Deceitful Financial Activities

The activities of a couple of local companies engaged in dubious financial transactions came to light towards the end of March this year. They were White Dot Consultancy and Sunkai Ltd. The general statement was that the companies used to entice members of the public to place funds with them on a promise of fantastic yields and that several hundreds of millions of rupees would have been raised by them on the local market in this manner over a stretch of time. In order to give themselves initial credibility, they had paid back the promised high returns on the funds placed with them to certain clients at relatively short notice. This had served to convince the rest of the flock to entrust ever larger amounts to them in anticipation of high returns that only dreams can be made up of when seen against the background of what currently obtained on the financial market, whether in Mauritius or overseas.

In reply to a Private Notice Question from the Leader of the Opposition on Tuesday 23^rd April, the Minister of Finance stated that a sum of Rs 572 million would have been defrauded, involving 1,372 victims, only 639 of whom had filed a complaint with the police, and that 33 suspects had been put under arrest. The police has seized certain vehicles having to do with the financial crime and froze bank accounts allegedly forming part of the unlawful activity. Land and apartments, cash and cheques have also been attached in the course of the investigation. The Minister has also stated that in December 2012, the Financial Services Commission, the Bank of Mauritius, the Financial Intelligence Unit and the Independent Commission against Corruption were each carrying out independent parallel investigations into the matter. The Minister has stated that he would be taking action to reinforce the powers of the Bank of Mauritius and that he was calling in a team from the IMF to advise on how funds placed through the concerned financial companies could be recuperated.

The list of those having placed their funds with the companies involved in dubious financial activities is extending by the day as the investigations proceed. It is believed that some of the clients of those companies would not be coming forth to declare their dealings for fear of having to disclose the source of their funds. In other words, their placements would suffer from lack of accountability. The latest to figure out in the list are believed to be pastors who might have convinced those they preach to, to place their funds in those very lucrative transactions. The names of some other financial companies allegedly involved in similar activity have been added to those already made public in the first round. They are Je t’aime Marketing, GN Wealth Management Ltd, Emidore Trading Co Ltd and Helene and Partners. More others are being tracked down by the investigators. There is therefore more than what meets the eye in the first instance concerning these scandals and one needs to wait for it to unfold further to form a better opinion about the scale and scope of what has been going on. On the face of it, it appears that a good part of the money underlying the financial companies’ activities would have disappeared into thin air.

The law lays down comprehensively that no one can engage in financial business of any sort in Mauritius without formal authorisation from one of the two financial regulators, notably the Bank of Mauritius (in the case of banks and non-bank deposit takers) and the Financial Services Commission (in the case of all other financial activities). In simple words, you cannot engage in any formal financial activity without holding an explicit authorisation to do so from one or the other of the two financial regulators. The question arises therefore as to how all these companies could have been doing financial business without either obtaining a licence to do so in the first place and/or not making themselves accountable (where they have been formally authorised to undertake the business) by submitting to the concerned regulator at regular intervals statements about the nature of their business and its viability. The question also arises, inasmuch as the activity of one or other of them was brought to the attention of a regulator at least one year back, as to how and why it has carried on the activity unhindered till the matter spilled out in public in late March this year.

This is a country that has laid down a comprehensive institutional framework since a number of years to pre-empt financial scandals like those which are surfacing up today from taking place. The framework provides for such scandals to be stopped before they assume as much importance as what we are seeing today. Apart from laying down the need for any financial sector operator to engage in business only after obtaining a licence, which sets out the conditions under which the licensee should operate and be monitored by the regulator, there are the Financial Intelligence Unit (FIU) and the Independent Commission against Corruption (ICAC).

Financial institutions (banks and non-banks) are required under the law of the FIU to report directly to the FIU any transaction carried out with them by customers which they believe to be of a suspicious nature. Either those financial institutions have failed to file such a report with the FIU whenever they must have seen the financial companies (their clients) doing business on a scale not commensurate with the regular stream of their incomings from the past pattern of their dealings or otherwise by judging from the nature of their business. Clearly, banks and non-banks through which the financial companies were routing all the money they were regularly picking up from unsuspecting victims should have formed the opinion that the transactions were not “normal” even if they had been split up into smaller successive bundles in order not to arouse suspicion. Alternatively, the financial institutions may actually have reported the suspicious transactions to the FIU, in which case the FIU has the necessary follow-on investigative powers to nip the worm in the bud. ICAC on its part is empowered to detect or investigate any act of corruption, whether referred to it by whistle blowers or at its own initiative if it forms an opinion that such an act of corruption would be taking place. Its objects include cooperating with “all other statutory corporations which have as object the betterment of the social and economic life of Mauritius”. It is also empowered to “detect and investigate any matter that may involve the laundering of money or suspicious transaction that is referred to it by the FIU”.

It can be safely said therefore that we have the necessary institutional framework and the legal arsenal that could have stopped all those unlawful financial companies from diverting away money for their private benefit to the detriment of all those who were entrusting their funds to them. Or, even to engage in such activities in the first place. We need to find out how the financial companies have been able to escape regulatory scrutiny and carried on with their illegal activities over a fairly long time. Any action that may be taken in the context to avoid a recurrence of such illegal activity will help not to expose Mauritius’ standing and reputation as a serious jurisdiction.

* Published in print edition on 27 April 2013