Mauritius, which was traditionally preferred by many international investors due to its tax advantage and low operational cost, was put in the grey list by FATF in February 2020 – a decision that led to deeper scrutiny, black-listing by European Union and investment restrictions imposed by Reserve Bank of India (RBI).
FATF is now considering a re-rating of Mauritius following certain legal, regulatory and operational changes implemented in the past 20 months to combat money-laundering and terror funding, three persons familiar with the discussions told ET. There is a distinct possibility that at the end of the week-long FATF plenary session, which began on October 17, Mauritius will be out of the grey list.
Bank of Mauritius governor Harvesh Kumar Seegolam, who has led several negotiations with FATF teams, did not respond to queries from ET.
Agencies
‘Inclusion of Mauritius a Big Plus for India-dedicated Funds’
However, according to senior bankers, lawyers and officials of market intermediaries and service providers who are in touch with authorities there said that ‘white-listing of Mauritius’ is expected this month.
This would have dual impact: First, it could pave the way for RBI lifting the curbs on ownership and control by entities in Mauritius investing in Indian non-banking finance companies (NBFCs) and other payment service operators; second, there would be lesser scrutiny on the ‘beneficial ownership’ (BO) of Mauritius vehicles coming in as foreign portfolio investor (FPI) and foreign direct investor (FDI).
“The inclusion of Mauritius would be a big plus for India-dedicated funds, especially those investing in Indian NBFCs…It would also help a number of investors who aren’t allowed to invest in a fund domiciled in a ‘FATF Grey List’ country,” said Anand Singh, co-founder of Wilson Financial Services. Singh, who is also a member of a task force of Financial Services Commission, Mauritius said that ever since its inclusion in the FATF’s Grey list, Mauritius has made progress in addressing strategic deficiencies in AML CFT (counter financing of terrorism) policies and has implemented a “risk-based” supervision for licensed funds and holding companies.
According to Richie Sancheti, partner, Algo Legal, once out of the grey list, the credibility of Mauritius would improve in the eyes of institutional investors. From an India perspective, RBI had conveyed a general lack of confidence in the disclosure of ultimate beneficial owners (UBOs) in investments originating from FATF non-compliant jurisdictions.
“RBI restricts investors from such jurisdictions from acquiring ‘significant influence’ (voting power at 20% plus and assessed on an aggregate basis) in NBFCs, ARCs, Housing Finance Companies and India-based Payment System Operators (PSOs). From a SEBI perspective, the custodians and other intermediaries should take into account a possible re-rating in their risk analysis while scrutinising or seeking KYC details from Mauritius-based entities,” said Sancheti.
CUSTODIAN BANKS MAY REVIEW STATUS
According to an October 16 note from a senior compliance official of a bank in Mauritius, the country is only a few steps away from being delisted from the ‘FATF list of jurisdictions under increased monitoring, which is commonly known as grey list’.
Even as RBI took a stern view on Mauritius post its grey-listing, Sebi had allowed category-1 FPIs from Mauritius to trade on Indian stock exchanges. Besides pooling in institutional money, Cat-1 funds can issue and subscribe to participatory notes – offshore derivatives with Indian stocks as underlier – and are spared of tax on indirect transfers. But despite Sebi’s stand – which may be driven by diplomatic relations Mauritius shares with India – MNC banks which act as custodians to FPIs and FDIs have internally tagged the tax haven as a ‘high-risk jurisdiction’.
Funds from such jurisdictions have to disclose greater details about their investors having beneficial ownership (BO). Typically, an investor which contributes 25% or more in a fund or exercises a control through the board of the asset manager is considered to have a BO in an FPI. This threshold for determining BO is lowered to 10% for investors from high-risk jurisdictions like Mauritius. So, once Mauritius is white-listed, the threshold for BO would be revised to 25% for investors from the tax haven.
