As supervisory authority, the Bank of Mauritius adopted prior to the passage of the Economic Crime and Anti-Money Laundering Act 2000 certain procedures
to maintain the good name and standing of the banking sector. In the offshore banking sector, it adopted a selective licensing approach with a view to giving licences only to banks having a good international
standing. In so doing, it hosted banks having proven anti-money laundering deterrence policies. The Bank also handed over to banks the 40 recommendations of the Financial Action Task Force (FATF) as a guide towards
warding off criminal abuse of the banking sector. On-site inspections have been used in order to test the extent to which banks adopted rigorous practices to avoid involvement in money laundering activities,
including compliance with section 40 of the Banking Act 1988 which prohibits the opening of accounts without establishing the true identity of account holders.
Money laundering is a term used to describe all procedures/techniques to disguise the sources of proceeds of illegal transactions in order to make them
appear as originating from a legitimate source.
To a criminal disposing of proceeds obtained from illicit activities, it is vital to launder such proceeds. In other words, the success of criminal
operations lies in the ability to transform such criminal proceeds into “clean” money through the banking system. The task of money launderers has been facilitated by the increased integration of the world’s
financial systems resulting from technological developments in the field of communication, as well as the removal of barriers to the free movement of capital.
Empirical evidence indicates that money launderers perpetrate their crimes in jurisdictions where the risk of detection is very low and those in which
the “know your customer” principle is not rigorously applied. Such jurisdictions are usually characterised by:
a) Lax regulations and weak supervision of financial institutions
b) Improper licensing of financial institutions
c) Inadequate customer identification rules
d) Ease with which anonymous accounts or accounts in fictitious names can be opened
e) Rigid bank secrecy laws
f) Absence of criminal sanctions
g) Absence of an efficient suspicious transactions reporting system
h) No cooperation in international exchange of information between anti-money laundering authorities
i) Supervisory authorities not vigilant or sufficiently active in spite of having the legal framework in place.
Given the worldwide ramifications of money laundering, governments have combined their efforts to fight it during the past decade. One of the most
important international agreements reached to tackle the issue was the United Nations Vienna Convention against Narcotics Drugs and Psychotropic Substances (the Vienna Convention 1988). The Basel Committee on
Banking Supervision issued in December 1988, a “Statement of Principles” with which international banks of member states are expected to comply. The principles cover, inter alia, identification of customers,
avoidance of suspicious transactions and cooperation with law enforcement agencies. While issuing these principles, the committee noted the reputational risk to which banks could be exposed and the potential threat
to their stability if they inadvertently become associated with money laundering. Banks are, therefore, required to have an internal written compliance manual that will provide for a program incorporating the
principles of the Basel Committee. The most important international body which is engaged in relentlessly fighting money laundering is the Financial Action Task Force on Money Laundering (FATF), which was set up by
the G7 countries at their 1989 Economic Summit. The FATF has set itself three main tasks:
Monitoring members’ progress in applying measures to counter money laundering,
Reviewing money laundering techniques and counter-measures, and
Promoting the adoption and implementation of appropriate measures by non-member countries.
The FATF has formulated 40 recommendations which set out the basic anti-money laundering framework. The recommendations which are designed to be of
universal application revolve around three main themes:
a) Members are urged to ratify the Vienna convention to ensure that secrecy laws do not inhibit implementation of the recommendations and to provide
mutual assistance in investigation, prosecution and extradition.
b) The recommendations provide for the criminalization of laundering the proceeds of drug-related crimes, the freezing, seizing and confiscation of
property acquired with laundered funds.
c) The recommendations have defined the roles for financial institutions with respect to
(i) identifying the customers, (ii) maintaining records sufficient to allow reconstruction of transactions, and (iii) making these records available to
the right authorities for criminal investigations and prosecutions.
At a recent G9 Finance Ministers and Central Bank Governors meeting held in Prague, the participants issued a statement in which they acknowledged that
significant progress had been made in recent months in the international fight against money laundering through the work of the FATF.
The Economic Crime and Anti-Money Laundering Act 2000 which was passed on 1 3 June 2000 in Mauritius, enshrines the main recommendations laid down by the
FATF and represents yet another measure translating Mauritius’ efforts to fight money laundering. Briefly, the Act:
a) lays down measures for preventing the laundering of money and property obtained from proceeds derived from criminal activities;
b) requires banks, financial institutions, money-changers, foreign exchange dealers and other persons engaged in giving professional advice in financial
matters to demand from their clients proof of identity in appropriate cases;
c) provides for the setting up of an Economic Crime Division to which the cases of suspicious transactions are ultimately reported;
d) confers powers to the Economic Crime Division and other law enforcement authorities to enable investigation into money laundering offences and
economic crimes to be carried out; and
e) empowers courts to issue orders freezing any assets of the suspect(s) pending any investigation.
Following the proclamation of the Economic Crime and Anti-Money Laundering Act 2000, the Bank of Mauritius issued directives to all the banks in
Mauritius, drawing their attention to the need for them to adhere to the provisions of the Act and report to the Bank suspicious transactions as defined in the Act, together with specified particulars.
While the Economic Crime and Anti-Money Laundering Act 2000 consolidates the legislation with a view to fighting money laundering, in response to
international demands, the authorities had since long already put in place a host of measures to protect Mauntius’ financial system against money laundering activities.
As the licensing authority for banks, money-changers, foreign exchange dealers and non-bank deposit-taking financial institutions, the Bank of Mauritius
exercises strict procedures over licensing of financial institutions. Effectively, the Bank of Mauritius grants licences only to institutions with a proven track record, strong internal control systems and staffed
by “fit and proper” persons. It is significant that out of the ten domestic banks operating in Mauritius, five are branches of internationally reputable banks.
Perhaps the single most important requirement of the abovementioned 40 recommendations of the FATF is the necessity to identify customers properly.
Anonymous and/or fictitious accounts are known to be one of the most widely used methods to channel dirty money into the system. The “know your customer” principle is well enshrined in the Banking Act 1988.
Section 40 of the Banking Act 1988 makes it illegal for banks to open accounts without properly identifying its customers. Any breach of the section
amounts to an offence and is punishable by a fine not exceeding Rs 5.0 million.
As per section 39 of the Dangerous Drugs Act 1986, the Supreme Court of Mauritius is empowered to order persons convicted of drug trafficking, not to
dispose of any of their assets or make any withdrawal from any bank account or bank deposit. Moreover, banks, as well as the Bank of Mauritius are notified of the list of persons so convicted.
On the other hand, branches of international banks employ compliance officers who ensure that the explicit anti-money laundering procedures laid down by
their head offices are strictly adhered to. Further, meetings are held with external auditors, internal auditors and compliance officers of banks, during which anti-money laundering procedures adopted by the
institutions are examined.
The Bank of Mauritius has placed much emphasis on on-site inspection. During regular on-site inspections, anti-money laundering procedures put in place
by each bank are examined and discussed with the management as regards their effectiveness and the need, if any, to strengthen procedures in the light of latest developments. Accordingly, identification procedures
for new customers and systems for tracking suspicious transactions are assessed. The enactment of the Economic Crime and Anti-Money Laundering Act 2000 represents a follow up on banks’ observance of the 40
recommendations of the FATF as a guide to avoiding money laundering techniques.
There is a popular misconception that offshore banks facilitate the process of money laundering. When the first offshore bank was set up in Mauritius in
1989, the authorities, mindful of the perception that money launderers might utilise our offshore banking network to launder their proceeds, introduced a section (section 14(4)) in the Banking Act 1988 which
provides that only an institution which is “a branch or a related corporation of a foreign bank of
established reputation, or a bank incorporated in Mauritius” may be granted an offshore banking licence. Of the eleven offshore banks operating in
Mauritius, five are branches and another five locally incorporated subsidiaries of banks of international repute. Strict procedures laid down for the execution of transactions and the scrupulous observance by local
management of those procedures have helped to keep a clean reputation for Mauritius.
In addition to the measures highlighted in the foregoing paragraphs, offshore banks are subject to more stringent measures of control by the Bank of
Mauritius. They are required to submit to the Bank of Mauritius monthly returns calling for more detailed information than in the case of domestic banks. For example, cash transactions exceeding USD 5,000 have to be
reported, stating the number and amount of transactions, as well as the number of accounts involved. These are subject to reviews by on-site inspectors as to the source and provenance of funds. Most banks operating
in Mauritius have a policy of not accepting cash deposits and are subject to strict due diligence procedures as regards the transfer of funds. Countrywise classification of deposits, interbank funds and loans and
advances are also required to be disclosed. Unusual transactions, identified through off-site surveillance, are queried promptly.
The Economic Crime and Anti-Money Laundering Act 2000 is a proactive legislation which translates the determination of the Mauritian authorities to fight
money laundering on the same footing as the major nations of the world. It is worth noting that a report issued by the FATF on 22 June 2000 mentioned that