Publications

HOW DOES MAURITIUS (RANKED 24TH WORLDWIDE IN EASING BUSINESS) TILT THE BALANCE BETWEEN EASE OF BUSINESS AND MONEY LAUNDERING WITHIN THE SCOPE OF THE BANKING SECRECY LAWS?

• Siv
  WORTELS LEXUS

The combined endeavors from the Board of Investment and The Financial Services Commission set up respectively under the Investment Promotion Act and the Financial Services Development Act bring into focus a rather technical and complex area which straddles business, commercial and banking law. The Double Taxation Avoidance Treaties with many countries attract foreign direct investments and other form thereof where India, as a vehicle, plays a major role with more than 40%. Is that money clean, clear and of non-criminal origin? If on the one hand, all suspicious transactions are fully investigated into by The Financial Intelligence Unit and the Independent Commission Against Corruption, on the other, our Supreme Court grinds to a halt all investigative process tainted with abuse.
Mauritius, former British Colony, has ever since 12.3.1968 left no stone unturned to pave its way towards the Global Market. It is known for its remarkable democracy where general elections are held every 5 years. The mechanism set up by the Government has shifted the country from the Sugar sector, the prime one, to a most diversified one. The regulators such as the Board of Investment (BOI) and the Financial Services Commission (FSC) among others have made the island really advantageous as a premier investment destination. However, through various initiatives Mauritius is demonstrating its willingness to combat money laundering.

This article addresses the channeling of investments into Mauritius under the close scrutiny of statutory regulators along with the control of our Supreme Court.

1. Global Business Activities

Under new legislative framework, Category 1 Global Business Licence and Category 2 Global Business Licence are available for entities intending to conduct Global Business Activities.
a) Global Business Corporation 1 are qualified to take protection of the double tax treaties to which Mauritius is a party if it comes within the definition of a resident under the taxation laws and the fields are as follows:
Aircraft financing and leasing, Assets management ,Consultancy services ,Employment services, Information and communication technologies , Insurance , Licensing and franchising, Logistics and or marketing , Operational headquarters , Pension funds ,Shipping and Shipping Management, Trading , Any other activity as may be approved by the Commission.

b) Global Business Corporation 2 is carried on by a private company which:

(i) Is incorporated or registered under the Companies Act 2001;
(ii) Does not conduct business with persons resident in Mauritius nor conduct any dealings in Mauritius currency; and
(iii) Which holds a Category 2 Global Business Licence.

It is exempt from the provisions of the Income Tax Act and is declared as a non-resident for tax purposes.

For the purpose of conducting their investment the above vehicles will transfer their money to Mauritius then and there the banks come into play.

2. BANKS –

The Bank of Mauritius Act 2004 and the Banking Act 2004 regulating the banking sector were enacted in October 2004. The Bank of Mauritius Act 2004 governs the Central Bank principally whereas the Banking Act 2004 governs the banking business in general. The Banking Act has primarily merged the global business sector and the domestic sector by abolishing the two types of banking licence: category 1 banking licence and category 2 banking licence which was allocated to banks in the domestic and global business sector respectively. The same banking licence now applies to both sectors. Strict rules apply in respect of confidentiality and opening of accounts. The banks in Mauritius are as follows: Bank of Baroda, Banque des Mascareignes Ltée, Barclays Bank Plc., Deutsche Bank (Mauritius) Limited, First City Bank Ltd which has just changed name into Bank One, Habib Bank Limited, Mauritius Commercial Bank Limited, State Bank of India, Investec Bank (Mauritius) Limited, Mauritius Post & Cooperative Bank Ltd, P.T Bank International Indonesia, SBM Nedbank International Limited, SBI International (Mauritius) Ltd, South East Asian Bank Ltd which has just changed to Bramer Banking Corporation Limited, Standard Bank (Mauritius) Limited, Standard Chartered Bank (Mauritius) Ltd,. State Bank of Mauritius Ltd and the Hong Kong & Shanghai Banking Corporation Ltd.

When opening a bank account stringent rules are applied and the following are mainly asked for:

Statutory Documents :
Certified true copy of Certificate of Incorporation, Copy of the company’s Memorandum & Articles of Association or equivalent document , Copy of the latest Audited Accounts and/or detailed Business Plan including sources and application of funds, Letter mentioning main activities / Objects of company (not applicable if already mentioned), Business registration card of the Company
Shareholders :
Group structure identifying shareholders with shareholding of more than 20% (with percentage held). The structure chart showing the Group structure must go back to ultimate individual shareholders or a company listed on a recognised stock exchange, Identity documents for all ultimate individual shareholders, controlling more than 20% in the company.
Directors:
Certified copy of the Register of Directors or any other official document (such as latest annual return from Registrar) showing this information, Identity documents of all directors of the company

Authorised Signatories:
Certified copy of the extract of a Board Resolution authorising the opening of accounts and giving the authority to authorised signatories for:
(i) the operation of the accounts,
(ii) the signing of documents.
Identity documents for all authorised signatories.
Identity Documents for all directors / shareholders / signatories / Beneficial owners:
Certified copy of passport, identity card with clear photographic image, Certified copy of a proof of residential address (utility bill of less than 12 months), Reference from a reputable bank or other acceptable financial institution (less than 6 months) for non resident individuals.

3.The Financial Intelligence Unit

The Financial Intelligence Unit (FIU) was set up under the Section 9 of the Financial Intelligence and Anti Money Laundering Act 2002 (FIAMLA) in August 2002. It is the central agency in Mauritius responsible for receiving, requesting, analyzing and disseminating to the investigatory and supervisory authorities disclosures of financial information concerning suspected proceeds of crime and alleged money laundering. There are 101 FIU’s in the world that are recognized as meeting the definition of the Egmont Group, which is an association of FIU’s in the world.*
The FIU in furtherance of its role collects, processes, analyses and interprets all information disclosed to it and obtained by it under the relevant enactments. It issues guidelines to banks, financial institutions and others. Section 5 under FIAMLA creates a limitation of payment in cash. Any person who makes or accepts any payment in cash in excess of Rs 500 000 or an equivalent amount in foreign currency, or such amount as may be prescribed shall commit an offence.
All banks, financial institutions, cash dealers and members of the relevant profession are under the obligation to report to the FIU any transaction which they judge to be suspicious. The Independent Commission Against Corruption set up under the Prevention of Corruption Act 2002 ( POCA) as well joins in to detect similar offences.
Money laundering offence is extraditable and the list of countries which signed Extradition Treaties with Great Britain and which continued to affect Mauritius after independence are: Albania,Austria,Austria,Belgian,Congo,Belgium,Cameroun,Czechoslovakia, Denmark,Estonia,Federal Republic of Germany,Finland,France,Guatemala,Hungary,Iceland,India,Iraq,Israel,Latvia,Lithuania,
Luxembourg, New Zealand,Poland,Portugal,South Africa,Sweden,Switzerland,Thailand
Togoland, United States, Zanzibar,

4. Application to Court

It is not easy to have access to banking information and the laws have given powers to the Supreme Court to check and balance the flood gates.

Under Section 64 (9) of the Banking Act 2004 , the Director-General under the POCA, the Chief Executive of the FSC established under the Financial Services Development Act 2002, the Commissioner of Police, the Director General of the Revenue Authority or any competent authority in Mauritius or outside Mauritius who requires any information from a financial institution relating to the transactions and accounts of any person, may apply to a Judge in Chambers for an order of disclosure of such transactions and accounts or such part thereof as may be necessary.

5. Principles applied by the Court

The judge in Chambers shall not make an order of disclosure unless he is satisfied that:
a) the applicant is acting in the discharge of his duties or its duties;
b) the information is material to any civil or criminal proceedings, whether pending or contemplated or is required for the purpose of any enquiry into or relating to the trafficking or narcotics and dangerous drugs, arms trafficking, offences related to terrorism under the prevention of Terrorism Act 2002 and Anti-Money Laundering Act 2002;
c) the disclosure is otherwise necessary , an all circumstances.

Some of the cases where the Judge in Chambers had the opportunity to pronounce:

1. In Ex Parte: Director of Public Prosecutions 1986 MR 196
It was held that the object of Section 34 of the Banking Act is to obviate inconvenience caused to bankers by having their employees summoned to produce documents in legal proceedings actually pending in court. It is not designed to help the police, when they suggest an offence, to obtain documents from the bank pertaining to customers suspected of committing offence.

2.In Director of Public Prosecutions v/s Indian Ocean International Bank and Ajay Shanto 1989 MR 110 – 1989 SCJ 187 *
It was held that in the context of a criminal investigation, there is no duty on the part of a bank to oppose or probe evidence given in support of police applications for the inspection of a suspected customer's accounts and that a bank is not in breach of its duty to maintain confidentiality in complying with orders obtained by the police under the Act.
No doubt these powers given to the police are wide. However, there will always be a remedy for abuses where the purpose of the authorities turns out not to have been the investigation of suspected offences but merely the breach of a person's privacy for other purposes…

3.In Mauritius Co-Operative Central Bank Ltd v/s Primary School Teachers’ Co-operative Credit Union and S. Tengur 1989 MR 233 - 1989 SCJ 67 *
It was held that a bank's duty of confidentiality goes beyond the particular interests of its customers. “It is the solid rock on which its existence and self-preservation are based. A bank which converts the affairs of its customers or allows them to be converted into an open book surely commits self-destruction. This is what the applicant bank does not want to do and claims interlocutory relief. Nothing that I have said so far means that confidentiality should not give way to the requirements of investigation into a suspected offence or to use of the information as evidence as a result of a court order’’.

4.In Ex Parte: The Commissioner of Income Tax 1996 SCJ 204

It was held that as regards confidentiality of information “Bankers are more liable to be compelled to reveal the secrets they hold when the public interests, and particularly the detection of crime, so requires” as was said in DPP v Indian Ocean International Bank [1987 MR 22]. In the case of Clinch v Inland Revenue Commissioners 1974 1 Q B 76 it was remarked per curiam that “the currently alleged ‘right of silence’’ seems to find no place in the field of tax avoidance - a fortiori where tax evasion is concerned. Indeed so far from being entitled to remain silent, the individual is subject to penal sanctions if he refuses to supply the very information that may lead to his conviction”. However, it is the functions of the Courts to protect the individual from any abuse made of the power given. It is no doubt to prevent the power given to the Commissioner from being used as an instrument of oppression and to protect against a gross invasion of privacy of the subject that the legislature has provided for certain safeguards under S 39 (6) of the Banking Act……having found the Commissioner to have given sufficient reasons in his affidavit to base his application, and being satisfied that the conditions required under S 39 (6) have been met the application must succeed.

5. Comptroller of Customs v/s Ramraccheya and two other cases 1998 MR 45-1998 SCJ 215
It was held that in considering whether to make an order of disclosure, this Court must carry out a balancing exercise and weigh all the relevant factors - vide In re State of Norway’s Application (1986) 1 W.L.R 452 at page 487…..Since it is open to us on appeal to carry out the balancing exercise afresh, we have come to the clear conclusion that the balance is in favour of making the order for disclosure, given the material on hand. We consequently quash the judgments of the learned Judge and grant the orders of disclosure applied for.

6. Jean Michel Drouin & ors v/s Bank of Baroda & ors 2008 SCJ 304
It was held that the private nature in banker’s confidentiality is balanced with the public nature in its exceptions.The jurisdiction of the Judge in Chambers is also provided under the Banking Act. Thus, he may not make an order unless he is satisfied of a number of statutory conditions. Section 64(3)(10) provides: “(10) The Judge in Chambers shall not make an order of disclosure unless he is satisfied that -the applicant is acting in the discharge of his or its duties; the information is material to any civil or criminal proceedings, whether pending or contemplated or is required for the purpose of any enquiry into or relating to the trafficking of narcotics and dangerous drugs, arms trafficking, offences related to terrorism under the Prevention of Terrorism Act 2002 or money laundering under the Financial Intelligence and Anti-Money Laundering Act 2002; or the disclosure is otherwise necessary, in all the circumstances.” The supervening nature of the Banking Act may be seen when section 64(3)(16) provides for the prevalence of section 64 to all other laws:“(16) In the event of any conflict or inconsistency between any provision of this section and the provisions of any other enactment, other than the Bank of Mauritius Act 2004, section 45(4) of the Dangerous Drugs Act, the Financial Intelligence and Anti-money Laundering Act 2002 and section 123 of the Income Tax Act and the Mutual Assistance in Criminal and Related Matters Act 2003, the provisions of this section shall prevail.” Now as regards, section 64, The rock-bed of a sound financial system is banker’s confidentiality. It stems from the basic principle in law that the banker is the agent and the client the principal: see Westminster Bank Ltd. v. Hilton (1926) 43 TLR 124 at 126, HL, per Lord Atkinson; Selangor United Rubber Estates Ltd v. Cradock (No. 3) [1968] 2 All ER 1073 at 1107, and Agip (Africa) Ltd v Jackson [1991] Ch 547, [1992] 4 All ER 451. A third party, therefore, may not be allowed, through the agent who is the banker, to probe into the affairs of the principal who is the customer. It flies in the face of the very basic the principles of propriety, ethics, trust, good sense, basic morality and good law. Bankers’ confidentiality as well as the exceptions to it has been enshrined in our law: see section 64 of the Banking Act 2000. It is for this reason that the relevant persons involved are bound by law to take oaths of confidentiality before they may even begin to exercise their function: see section 64 (1). That rule of confidentiality is found in section 64 (2) of the Banking Act: “(2) Except for the purpose of the performance of his duties or the exercise of his functions under the banking laws or as directed in writing by the central bank, no person referred to in subsection (1) shall, during or after his relationship with the financial institution, disclose directly or indirectly to any person any information relating to the affairs of any of its customers including any deposits, borrowings or transactions or other personal, financial or business affairs, without the prior written consent of the customer or his personal representative.” That rule, however, has exceptions. Section 64 (3) provides a number of situations where they do not apply. For our purposes, the relevant sections are “(3) The duty of confidentiality imposed under this section shall not apply where -(d) civil proceedings arise involving the financial institution and the customer or his account;(h) any person referred to in subsection (1) is summoned to appear before a court or a Judge in Mauritius and the court or the Judge orders the disclosure of the information;

*Source: Financial Services Business Guide (Mauritius) 2008
MR means Mauritius Reports
SCJ means Supreme Court Judgment

Potayya, S. 2011, HOW DOES MAURITIUS (RANKED 24TH WORLDWIDE IN EASING BUSINESS) TILT THE BALANCE BETWEEN EASE OF BUSINESS AND MONEY LAUNDERING WITHIN THE SCOPE OF THE BANKING SECRECY LAWS?.