What does that mean?
The European Commission has added Mauritius to the list of third world countries with insufficient measures to combat money laundering and terrorist financing. This list of high-risk countries represents those countries that highlight strategic shortcomings in their anti-money laundering and anti-terrorist financing framework. Jurisdictions are assessed according to 3 criteria:
Fiscal transparency: is the country compliant with international reporting standards or does it lack transparency?
Fair tax competition: is the country fiscally fair, through fair practices, or does it have a harmful tax regime?
Genuine economic activity: does the country set the correct tax rate and meet the standards set by the OECD (Organisation for Economic Co-operation and Development)? For example, using too low corporate tax rates encourages artificial tax structures to set up.
Established to protect the EU financial system and the good functioning of the internal market, this list effectively prevents this kind of illegal activity. It consists of improving good tax governance at the international level and avoiding unfair structures in order to maintain respect between the different members of the European Union.
What are the consequences?
Once a country is on this list, it will be subjected to enhanced controls. Monitoring will be carried out by EU banks and other entities involved in the fight against money laundering, the aim being to identify any suspicious capital flows.
The Commission will apply customer due diligence measures on activities related to business relations and transactions to the listed countries, as well as on every financial transaction of financial institutions from the listed countries. Namely, Mauritius was already placed on the Financial Action Task Force (FATF) list of "jurisdictions under enhanced monitoring". The EU has recently been working closely with them and would be exposed to a high risk of money laundering and terrorist financing if it did not add the countries identified by the FATF to its list.
How to react following such a decision?
In the wake of this incident, Mauritius has made a high-level written political commitment since February 2020 to address the deficiencies identified and implement the FATF action plan as soon as possible. The aim is for Mauritius to be removed from the FATF and EU lists and to demonstrate to the global investment community that it remains a credible and trustworthy jurisdiction. As Finance Minister Renganaden Padayachy noted, Mauritius is now seen as "a springboard for growth for banks, business service providers, fund and asset managers, brokers and renowned insurance companies". It is important for the country to maintain this stable environment that fosters a climate of confidence for all foreign investors. Conclusion: We are confident that the Mauritian government's response to this threat will maintain Mauritius as a safe, responsible and strategic destination for foreign investors.