Port Louis: Facing allegations of being home to 'post box addresses' for round-tripping of funds by Indian entities, Mauritius says it has put in place strongest possible regulatory checks against any illicit flow of funds.
The government officials, as also top executives at leading MNCs and local firms operating financial services and advisory businesses here say that Mauritius is victim of a wrong perception and the regulations in the country are strong enough to thwart any round-tripping efforts.
Mauritius has often been criticised in India as a country with 'post box addresses' for entities making investments into the Indian markets, as numerous investment companies, including private equity funds, have been found to have similar addresses in this Indian Ocean island nation.
Mauritius, however, says that this 'wrong perception' has got created because of limited knowledge about a strong regulatory regime that allows 'management companies' to lend their address to their clients -- a practice that enables an effective surveillance for any possible wrongdoings.
The regulations also insist that the entities, setting up shop in Mauritius for investments in India and other countries, must have a substantial presence here in terms of infrastructure, employees and business, a top official said.
The industry executives also agree that norms are very strict in Mauritius for management companies, who are held liable for any wrongdoings by their clients, while they are also required to have representatives on the client boards to ensure an effective compliance to the local regulations.
"It is unfortunate that there is a wrong perception about Mauritius in India with regard to it being a tax haven or a post-box economy," global banking giant Standard Chartered's Mauritius CEO Sridhar Nagarajan said.
"But, as a major international bank operating here, we can tell you that the regulations are very strict here and even opening a bank account is very difficult when compared to many other jurisdictions in the world," he said.
"There is a very good mechanism in place to check the round tripping and it cannot be possible that such a huge amount of FDI that has been routed to India through Mauritius has all been round tripping," he said, while adding that investors chose Mauritius route because of genuine benefits in terms of tax, location and ease of doing business here.
Global advisory giant PwC's Anthony Leung Shing also said that Mauritius had long ago stopped the traditional way of doing business through a "so-called letter-box address type model" and the focus has now shifted to the companies setting up huge offices and hiring large number of employees here.
"So what is happening is that we have moved up the value chain from being a place for mostly holding companies to provider of various services, which include functions like treasury functions, procurement, administration, accounting, payroll etc," Shing said.
"It's not because they want to launder black money or for round tripping, the investors come to Mauritius for commercial considerations. The companies using Mauritius route coming here are genuine and credible investors who are listed on stock exchanges and cannot be involved in black money.
"They obviously want to lower their tax liabilities and therefore they want a clean platform where they can also minimise their tax exposure," PwC's Shing said.
KPMG's Wasoudev Balloo also said that a wrong perception has probably grown over time about Mauritius and that there have not been even a single case of money laundering so far.
He said that the regulations are strong enough here to thwart even any attempt of round tripping and even a small suspicion is reported to the relevant authorities.
Top executives at many management companies and industry bodies, including GFM, IFS, ATMC, CIM Global and International Proximity, shared similar views and said it is time to move on from the perception that "all we do in Mauritius is sit under a coconut tree and launder money."
They also insisted that the management company structure helps regulators in doing their job, as management companies are made responsible for their clients' activities.
Stanchart's Nagarajan said: "As a banker we find comfort from this management company layer. The reputation risks carried by them are huge, even if one or two of their clients are found to be indulging in wrongful activities.
"They do not gain anything by allowing some nefarious activities by any of their clients."
When asked what the advisory firms do if some Indian entity approaches them with an investment plan that might be for routing of black money, PwC's Shing said: "We have very strict internal code of conduct at PwC and if anyone comes to us with any such devious schemes, we will simply not entertain them. So does all the management companies operating here do.
"Any such schemes would not stand the scrutiny of regulations in Mauritius and getting involved with such business practices involves huge reputational risks and the companies would simply lose their licence if they are found to be involved in any such illicit operations," he said.
The management companies are required to do first tier of screening work and due diligence of their global clients, followed by the second tier of screening by the regulators.
The regulator also conducts regular inspections of management companies, both onsite and remote, while compliance is also checked for special 'India Conditions' that ensures that funds of Indian origin do not get routed back to India.
If the Financial Services Commission (FSC) needs any further information with regard to the global business companies, they approach management companies for the same.
Besides, the management companies also need to regularly update all the details of their clients, including the identity and address of ultimate beneficial owners.