The removal of Mauritius from FATF’s grey list, and the implications for compliance teams

Following a Financial Action Task Force (FATF) plenary in February 2020, Mauritius was added to FATF’s list of Jurisdictions under Increased Monitoring, which is commonly referred to as the ‘grey list’. How did Mauritius find itself in this position, and what does its removal mean for firms operating in – or expanding into – the country?

Even before being added to the FATF grey list, Mauritius found itself in the international spotlight. In 2019, the International Consortium of Investigative Journalists (ICIJ) published an investigation dubbed the ‘Mauritius Leaks’, following a leak of around 200,000 documents from the law firm Conyers Dill & Pearman. 

The investigation alleged ‘shell’ or ‘brass plate’ companies were set up that existed in Mauritius by name and address only, allowing multinationals to channel funds through ‘resident’ shell companies, paying an effective 3% or less income tax rate in order to avoid paying much higher taxes in other countries – compounded by rules around double tax treaties. 

Mauritius rejected criticism of its role as a ‘tax revenue haven’ and it was said to have responded by introducing stricter rules to prevent tax abuse.

Why Was Mauritius placed on FATF’s ‘Grey List’?

The reason why Mauritius was later placed on the grey list stems from a Mutual Evaluation Report (MER) in 2018, which highlighted a number of deficiencies, such as technical compliance and effectiveness around:

• Beneficial ownership information related to legal persons and legal arrangements
• Processes for identifying and confiscating the proceeds of crimes

After two follow-up reports on progress addressing its deficiencies, one in July 2019 and another in November 2019, Mauritius was added to the grey list in February 2020. In response, Mauritius agreed to implement an action plan which included:

1. Demonstrating that the supervisors of its global business sector and Designated Non-Financial Business and Professions (DNFBPs) implement risk-based supervision
2. Ensuring access to accurate basic and beneficial ownership information by competent authorities in a timely manner
3. Demonstrating that Law Enforcement Authorities (LEAs) have the capacity to conduct money laundering investigations, including parallel financial investigations and complex cases
4. Implementing a risk-based approach for supervision of its Non-Profit Organizations (NPOs) sector to prevent abuse for the purpose of financing terrorism
5. Demonstrating the adequate implementation of targeted financial sanctions through outreach and supervision

The Road To Removal from FATF’s ‘Grey List’

On the road to being removed for the grey list, there was a third follow-up report in February 2021, along with a progress update in the same month which noted that: 

• Outreach work had helped promote understanding of ML and TF risks and obligations
• Effective risk-based supervision plans had been developed for the Financial Services Commission
• There had been an improved focus on access to beneficial ownership information in a timely manner 
• Training had been provided to law enforcement authorities so that they had the capabilities to carry out money laundering investigations

Following the FATF plenary in October 2021, Mauritius was finally removed from the grey list following improvements made to its AML and CTF regime since the initial MER in 2018, with FATF noting:

“The FATF welcomes Mauritius’s significant progress in improving its AML/CFT regime. Mauritius has strengthened the effectiveness of its AML/CFT regime and addressed related technical deficiencies to meet the commitments in its action plan regarding the strategic deficiencies that the FATF identified in February 2020. Mauritius is therefore no longer subject to the FATF’s increased monitoring process. Mauritius will continue to work with ESAAMLG to improve further its AML/CFT system”.

What Removal Means for Compliance Teams

Following the removal of Mauritius from the FATF grey list, the jurisdiction was also removed from the UK’s High-Risk Third Country list in November 2021 and there is the possibility it will also be removed from the European Union’s High-Risk Third Country list, which it has been on since October 2020.

For firms looking to expand their operations into Mauritius following its removal from FATF’s grey list, compliance teams may want to consider the below points when managing their financial crime risks:

• What level of exposure does your firm currently have to Mauritius? This could be through client relationships or transactional activity. Are risks understood and manageable?
• How does your firm calculate risk at the country level? Does it only take into account FATF listings, or are other factors (such as intelligence reports and indexes) related to a country considered?
• Is your firm’s country risk rating for Mauritius appropriate?
• Does your firm understand the business and anti-financial crime landscape in Mauritius beyond the recent developments related to improved FATF standards?
• Financial crime risks are not linear, therefore a lower country risk rating should not be viewed as presenting an overall lower level of financial crime risk in all cases. The client relationship and activity (such as product use and value and volume of transactions) should be viewed holistically in combination with country-level factors, both from a client and transactions perspective 

To learn more, download some of our recent reports:

• The Evolving Use of Sanctions
• State of Financial Crime: Mid-Year Review 
• A Guide to AML for Digital Banks

Produced in collaboration with Dev Odedra, independent AML expert and founder of The Laundry.