What Mauritius’ exit from FATF’s ‘grey list’ means

What is the issue?

Mauritius was placed in FATF’s grey list in February 2020, however, the Financial Action Task Force (FATF), has moved Mauritius out of its grey list in the October 2021 plenary held last week.

FATF had in the June 2021 plenary agreed that Mauritius had completed putting into force an action plan designed to combat and strengthen the effectiveness of its activities to combat money laundering and financing of terrorism.

What is FATF’s grey list and how does it work?

Countries are placed in the grey list for increased monitoring to counter money laundering and funding of terrorist activities and to address strategic gaps in their systems.

As many as 23 countries, including Pakistan and Cayman Islands, are in the list. While Mauritius and Botswana have been removed from the list this month, Jordan, Mali and Turkey have been added.

What were authorities in India worried about?

India’s foreign portfolio investments (FPIs) were largely routed into India via Mauritius, a tax haven country. It is the second highest source of FPI after the US as of January 2020.

Indian authorities are concerned about round-tripping of black money in the guise of FPI (through “participatory notes”) and terror funding getting routed via Mauritius.

Note: Round-tripping means rerouting illegal money that originates in India, back into the country through a tax haven.

Recently, the Reserve Bank of India and the Securities and Exchange Board of India subsequently levied investment curbs on foreign direct investments and FPI from Mauritius.

How should Indian authorities respond?

RBI and government should not be tempted by an opportunity of attracting more FPI and FDI. Prior to making a hasty move with immediate economic interests in mind, the government must look at long-term prospects of the economy and internal security.

Lesser scrutiny on ultimate beneficial ownership in investments originating from the tax haven should be contemplated with caution.

Source: This post is based on the article “What Mauritius’ exit from FATF’s ‘grey list’ means” published in the Livemint on 25^th October 2021.