Back from black: Mauritius on the road to ‘blacklist’ removal

This is the first in a series of posts around the ‘blacklisting’ of Mauritius by the European Union (EU) in 2020 and the steps that the jurisdiction is taking to ensure its removal from the list at the earliest opportunity. Further posts will track the progress made by the Mauritian government in reversing this decision and any related developments.

Background
On 7 May 2020, the EU included Mauritius (along with 11 other countries) on its revised list of high-risk countries that have ‘strategic deficiencies in their anti-money laundering and counter terrorist financing frameworks’ (AML-CFT Framework). The EU blacklist became applicable on 1 October 2020.

The revised methodology used by the EU to identify high-risk third countries took into account the increased interaction between the EU and the Financial Action Task Force (FATF) listing process, an enhanced engagement with third countries and reinforced consultation with its member states. In February 2020, Mauritius was placed on the FATF’s ‘grey list’ of jurisdictions subject to increased monitoring. The EU blacklisting was a direct consequence.

The five main areas noted by the FATF for Mauritius to implement its action plan were:

• Demonstrating that the supervisors of its global business sector and Designated Non-Financial Business & Professions (DNFBPs) implement risk-based supervision
• Ensuring the access to accurate basic and beneficial ownership information by competent authorities in a timely manner
• Demonstrating that law enforcement agencies have capacity to conduct money laundering investigations, including parallel financial investigations and complex cases
• Implementing a risk-based approach for supervision of non-profit organisations sector to prevent abuse for terrorist financing purposes
• Demonstrating adequate implementation of targeted financial sanctions through outreach and supervision

Mauritius made a high-level political commitment to the FATF and the ESAAMLG (Eastern & Southern Africa Anti-Money Laundering Group) to address the identified strategic deficiencies in its AML-CFT Framework in February 2020. The Mauritian authorities and designated AML/CFT supervisors have since been working secure the removal of Mauritius from the FATF and EU lists.

The EU, however, contends that these strategic deficiencies pose significant threats to the financial system of the European Union.

Impact
The FATF does not call for the application of enhanced due diligence to be applied to grey-listed jurisdictions but encourages its members to take into account the information presented below in their risk analysis. Inclusion on the EU blacklist, however, means that the financial institutions in the EU are required to perform enhanced due diligence and additional KYC (Know Your Client) checks when dealing with Mauritian companies and financial institutions.

Theoretically, this should not affect business between Mauritius and the EU because transactions can still take place subject to increased scrutiny. Practically, however, it becomes an unofficial embargo because risk-averse financial institutions seek to minimise their exposure to what are now perceived as high-risk transactions.

This means that Mauritius-based businesses dealing primarily with the EU may have to relocate to other jurisdictions in order to continue operating. It should be noted, however, that this is an EU list; it has no affect on Mauritian companies seeking to do business in Africa, Asia, America or elsewhere.

The economic impact of the EU blacklisting has been difficult to gauge given the global economic slowdown caused by the COVID-19 pandemic. There has undoubtably been an impact, however, and it is likely that this will worsen the longer Mauritius remains on the EU List.

Steps taken towards delisting
The government’s initial response was to seek the removal of Mauritius from the EU blacklist before it became effective on 1 October 2020. It soon became clear, however, that the only way to ensure delisting was to address the deficiencies highlighted in order to get removed from the FATF ‘grey list’ on which the EU blacklist is based.

The Mauritian government had already committed to secure removal from the FATF list by September 2021, but now this became a matter of increased urgency. A high-powered committee headed by the Prime Minister was assembled to accelerate Mauritius’ implementation of its FATF Action Plan. Mauritius also received technical assistance from the EU’s Global Facility on AML/CFT and the German government to assist with implementation.

The process of implementation involves the submission of progress reports, which are then reviewed by FATF representatives before being submitted for discussion at the next FATF Plenary meeting. If the Plenary is satisfied that all deficiencies have been remedied, a jurisdiction will be removed from the ‘grey list’. For Mauritius, the progress reports are supplemented by reports based on re-rating exercises conducted by ESAAMLG.

When Mauritius submitted its first Progress Report, it was commended for its efforts in making significant progress. This was further supported by ESAAMLG’s Third Follow Up Report, which noted that Mauritius was now classified as overall ‘compliant’, ‘largely compliant’ or ‘partially compliant’ with 39 of the 40 FATF Recommendations.

Mauritius’ second Progress Report was discussed at the FATF Plenary Session in February 2021. Mauritius was again commended for the progress made but was notified that it should continue to address deficiencies in the areas set out above.

Mauritius’ third Progress Report was submitted on 2 April 2021, and questions relating to the report were addressed in a virtual meeting on 12 May 2021. The Report is now scheduled for discussion at the next FATF Plenary on 11 June 2021.

Encouragingly, Ghana is due to be removed for the FATF ‘grey list’ during the June FATF Plenary. It has also been confirmed that this will result in its delisting by the EU. This is encouraging because it creates a welcome precedent that EU delisting will follow swiftly after the successful completion of an FATF Action Plan.