellery and gambling sectors that are undergoing the same transformation.

The high-powered committee headed by the Prime Minister to specifically look at the actions points required to fulfil the FATF requirements demonstrates the seriousness of the government to take all necessary steps.  We have also got the reassurance of our parent Minister that Mauritius will do what it takes to fulfil all FATF requirements.

From the report of the last plenary session of the FATF, Mauritius has been commended on progress made as at date despite being in lockdown for 3 months. We also need to be realistic that there was a lot of work to do and still a lot complete.  We understand that there will be further reports to be submitted to the FATF. The review of the Feb 2021 plenary session of the FATF will be crucial.

Once we exit the FATF Grey List, we will need to apply to the EU to be removed from their blacklist and this process will take around six weeks.

7. DTOS News Desk: What could be the effect for the Mauritius banking and the global business sectors, on a medium-long term, if Mauritius is not withdrawn from the FATF list?

Yogesh Gokool: An extended blacklisting will obviously be damaging for Mauritius in the medium-long term.  Not only will we have the reputational and business risks to manage but also those emanating on the operational side.  For instance, should we be prepared to face the below scenarios?

- Our correspondent banks denying to service the requirements of Mauritius banks? 

- An international bank transfer taking days, if not weeks, to be processed?

- EU nationals unable to transfer funds to Mauritius for the acquisition of a real estate property

Mauritian importers unable to make transfers to Europe for imports

Fortunately, the issue is a temporary one.  During the virtual plenary session held between 21-23 October 2020, FATF commended Mauritius’ significant progress in so far as aligning the jurisdiction to international best practices to fight money-laundering, terrorist financing and proliferation financing.  It is commendable of the authorities to have worked ahead of the established timelines in upholding our “largely compliant” status. Nevertheless, we should not forget that this is also the result of a concerted effort of all players forming part of an ecosystem.  This drive, to continually address the 5 deficiencies that have been identified by the FATF, needs to be upheld to target a delisting by the next FATF assessment in Q1 2021.

Vinod K Bussawah: The longer we stay on the list, there would be loss of business and impact in terms of:

- Loss in FDI and pressure on Forex

- Loss of direct and indirect employment

- Making it more difficult for us to win back our clients who might have moved to new jurisdictions during the “Blacklist” period

Financial services centres worldwide today are more sophisticated than they were some ten years ago. Today, the corporate services industry is more global and integrated.  Clients are looking for asset protection and growth in an increasingly complex economic and political environment and this will be exacerbated by Covid-19. Hence we can also see this as an opportunity to reinvent ourselves, and shift from traditional business to new ones.