Following the EU Commission’s proposed changes to its list of 3rd countries whose money laundering deficiencies pose a significant threat to the financial system of the EU published in early May, 2020, the results, can be criticised. For example see previous post here. The results suggest the EU list is based on a flawed methodology that overweights the response and underweights the threat. The result of the EU exercise is to add 12 new countries and remove 6.
Since the publication of the revised EU list, Financial Crime News have concluded “deep dives” on both a country removed from the list, “Ethiopia” and a country added to the list “Mauritius” and compared the two from a financial crime perspective and against 38 other Sub Saharan African Countries.
Ethiopia is Sub Saharan Africa’s 4th largest economy with a GDP (2019) of US$94 billion and Mauritius 20th largest with a GDP (2019) of US$14.7 billion. Mauritius is though considered an offshore centre, attracting assets from overseas. Mauritius is ranked 51st out of 133 assessed counties, with a secrecy score of 72 in the Financial Secrecy Index (FSI) 2020. Nevertheless, according to the FSI, “Mauritius accounts for 0.03% of the global market for offshore financial services making it a tiny player compared to other secrecy jurisdictions.” In 2017, the EU put Mauritius on its List of non-cooperative jurisdictions for tax purposes. In 2019, the EU removed Mauritius from the list rating it now as “Co-operative”. The OECD Global Forum on Transparency & Exchange of Information for Tax Purposes rates Mauritius as “Compliant”.
Authors and main contributors to these deep dive country reports (30 plus pages) include the Editor and for Ethiopia Netsanet Solomon, Nathanael Tilahun and Eyob Getachew Serba and for Mauritius Ashvin Ramgoolam and Ursula M’Crystal.
For a summary of the findings from the Country deep dives comparing Ethiopia with Mauritius see below:
The results show Mauritius outperforms Ethiopia significantly, notwithstanding recent clear improvements from Ethiopia. Both Botswana & Ghana (countries also added to the EU List) also outperform Ethiopia, though Ethiopia outperforms both Zimbabwe & Uganda (countries also added to the EU List).
Looking solely at the head to head results with regards to scores against the FATF 40 Recommendations & 11 Immediate Outcomes, a summary of the most up to date findings are set out below:
Despite Mauritius reporting better results than Ethiopia as against FATF expectations, Ethiopia has been removed from the FATF strategic deficiencies list.
This can be explained though as Ethiopia was further ahead having agreed an action plan with FATF in February 2017, whereas Mauritius only agreed its action plan with FATF in January 2020. FATF removed Ethiopia from its strategic deficiencies list in October 2019, stating, “FATF welcomes Ethiopia’s significant progress in improving its AML/CFT regime and notes that Ethiopia has strengthened the effectiveness of its AML/CFT regime and addressed related technical deficiencies to meet the commitments in its action plan regarding the strategic deficiencies that the FATF identified in February 2017. “
Mauritius was added to the FATF list in February 2020, and made a high-level political commitment to work with the FATF and ESAAMLG to strengthen the effectiveness of its AML/CFT regime, recognising improvements are needed. Since the completion of its Mutual Evaluation Report (MER) in 2018, Mauritius has made progress on a number of its MER recommended actions to improve technical compliance and effectiveness, including amending the legal framework to require legal persons and legal arrangements to disclose of beneficial ownership information and improving the processes of identifying and confiscating proceeds of crimes. Mauritius will work to implement its action plan, including by:
1. demonstrating that the supervisors of its global business sector and DNFBPs implement risk-based supervision;
2. ensuring the access to accurate basic and beneficial ownership information by competent authorities in a timely manner;
3. demonstrating that LEAs have capacity to conduct money laundering investigations, including parallel financial investigations and complex cases;
4. implementing a risk based approach for supervision of its NPO sector to prevent abuse for TF purposes, and
5. demonstrating the adequate implementation of targeted financial sanctions through outreach and supervision.
In a previous post Financial Crime News argued that, “the methodology employed by the EU is prejudicial to less developed Countries, and unfairly targets such Countries, without giving fair regard to what should be the overriding purpose of the exercise, namely to identify Countries “that pose significant threats to the financial system of the Union.” This has the potential of increasing de risking and isolating less developed countries from important developed markets such as the EU.“
Having completed a deep dive on a Country being delisted and one being added, it’s hard not to conclude that the results appear perverse, at least in the case of Mauritius and likely Botswana and Ghana across the African continent. The only reasonable conclusion that can be arrived at is to assume the decisions by FATF to delist Ethiopia and to list Mauritius is really most of all that matters in these cases, which if true is to question the need for an independent EU List which has an intended purpose of identifying “third-country jurisdictions which have strategic deficiencies in their AML/CFT regimes that pose significant threats to the financial system of the Union.”
Whilst its very hard to imagine many of the countries on the EU list qualify when judged fairly against such a test, it is also clear that Countries on the list may present less of a threat than third countries removed or yet other third countries not on the list.
The EU should think again, before proceeding further with this approach