After being the “bad guy” in the eyes of the international financial services community for failure to fight money laundering and terrorism financing and being subsequently delisted from the grey list of the Financial Action Task Force (FATF) and the European Union (EU) list of non-cooperative countries, Mauritius is now committed to reset its image. Last week, it hosted a workshop on tax good governance, anti-money laundering, attended by the EU Commissioner dealing with these issues. In an interview with lexpress, she praises the progress of Mauritius, but states that the risks of falling back exist. That’s why it is crucial to adhere to international best practices on tax governance and meet new standards and guidelines.

What were the issues on the agenda of the meeting you had on Monday morning with ministers of the Organisation of African, Caribbean and Pacific (OACP) states and what is the core message you expect them to take back home?

There have been a number of issues raised on anti-money laundering at the FATF’s level with the EU. You must be aware that we provide strong technical support to all countries facing issues linked to AML /CFT. We are happy that Mauritius and Ghana, which were listed, are no longer there following enormous improvements. They are now offering help to other countries facing difficulties from being delisted and will be sharing experience in the most practical way.

We also discussed the need for more collaboration between the two parties and my presence is a very strong message that I want to engage directly. This is because regardless of where money laundering happens, it impacts everywhere. It is a global problem. We have issues in Europe, and we are strengthening our own anti-laundering money legislation which will also impact on how we deal with third-country partners. Money laundering can lead to other types of crime, amongst others, child abduction or drug trade. We forget sometimes the kind of damage crime emanating from dirty money can cause to society. This is why it is so important to address these issues.

What has been up to now the EU’s response on that front?

The EU has done a lot over the years. It was important for me to bring you that message. So, we were connected together to discuss in more details. I had some bilateral discussions with countries confronted with money laundering. However, my message is clear: the EU will support them in their struggle to fight against AML. It is important that we get this right. The most difficult part is that we will never reach a situation where we can say the job is done because criminals find new ways to get dirty money into the system. We need to remain vigilant. In Mauritius, there has been a strong political leadership at the highest level, that is, the prime minister with whom I had an interesting conversation today (Monday-ed.)

The big challenge for OACP states is that once delisted from FATF’s grey list or EU’s list of high-risk countries, a country can be listed again if it does not comply to the best practices on tax governance. What should be done to avoid such risks?

It could also be the case for European countries. I mean no country is immune from getting back to the list again. At least, there is an understanding how to stay off the list. So we need to be vigilant to make sure that the system is really strong so that you are able to track suspicious transactions; that there are no deficiencies in the system and to keep alert when there is too much cash in the system. We have digitalized our financial system. Today, we have crypto-money but the technology behind could be subject to both bad and good practices. As a matter of fact, we have included crypto into money-laundering legislations and we must all be vigilant. These crypto worries could be used for money-laundering purposes.

Since the focus seems mainly on non-EU jurisdictions for non-compliance issues, could this provide sufficient argument to suggest that the EU is discriminatory to spare its member states from any harassment for failure to live up to the standards of the fight against money laundering and terrorism financing?

I am afraid this is not the case because we do have member states on the list occasionally if they are not meeting the requirements of money-laundering legislation. So, no member state from the EU is immune from the list. The purpose of our exchange with OACP member states is also to explain how we engage with parent countries. We will also have to come back to exchange again because our new legislation will bring some changes. For example, instead of having one, there will be two lists. I have committed that I will explain all of that when we get back to our legislative process. I really want to address the core of your question which suggests that we are not looking inwards, but rather outwards. I am afraid to say that nothing could be further from the truth. In fact, whenever EU member states are in a situation of non-compliance, we use infringement proceedings against them and they pay fines. So we are mindful to make sure that our own sheet is clean.

“Organised crime is more connected and internationally active than ever before, as reflected in the integration of digital systems in many criminal activities and the expansion of the online trade in illicit goods and services.”

The public in Mauritius became aware of what money laundering and the financing of terrorism really mean when Mauritius found itself on the FATF’s and the EU’s lists. What is actually the state of those hurdles of the financial sector?

Money laundering in the financial system hurts us all. It lets criminals conceal the illegal origins of their dirty money, allowing them to profit from crime. At the same time, scandals involving financial institutions undermine trust in the financial system and the public administrations that regulate it. In the EU, we have been working hard to establish a framework of rules and practices to close loopholes. This includes the EU Anti Money Laundering (AML) directives and our new package of proposals of July 2021. We have already reached an agreement with EU’s legislators (European Parliament and Council) to extend the scope of our AML/CFT rules. This will improve safe access to digital services and stop crypto-currencies from being used to launder money as part of the recast of the Transfer of Funds regulation and the Market in Crypto Assets regulation (MiCA). Other parts of the package are still in negotiation and we hope to reach an agreement in the coming months.

But financial crime is a global issue that cannot be solved in isolation. That is why it is essential to progress on the fight against international financial crime. Organised crime is more connected and internationally active than ever before, as reflected in the integration of digital systems in many criminal activities and the expansion of the online trade in illicit goods and services. I am pleased to be here in Mauritius to engage with the local authorities on these important issues. We share the belief in the importance of global cooperation and multilateralism. That it is far better to come together, talk and cooperate to tackle shared challenges than to act alone. We look forward to continuing our cooperation with OACP countries in this important endeavour.

What are the objectives sought in holding the meeting of OACP/EU countries in Mauritius?

This workshop is important as it allows us share experiences and best practices in the field of AML/CFT. I thus welcome the progress achieved by Mauritius in its AML/CFT regime over the last years. This progress is fully recognised internationally as Mauritius has been delisted from the grey list of the FATF – and subsequently by the EU since the beginning 2022. Progress has been quick, with a delisting in less than two years, demonstrating strong political commitment and full engagement of both competent authorities and private stakeholders, such as financial institutions, accountants and lawyers.

The EU is fully supportive of this effort on AML/CFT and has provided technical assistance via the EU Global Facility and the support of the EU delegation in Mauritius. More than 20 actions took place, including training workshops on technical topics such as the beneficiary ownership requirements or special investigative measures in AML/CFT investigations. This cooperation is crucial as financial crime and dirty money do not stop at borders. It is in our common interest to have strong AML/CFT regimes preserving the integrity of the financial markets. It is important that Mauritius keeps this momentum and continues to ensure a robust AML/CFT regime going forward as new risks are emerging continuously, including those related to crypto assets currently. All of us need to be vigilant and aware of new moneylaundering threats. I welcome the leading role played by Mauritius in sharing its experience of reforms and exchanging best practices with the 19 countries within the FATF regional body for the Eastern and Southern Africa AML Group “ESAMLAAG” and even beyond. I also thank Mauritius for hosting the OACP states workshop thus allowing us all to have very fruitful exchanges. We are firmly committed to working together with our international partners and to provide support to address the deficiencies identified. We look forward to continuous cooperation with OACP countries in this important endeavour.

What are the factors likely to promote economic growth, fight effectively the risks and pitfalls intrinsic to financial sector activities, and the initiatives that should be taken for Mauritius to avoid being trapped again ?

I want finance to be at the service of consumers and businesses. Money matters, because whether you’re a private citizen, a small and medium enterprise or a large company, you will need money to help you reach your goals. You also need to be able to plan for the future. So it’s crucial that people can invest in their projects and that businesses big and small have the opportunity to innovate and thrive. This is why in the EU, we have been working rigorously to put in place the building blocks that will support a strong European industry, help finance our energy transition and channel private money into the much-needed investments in the green and digital transitions. This means for instance making sure that companies get the funding they need from banks or capital markets. We recently tabled ambitious legislative proposals to enhance companies’ access to finance and address fragmentation in capital markets, including divergent rules on withholding taxes and on corporate insolvency. We also need to broaden opportunities for individuals to save and invest over the long term in order to bring people on this journey. This is something that is very important to me.

Is the stability of the financial sector at risk and will you identify the very factors that are likely to cause instability and the measures to keep them away from the economic borders of countries fully engaged in financial services ?

In today’s international context, marked by global tensions, and in particular the Russian aggression in Ukraine – just at our borders, therefore making Europe stronger on all fronts, is essential. The single market remains the EU’s main strength. It is key to the delivery of its strategic objectives not only in the economic sphere but also in wider geopolitical terms. The European Commission has a very busy financial services agenda and will continue making the EU an attractive financial centre and preserve financial stability, which is at the core of my mission. For instance, with our strengthened banking rules, we are addressing the remaining deficiencies in the prudential framework and implementing the final Basel III reforms. In insurance, the Solvency II review is underway to ensure that the insurance sector steps up and plays its full part in the EU economy. And, as you know, we have a very ambitious anti-money laundering package.

What should Mauritius undertake more specifically to achieve one of its main ambitions of being the financial centre of the region in the eyes of the international community, and potential investors who wish to take advantage of business opportunities in the continent’s financial services sector ?

Although I recognise that our context is different, it is key for local authorities to continue building trust in the financial system, and establish a solid framework that will keep Mauritius a competitive international financial centre. It is the country with one of the most developed financial systems and one of our closest partners in the region. Recent developments are promising in this regard, and thanks to its strong political commitment and full engagement, Mauritius is one of the countries that was removed from the AML list the quickest.

Now, let us move on the disappointing scene followed the invasion of Ukraine which could easily be described as a war between the two nations. What triggered this situation?-First, let me clarify: it is not a war between Russia and Ukraine, it is Russia’s renewed aggression against Ukraine from 24 February 2022, i.e. nearly one year ago – as Russia’s invasion of Ukraine started in 2014. What triggered Russia’s aggression is a question you should rather ask the Kremlin.-There are reasons to believe if we stand by Russia’s explanation and arguments that this invasion is fully justified in order to protect both its border and its people. What is your personal stand on that issue?-The invasion by Russia of a sovereign neighbour cannot be justified - the killing of Ukrainians citizens - men, women and children and the destruction of towns and villages, cannot be justified. The justifications provided are rather a testimony of Russia’s attempts to pin the consequences on the EU with a concerted disinformation campaign. -After the decision of Russia to invade Ukraine, a new world order has emerged, what are its main characteristics?

Russia’s  aggression has triggered a series of negative consequences  for example,. spikes in energy and food prices and fertilisers shortage around the world. This has direct consequences for food security. In Europe, and many other regions across the world, we see rising inflation making the cost of living and of doing business more expensive. We have seen a return to more confrontational geopolitics.

What has been the response of the European Union ?

In response, Europe has shown the power of its collective will. We have provided unwavering support to Ukraine, including financial support and we have supported efforts to reduce the impact on global food supplies caused by Russian’s invasion. I want to commend here the courage of the Ukrainian people. As you may have seen European countries are providing more and more critical weapons to Ukraine. We have also put in place the strongest sanctions ever. They already have an impact on Russia, leaving its economy facing a decade of regression, and its industry is starved of any modern and critical technologies. EU sanctions are carefully calibrated and do not restrict trade in agricultural and food products - despite Russian making claims to the contrary.

As you have just mentioned rightly so, inflation emerging from the situation in the conflict between Russia and Ukraine is a big challenge for the whole world. However, the real concern is how this phenomenon will evolve in the future. What are the scenario that the world is poised to live with for quite a long time from now?

Inflation remains a concern but recently the indications are that inflation may have peaked. Inflationary pressures arise from  the sequence of adverse shocks that have hit the global and euro area economies in the recent past, including the Covid pandemic and the Russian invasion of Ukraine in 2022, which led to a sharp increase in commodity prices for natural gas in particular, but also food and oil. Although economic disruptions related to the pandemic appear to be gradually falling, with pressures in global supply chains easing, higher commodity prices is likely to  keep inflation elevated in the short term. Our expectation is that inflation will ease through 2023. The actions of central banks, including the ECB, to address inflation are likely to continue. The EU with  our twenty-seven  Member States have put in place measures to ease the high cost of living for citizens and businesses particularly  with regard to alleviating the impacts of high energy prices. The approach is to provide targeting and temporary measures.

What will be the impact of the inflation on the economy of developing countries ?

The impact of rising food and energy prices on real incomes can generate real hardship, particularly in the lowest income economies, where these commodities are typically a bigger share of consumption. The EU has worked tirelessly to address the problems of global food insecurity, including by provide safe corridors for the export of grains from Ukraine and supporting the UN efforts to move grain to alleviate pressure on supplies, especially for low income countries. More generally the rise in global inflation has led to a series of interest rate increases  and much tighter credit conditions, worsening the terms on which emerging market economies can borrow and putting pressure on economies where debt levels are high. These pressures have eased a little in the last 2-3 months, but the risk of further debt distress if conditions deteriorate again is real, and policy makers need to remain acutely aware of these risks.  Although I fully recognise that the context is different,   higher energy and food prices in the EU is impacting on the cost of living, and as a contributor to broader inflationary pressures in the EU, which is why targeted measures are in place to support vulnerable households and businesses.

To mitigate the effects of the actual inflationary pressures on global economies, many central bank have had recourse to higher interest rates. How far this stand will prove to be the real answer to the actual situation bearing in mind that higher interest rate becomes simultaneously a burden for debtors ?

Like many other central banks, last December the European Central Bank, the ECB, took further steps to address inflationary pressures in the euro area, raising its interest rates further, by 50bps. The ECB also signaled that it would continue to increase interest rates at a steady pace to levels that are sufficiently restrictive to bring inflation back to target.  We trust that the ECB’s monetary policy will contribute to reducing inflationary pressures in the euro area and thereby support macroeconomic stability. As you are aware the ECB is independent?

What is the worst scenario to which the present situation could possibly lead?

The global environment is highly uncertain, with inflation and interest rates much higher than they have been for many years. There is increasing fragmentation and geopolitical tensions. Predictions of a recession in the EU have eased as we entered 2023 - it is true that the situation is not as bad today as we had predicted but it is also not at all certain what the future might hold. So we remain cautious and attentive to adverse trends in our economy. Our efforts to address energy supply insecurity in 2022 have helped to avoid recession, but we remain vigilant for this year and beyond. In the worst case, a further spike in geopolitical tensions could add to volatility in financial markets, pushing up risk premia and interest rates, putting further stress on the more vulnerable economies.