SA Stuck on FATF’s Grey List: Adverse Consequences for Mauritius

The fight against money laundering and terrorist financing is a top priority for the FATF, which scrutinized jurisdictions that fail to implement effective strategies to combat these crimes. The United Arab Emirates (UAE) has been removed from the Financial Action Task Force’s (FATF) grey list, while South Africa remained on it, with significant implications for Mauritius.

South Africa’s continued presence on the grey list is a concern for Mauritius, which has a significant trade relationship with the country.

In January, 33% of new licenses issued by the Financial Services Commission (FSC) for Global Business Companies came from Africa, making it a vital market for Mauritius.

However, this development also means that Mauritius must be cautious in its dealings with South African entities.

While some experts believed that South Africa may eventually be removed from the grey list, its current status has raised concerns about increased costs for businesses operating with South African entities due to a heightened “country risk” and “customer risk assessment”.

According to Hafeez Toofail, a financial professional, this increased scrutiny will require AML supervisors to conduct an “enhanced due diligence” process, which is more costly than a standard due diligence process.

This will likely impact the competitiveness of Mauritian businesses operating with South African counterparts.

On the other hand, the UAE’s removal from the grey list has boosted its competitiveness, particularly in Dubai, which has emerged as a major global financial hub.

The emirate’s attractive features, including its numerous services and regulatory framework, are expected to attract more business. Some Mauritian companies have already set up offices in Dubai, drawn by the city’s diverse economy.

“We see that there are Mauritian companies opening offices in Dubai. It’s an interesting market that offers diversity,” said Hafeez Toofail.

However, Mauritius’s own competitiveness may be affected by the introduction of a climate responsibility tax (CRT) announced in the 2024-25 budget.

The tax will amount to 2% of an enterprise’s profits if its turnover exceeds Rs 50 million. This may negatively impact the competitiveness of businesses operating in the Global Business sector.

“They’re already struggling with the cost of doing business that’s not the most attractive among international financial centers,” argued an operator.

While the UAE’s removal from the grey list is presenting opportunities for Dubai to attract more business, South Africa’s continued presence on the list poses challenges for Mauritius. The introduction of a climate responsibility tax may also negatively impact the competitiveness of businesses operating in Mauritius.

Source: Defi Media