"I recommend Mauritius"

Mauritius: the flip side of paradise

Jean Merckaert
Faim et Développement Magazine (edited by CCFD-Terre Solidaire), février 2010

Visiting Mauritius in 1896, Mark Twain recounted the legend that “Mauritius was created first, and paradise was copied from Mauritius.” The myth recalled by the creator of Tom Sawyer provides good copy for travel agents, who focus in on the gorgeous beaches, the sun, the turquoise sea and the palm trees, depicting an idyllic island paradise. But hiding behind these colourful images lies a very different form of paradise, less ostentatious. And far less attractive.


An unknown Eden

“Is Mauritius a tax haven?” In the streets and central market at Port-Louis, the capital, the question invites incredulity. Some people mention villas belonging to sporting celebrities, like golfer Tiger Woods, who come here to keep large parts of their fortunes out of the way of taxes. Shiva, a forty-something who heads a travel agency, comments that “Cybercity [the business centre] is growing fast. Amongst the call centres you can see huge bank offices shooting up.” This is a logical development option for the island. Despite the ending of European preferential trade treatment, and the limited opportunities available to a remote island lacking in natural resources, Mauritius figures amongst the ‘success stories’ of globalisation [see 'Mauritius: an island of contrasting success' below.]

But the fact that this pearl of the Indian Ocean has become the number one secrecy jurisdiction of the Southern Hemisphere (alongside Uruguay) has gone largely unnoticed by the majority of Mauritians. Only Harold, a teacher, could talk about the subject with any degree of knowledge: “Offshore companies aren’t a novelty here. But unfortunately they’d prefer us to believe that they don’t exist.” Meanwhile, the government is on guard to protect the reputation of a sector which, whilst employing only around 2 per cent of the workforce, generates more than 10 per cent of gross national product.

Like Monaco and other black holes of the financial system, the island – which is also threatened by rising sea levels due to climate change – focuses its public relations on the environment to burnish its squeaky clean image. Mauritius, a tax haven? “It’s a myth. We don’t feature on the OECD list”, explains Ramakrishna Sithanen, deputy prime minister and finance minister to the island, speaking in October 2009. This wasn’t always the case. In 2000 Mauritius was targeted for its fiscal, judicial and regulatory arrangements by the OECD, the Financial Action Task Force, and the Financial Stability Forum. In other words, this was a place which allowed people to cheat on their taxes, to evade justice, and to speculate with wild abandon. But just a few minor concessions were sufficient to escape G-20’s net in April 2009.

India, victim of tax tourism

The view looks radically different from the other side of the Indian Ocean. For rich Indians, Port-Louis is a place to park their money to escape taxes, and then re-invest, tax-free, in their home country. This return journey, which allows people to cheat on taxes and customs duties with almost total impunity, goes by the name of ‘round-tripping’: and the process further complicates global statistics, since the huge sums involved in round-tripping are accounted for as ‘foreign’ investment.

For their part, other investors, multinationals and Indian diaspora, talk about ‘treaty shopping’: thanks to its double tax treaty with India, Mauritius, which doesn’t impose a tax on corporate profits, allows them to completely avoid tax. This combination of factors has helped make Mauritius the largest foreign investor in India, by a long way. In the past decade, this tiny island of scarcely a million inhabitants has provided 44 per cent of the capital invested in the Sub-Continent. Other tax havens, like Singapore and Cyprus, have contributed a further 15 per cent.


The spat with Delhi

Indian relations with Mauritius came under strain in 2009, when huge pressures on public finances overlapped with a massive scandal. In January 2009, B.Ramalinga Raju, chairman and founder of informatics giant Group Satyam, confessed to an accounting fraud which has rattled Indian capitalism to the bones. Around €1.5 billion had been shifted through Mauritius prior to disappearing into offshore companies located in a variety of European secrecy jurisdictions. The protagonists, including PriceWaterhouseCoopers, the auditors, face stiff penalties.

Several opposition parties, including Bharatiya Janata Party (BJP – the Party of Indian People) jumped on the bandwagon to make fighting tax havens a campaign priority for the May 2009 elections. They promised to repatriate the billions of flight capital – notably from Switzerland where over €1,000 billion of Indian assets might be hidden. Threatening to revoke its tax treaty with Mauritius, the Indian government even came to the point of blocking investments suspected of encouraging tax evasion. Goldman Sachs and Japan Tobacco, and a number of Indian businessmen found themselves excluded from access to the Indian markets, even provoking the ire of the Indian Council for Promoting Foreign Investment in October 2009. The debate is now underway: how much should India concede to the siren call of foreign-owned capital?


Tax-free profits

India isn’t the only victim of Mauritius’ position as the conduit for trade and investment flows between Asia and Africa. China, which is affected to a similar degree by ‘round-tripping’ of domestic capital, took steps in 2007 to tackle the phenomenon, by imposing taxes on Chinese holding companies registered offshore, which subsequently re-invest in the Middle Kingdom. At a lesser scale, Indonesian and South African investors also route their activities through Port-Louis to reduce their tax charges. Eva Joly reports that “Zambian copper producers make use of Mauritius to export its copper. An offshore subsidiary buys Zambian copper at €2,000 per tonne to resell at €6,000. €4,000 of profits are retained by the subsidiary . . . untaxed. Under this arrangement, the Zambian government doesn’t get a single Euro of tax on the profits.”

According to the former magistrate, now President of the European Parliament’s Development Committee, “it’s a mystery that Mauritius wasn’t listed on any of the lists (OECD, 2009). There is no requirement for accounts to be audited, no public register of companies, and above all there is the possibility to use nominees”, citing the example of “nine people who administer 1,500 companies: which makes economists burst out laughing.”

The Mauritian legislature bends over backwards to meet client needs: an offshore company can be created for 1,500 Euros, without even the need to go there. Set at 0 per cent in 1998, the tax rate on company profits has been officially raised to 15 per cent, but a simple device brings the effective rate down to 3 per cent. And by opting for 'Global Business Company' – category II – status, the rate falls to zero, and you can be provided with nominees who will administer your accounts following your instructions, while guaranteeing that “the owner’s name will never be revealed to the authorities.”


“I recommend Mauritius”

Will Mauritius feature on the black-list of havens for dirty money laundering which the Financial Action Task Force is due to publish in March? “I recommend [Mauritius and Singapore] to those with dirty money to launder” jokes anti-corruption magistrate Renaud van Ruymbecke. “Whenever a judge asks for information from Mauritius during an investigation, there’s no response.”

The Tax Justice Network, which CCFD-Terre Solidaire participates in, ranks the former British colony amongst the most opaque in the world. An Opacity Score of 96 per cent explains why Mauritius is a regular transit point for cross-border illicit financial flows. For their part, the French judiciary in 2004 has shone a light into how accounts in Mauritius were acting as conduits for occult commissions originating from a Swiss company, Telliac, which served as a black box for major companies opening up markets in Iraq, Russia and Nigeria.


The donors don’t care

The fact that tax havens are used to siphon off the wealth of poorer countries, to the tune of 600 to 800 billions of Euros annually, about ten times the annual global aid budget, doesn’t seem to have fazed aid donors. In a recent report, the NGO networks Eurodad and Counter Balance challenged the European Investment Bank (EIB) to explain why it allows the use of Mauritius as a conduit to finance development projects in Africa. The French development agency (AFD) also has questions to answer: since 2006 it has granted the Mauritian government 72 million Euro under its ‘economic transition programme.’ According to AFD’s website a part of these sums is targeted at “strengthening financial services.”

As usual the Norwegian government has placed itself amongst the pioneers. Minister for Development, Erik Sölheim, is behind an international taskforce against illicit financial flows. In 2009, acting on the recommendation of a report on ‘Tax Havens and Development’, submitted to him in June, he banned Norfund, the Norwegian fund for investing in developing countries, from using tax havens. Mauritius heads the list.

Will France follow? At the request of CCFD-Terre Solidaire and Oxfam France, the government has set up a working party involving NGOs and unions, on taxation and development. Their report is expected in Spring 2010. Senior officials at Bercy and at the foreign affairs ministry seem convinced of the case for strong action on the subject. Backed-up by the “Stop Tax Haven” campaign, will they be making this a high priority for the French Presidency of G-20, in 2011, calling on the Head of State to take actions that will deliver on his claim in September 2009 that the days of tax havens are numbered. If not, it won’t be game over for the tax havens. And the Southern countries can testify to that.

Jean Merckaert
CCFD-Terre Solidaire

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Mauritius: an island of contrasting success

Since independence in 1968, the former colony, first French, then British, has experienced growth rates averaging 6 per cent annually, making neighbouring Madagascar, 800 kilometres away and still lingering on the poverty line, green with envy.

In 1980 average earnings for a Mauritian were around US$200 annually; by 2007 this figure was pushing up to around $4,000. Unemployment is around 8 per cent of the working age population. Originally a sugar cane exporter, the island has diversified into textiles, tourism and services (financial and communications). The government wants to further diversify into new technologies, clean energy and sea food exports.

Gérard, a construction worker, puts this success into a somewhat different perspective: "we used to have plenty of projects, but now we're forced to live from day to day, and its much harder to put money aside for things like holidays."

Mauritius-born Pascal Jeanne, who works on the staff of CCFD- Terre Solidaire, sees "the island in the grip of a boom, being pulled along by the locomotive of modernity, but with several wagons being left behind in the sidings."

This article has been published in the février 2010 edition of Faim et Développement
Translated from French by John Christensen
Sources:
Mark Twain, Following the Equator: A Journey Around the World, 1897
Counter Balance, Who Benefits? video documentary (available in 2010)
Ian Hamel, Le Matin (Geneva) 5 December 2004
Counter Balance, Flying in the Face of Development: How EIB loans enable tax havens, July 2009