Mauritius may be removed from the FATF’s Grey List

Mauritius, which international investors have long favoured due to its tax advantages and cheap operational costs, was placed on the FATF’s grey list in February 2020, prompting increased scrutiny, European Union blocklisting, and Reserve Bank of India investment restrictions. 

Global investors and offshore funds reaching India via Mauritius are wagering that the tax haven will lose part of its stigma in the coming weeks and be removed from the Financial Action Task Force’s (FATF) ‘grey list.’ monitors the colour of money by setting anti-money laundering criteria. 

Mauritius, which foreign investors have long favoured because of its tax advantages and cheap operational costs, was placed on the FATF’s grey list in February 2020, prompting increased scrutiny, European Union blocklisting, and Reserve Bank of India investment restrictions (RBI). 

According to three people involved with the negotiations, the FATF is now contemplating re-rating Mauritius due to specific legislative, regulatory, and operational improvements taken in the last 20 months to combat money laundering and terror financing. Mauritius may be removed from the grey list by the end of the week-long FATF plenary session, which began on October 17. 

Harvest Kumar Seegolam, the governor of the Bank of Mauritius, who has overseen many discussions with FATF teams, did not answer ET’s questions. 

According to top bankers, attorneys, and officials of market intermediaries and service providers in touch with authorities, ‘ White-listing of Mauritius’ is expected this month. 

This would have a two-fold effect: first, it could open the path for the RBI to relax restrictions on Mauritius entities owning and controlling Indian non-banking finance companies (NBFCs) and other payment services; second, the ‘beneficial ownership’ (BO) of Mauritius vehicles entering as foreign portfolio investor (FPI) and foreign direct investor (FDI) would be less scrutinized (FDI). 

“The addition of Mauritius would represent a significant boon for India-focused funds, particularly those who invest in Indian NBFCs… It would also benefit a lot of investors who are unable to invest in funds headquartered in countries on the FATF Grey List, “Wilson Financial Services co-founder Anand Singh stated.

Since its inclusion in the FATF’s Greylist, Mauritius has made progress in addressing strategic deficiencies in AML CFT (counter financing of terrorism) policies and has applied “risk-based” supervision for licensed funds and holding companies, according to Singh, who is also a member of a task force of the Financial Services Commission of Mauritius. 

According to Richie Sancheti, partner at Algo Legal, if Mauritius is removed off the grey list, its trust with institutional investors would increase. In India, the Reserve Bank of India (RBI) expressed scepticism about disclosing ultimate beneficial owners (UBOs) in assets originating in FATF non-compliant jurisdictions. 

“The RBI prohibits investors from such countries from gaining significant influence’ in NBFCs, ARCs, Housing Finance Companies, and India-based Payment System Operators (voting power of 20% or more on an aggregate basis) (PSOs). 

Custodians and other intermediaries should consider a possible re-rating in their risk assessments when scrutinizing or obtaining KYC data from Mauritius-based businesses, according to SEBI, “Sancheti said. 

Status Review by Curator Banks 

According to a memo from a senior compliance employee at a Mauritius bank dated October 16, the country is just a few steps away from being removed from the ‘FATF list of countries under enhanced surveillance, often known as the grey list.’  

Even though the RBI had taken a hard line against Mauritius following its greylisting, Sebi had allowed Mauritius’ category-1 FPIs to trade on Indian stock markets.

Cat-1 funds can issue and enrol to participation notes, offshore derivatives using Indian equities as the underlier, and are exempt from indirect transfer taxes.

Despite Sebi’s stance – which may be influenced by Mauritius’ diplomatic ties with India – MNC banks that function as custodians for FPIs and FDIs have classified the tax haven as a ‘high-risk jurisdiction’ internally.