The Financial Action Task Force (FATF), an intergovernmental organization to combat money laundering and terrorist financing, removed Mauritius from its gray list at the October 2021 plenary session in October 2021. Mint is studying the impact on India.

The Financial Action Task Force (FATF), an intergovernmental organization working to combat money laundering and terrorist financing, removed Mauritius from its gray list at the October 2021 plenary session in October 2021. Mint is studying the impact on India.

It is known that due to the legislative and regulatory changes made by the Mauritian government over the past 20 months, the FATF is actively considering re-evaluating Mauritius and removing it from the gray list. The FATF had agreed at the plenary session in June 2021 that Mauritius had completed the implementation of an action plan to combat and strengthen the effectiveness of its anti-money laundering and terrorist financing activities. The removal of Mauritius from the FATF gray list took effect at its last plenary session in Paris last week.

The FATF was founded during the Paris G7 summit in 1989. It sets standards or develops recommendations to prevent illegal activities. The task force also awakens the political will to implement legal and regulatory reforms. More than 200 countries and jurisdictions are participating in the implementation of these reform measures. Efforts are to continuously review money laundering, terrorist financing techniques and threats to the global financial system and to tighten standards for dealing with new risks. It monitors and offsets countries that do not comply with the established standards.

Countries are being grayed out to strengthen monitoring of money laundering and terrorist financing and to fill strategic gaps in their systems. Up to 23 countries are on the list, including Pakistan and the Cayman Islands. While Mauritius and Botswana were removed from the list this month, Jordan, Mali and Turkey have been added.

Mauritius was graylisted by the FATF in February 2020, and with foreign portfolio investment (FPIs) being largely channeled into India via the tax haven country – the second highest source of FPI after the US in January 2020 – authorities have been cautious. Concerned about the circulation of illicit money under the guise of FPI (through “Participatory Notes”) and the routing of terrorist financing via Mauritius, the Reserve Bank of India and the Securities and Exchange Board of India subsequently imposed investment restrictions on FDI and FPI from Mauritius.

The RBI and the government should not be misled by the possibility of attracting more FPI and FDI, which is the likely consequence of the FATF’s graylisting of Mauritius. Before taking a hasty move with immediate economic interests, the government must examine the long-term prospects for the economy and domestic security. A minor audit of ultimate beneficial ownership of assets originating from the tax haven should be considered with caution.

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Ref: https://www.livemint.com