[Blog] An open letter to Minister Mahen Seeruttun by Kevin Teeroovengadum

Dear Minister of Financial Services and Good Governance Honourable Mahen Kumar Seeruttun,

I am taking this opportunity to write a letter addressed to you. If I may, let me at the outset clear a few protocols. I have never written a letter to a Minister. I have never met you personally though I have only heard good things about you from a number of my friends of the private sector who have had dealings with you in your current and past capacities. I would also like to clarify that I am not looking for a job, a board position, a contract or anything in that sense. I am not a member of any political party in Mauritius nor elsewhere. I wanted to make this clear, because perception can lead to a lot of misunderstandings. The reason I am writing to you Honourable Minister, is because I am extremely concerned by the announcement of the European Commission of last Thursday, with Mauritius being dumped in the bucket of black listed countries and the irreversible effects that this will have on Mauritius.

If I may, since we don’t know each other, I have worked most of my career in the private equity space, mingled with a lot of International Development Finance Institutions, Private Equity Firms, Investment houses, Family offices, Asset Managers, International banks and Investment banks amongst others. The global investment and banking arena might seem big for someone who is sitting in Mauritius, but in fact it’s a small club of people. Having worked in the industry, having met so many international investors/bankers, having made so many friends and very good friends in various positions in these firms, be it CEOs, head of compliance, head of legal, head of business development, head of investments etc; I would like to share my views with you as to the terrible news and implications that I see with the announcement of the European Commission. This is also based on taking it on me since last Thursday to speak to my friends based in London, Paris, Luxembourg, Brussels, Frankfurt, Singapore, Washington etc. That was for me to understand how they view Mauritius in general and their take from European Commission’s announcement. Because at the end of the day, if we don’t speak to our markets, how will we know how the markets (and most importantly international) will react not only on D-Day of 1st October, but also between now and D-Day?

So what I am going to list below is based on my various discussions since last Thursday with a number of international stakeholders: 

To make it simple, I will list below what I see and perceive:

1- The European Commission’s announcement (fair or unfair, it doesn’t matter) is a precursor of what’s coming. This is a strong warning to Mauritius and it is a non-negotiable one. In fact I read this letter as a warning to say that they have patiently been waiting for Mauritius to do the necessary cleansing and will not wait further. 

2- The European Commission wants action. So what does this mean concretely? Over the years, we know via our various local press and also international press, a number of politically exposed persons (PEPs) have made the headlines about their dealings in Mauritius, more so from a specific country in Southern Africa. The same specific country who got a new President couple of years ago, demonstrated last year and beginning of this year to the international community how the new President had to clamp down on the people close to the Ex-President and yet they are members of the same political party. This was something totally unthinkable, and yet the new(ish) President sent a very strong message by taking on these inner circles of the ex-President. I think Mauritius has to also set the example and deal with a number of perceived PEPs. This is simple to deal with. Just give them 2 weeks to leave Mauritius as a jurisdiction. This in itself will demonstrate to the European Commission that your Ministry means business. As we know actions speak louder than words. And we need swift actions.

3- The communique released by what seemed to be from your Ministry and published yesterday night on the main online media platforms.

a)    The communique was a PDF like A4 with no logo of your Ministry or Government of Mauritius. A number of stakeholders asked whether this was a real communique or not. A totally legitimate question as even myself I did ask whether it could be a scam or someone pretending to be from the Ministry etc. These days we have to be careful.

b)    The Content seemed to be a bit shallow and basically didn’t say anything major as such.

c)    Reiterating what has been announced by the European Commission is unfair doesn’t work anymore. Life is unfair very often and we have to deal with it. We are a small nation at the end of the day and very much at the receiving end unfortunately.

d)    Even if we are in a Covid-19 crisis lockdown, this should not be used as what might seemed to be an excuse that your colleagues might be waiting for the “deconfinement” to restart working. In this digital age, it is expected that everyone who was supposed to work and ensure that we don’t get on the black list and we fulfil the last 5 requirements asked by the European Commission, actually have been working and not waiting for the 15th of May or the “deconfinement” date. 

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4- The risks for Mauritius being on that black list are many:

a)    To be on the same list as Afghanistan, Iraq, Syria, Yemen, Zimbabwe amongst others, is the worst ever. Who would have in his or her wildest nightmares thought we would be in that list. It doesn’t matter that we know we are not like these countries. What matters is what the international investors and banks think and how they will perceive Mauritius. And being on the black list is a No-Go for them.

b)    How do we promote ourselves as an International Finance Centre (IFC) and a gateway to Africa when we are black listed at par with Zimbabwe? Our unique selling proposition (USP) is gone.

c)    How can our Stock Exchange of Mauritius (SEM) which has been trying to position itself as an exchange not only for Mauritius but also for a number of primary and dual listings for foreign companies claim its vision and objectives? How will foreign investors who trade on our stock exchange feel when we are black listed? We need these foreign investors and not the other way round.

d)    In the global business sector, a number of European based investors will not be able to use Mauritius. Simple as that. Already having gone round and spoken to a number who have been using Mauritius for many years are contemplating two things:

• a.    Those who have existing structures will start looking to moving their structures in other jurisdictions. This might take a bit of time, but it will be a matter of couple of months and not years.

• b.    The search of other jurisdictions for their new investments as they can’t put at risk and on hold whatever they are doing during this period of uncertainty before the 1st of October and wait what the outcome will be for Mauritius. That’s already happening and means a loss of business for Mauritius. What if they open in other jurisdictions and might not want to relocate back to Mauritius after the 1st of October irrespective of the European Commission’s final verdict?

e)    As for our banking sector, this is a major risk which can lead to much bigger problems for the whole of Mauritius. Think about Cyprus, Iceland and so on. They didn’t have the same issues as we currently have, but the domino effect that could lead to the collapse of Mauritius is something very real. As they say don’t play with the match that could create the wildest fire ever.

• a.    Our banking sector is the heart of our economy. Without the banking sector, our economy which we have proudly built over the last 40 years, will just die. Think of places like Zimbabwe, Venezuela, North Korea etc. Our banking sector has very few big truly international banks present in the likes of HSBC and Standard Chartered Bank. We should ask ourselves as to the reasons why Deutsche bank left Mauritius couple of years ago. Why did Barclays leave Africa including Mauritius, now known as ABSA? Our banking sector relies heavily on international correspondent banks. Whenever we need money to flow in and out of Mauritius, our local banks have to go through these international banks. So the question is not only whether the international banks will only increase their due diligence on each and every transaction that flows in and out of Mauritius (which by the way is a huge and painful task if they have to do that on each and every transaction), but more importantly these international banks can decide not to operate anymore as correspondent banks with Mauritian banks as the risks are too high for them to deal with a black listed country. These risks are real and will be the end of our banking sector as they might be in a position that they could be disconnected for payments and flows to Europe and other parts of the world. To put it simply, imagine a Mauritian who has kids overseas for further studies, how will the person pay for the university fees if we don’t have correspondent banks in Europe who are willing to work with Mauritius? How will importers from Mauritius pay their suppliers in Europe? How will our exporters to Europe be paid?
   
• b.     Over the years, as our financial services sector flourished, the deposits of foreigners in our local banks are in the tune of billions. The risk of them pulling their deposits out of a blacklisted country is real. Wouldn’t any sane person do the same if that person had deposits in a country that all of sudden went on the black list? Would you wait for D-Day of 1st of October or would the person start liquidating the deposits out of Mauritius? So if it happens, this will lead to a terrible situation for our local banks, as even if they say they are currently liquid, a bank run by foreign investors, will lead to liquidity and solvency risks and potential collapse. And that would be the most dangerous moment ever in our lifetime for Mauritius.
• c.    How will our banks be able to raise international credit lines and other funding lines which are in their normal business activities? Who will want to deal with our banks? Impact of increase of cost of funding from those (a very few) who would still be opened with our local banks?
   
• d.    Pressure on our local currency which is already being hit by the Covid-19 crisis in our textile and tourism sectors. This blacklisting will accentuate further pressure and most likely a free-fall of our rupee. Have a look Zimbabwe’s local currency.

Over the years, Mauritius has received a lot of foreign direct investments (FDI) that went into our real estate sector. I am told 60% of the annual FDI. And at the same time the Economic Development Board (EDB) has been trying to come up with a new pillar being the silver economy to attract foreign retirees to come to Mauritius. Will a French or a South African or a British citizen risk investing in real estate in Mauritius, not knowing if he or she will be able to repatriate any money out of a black listed Mauritius?  Will they risk renting a house or an apartment and transferring money from Paris, London to Mauritius without causing a red flag with their banks in Europe?

I can carry on with the list of risks as it surely doesn’t end there. But this is what I would propose Honourable Minister. 

• (a)    We need to show a strong commitment from Mauritius that we will do everything in our capacity to meet and abide by the European Commission regulations. We need to tick these five boxes required as soon as possible and not wait for 1st of October. Time is not on our side. I believe, Honourable Minister, that you personally should drive this home for us. Fly to Brussels and tell them face to face (while respecting social distancing) that you commit on behalf of Mauritius to fulfil these requirements. Look at our European counterparts in their eyes and tell them we will do it. Unfortunately you won’t be able to shake hands during the Covid-19 crisis, but your physical presence will suffice.
   
• (b)    Appoint a professional lobbyist to help you build relationship with the European Commission and also to tell you things that you might not get out of formal letters and formal exchanges from the European Commissions. You know well that corridor meetings and discussions very often tell you the truth that you might not be aware of. I am more than happy to connect you to in case you don’t have any potential lobbyist in your address book.
   
• (c)    Appoint a professional practical consultant (who comes from the international global business and banking sector) to not only advise but more importantly implement the changes that need to be done. Today with digitalisation, one can do unbelievable and unthinkable improvements in our Anti-Money-Laundering processes very rapidly. If you need help to find one, I would be happy to connect you to the professionals based in London or Paris or Singapore. They would easily fix the problem as they have been there before and have done it for others.
   
• (d)    High time we clean the global business sector once and for all. We have too many global management companies. I am told exceeding 120! I would suggest we need this to come down to not more than 25. What it means, is you need to instila minimum capital requirement as high as possible to push for cleansing and also consolidation of the management companies. My experience in the banking sector in other countries, I have seen this happened where the regulator has had to force consolidation.
   
• (e)    Like I said before, Mauritius will need to get rid of these politically exposed persons as soon as possible and use this as an opportunity to demonstrate your swift actions. Mauritius means business and clean business.
   
• (f)    There are brilliant Mauritians who are in the international banking and global business sector overseas, as we say in the heart of the city of London, Dubai, Paris etc. I would suggest you try to convince a number of them to come back to Mauritius and fill in key positions on boards or executive roles of key institutions, as your advisors, or even why not ask them to philanthropically help you where you need. Why not set up an advisory council where you can include Mauritians in the financial services sector from different parts of the world. This lockdown period has showed us how Webbex, Zoom can be used to have virtual meetings all around the world. These Mauritians would give you first-hand information of how the global market reacts, and also provide you with ideas as how to rehaul the financial services sector and also how to re-energise key institutions such as the FSC amongst others. Even if you know a number of Mauritians in the financial services sector in Mauritius, it is important for you Honourable Minister to get what’s happening in the international arena by those who operate in the international arena. They are in a different league and can provide answers to a lot of our problems in a proactive manner.

I trust Honourable Minister that this letter goes in the spirt of a concerned patriot who is just sharing his views and hopefully will be heard. 

Keep well and more importantly keep safe.

Your sincerely,

Kevin Teeroovengadum