EU Blacklisting: a catalyst for setting up a regulatory framework for the financing of political parties

 

Raj Makoond, Program Director – Eclosia & Chairman of the Financial Services Institute

In this paper, Raj Makoond reviews the limited legislative changes that have occurred with respect to the funding of political parties in Mauritius. He argues that, with the recent EU blacklisting, the absence of a regulatory framework is a major systemic weakness in the country’s efforts to combat corruption and money laundering. The introduction of an appropriate legislation to ensure transparency and accountability in the source and use of funds has become a high priority.  

 

Over the last 25 years, Mauritius has introduced a wide range of legal and regulatory reforms in its fight against corruption and money laundering. These reforms were driven by both the international context as well as the national economic exigencies, particularly Mauritius’ strategy to position itself as a reliable and respected jurisdiction for offshore business activities, later to be known as global businesses.

In this paper, I outline the progress achieved on the legal and institutional arrangements in Mauritius to date as well as the challenges that remain to be addressed. In particular, I argue that, in the context of the EU blacklisting, the absence of a regulatory framework with respect to the financing of political parties continues to be a major systemic weakness in the country’s efforts to combat corruption and money laundering. Currently, there is no transparency or accountability with respect to the financing of political parties in Mauritius.

The International Context

At the international level, the Organisation for Economic Co-operation and Development (OECD), the European Union, and the United States undertook the first wave of anti-corruption initiatives. This included the Inter-American Convention Against Corruption(1996), the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (1997), and the Criminal Law Convention on Corruption adopted by the Council of Europe in 1999. The European Union also passed a convention against corruption involving officials in 1997.

On the anti-money laundering front, the G7 including the European Commission triggered a global movement by establishing the Financial Action Task Force (FATF) against money laundering in 1989. In October 2001, following the 9/11 attack, the fight against terrorist financing was added to the mission of the FATF. In 2008, following the global financial crisis, the G20 further enhanced the powers and scope of the FATF.

The Mauritian Context

At the national level, following the 1992 Euro Money Conference in Mauritius, it was clearly shown that the country was well-positioned to emerge as an International Financial Services Centre. Mauritius benefited from the opportunities brought about by the opening up of the Indian economy in 1991 and the Double Taxation Avoidance Agreement (DTAA) signed between India and Mauritius, and effective since 1983. In 1992, the government passed the Mauritius Offshore Business Activities Act and the Mauritius Offshore Business Activities Authority (MOBAA) was set up. In 2001, the Financial Services Development Act was passed, and MOBAA was replaced by the Financial Services Commission (FSC). The Financial Intelligence Unit (FIU) was also established under the Financial Intelligence and Anti-Money Laundering Act of 2002 to investigate suspicious transactions in the context of money laundering. In the fight against corruption, the Prevention of Corruption Act was passed in 2002, setting up the Independent Commission Against Corruption (ICAC) in replacement of the Economic Crime Office, which had been dismantled in 2001.

Following a major consultative exercise carried out among all stakeholders and with the advisory support of Mervyn King, chairman of the King Committee on Corporate Governance, the Financial Reporting Act was passed in 2004. The act provided the legal basis for setting up a Code of Corporate Governance by a National Committee on Corporate Governance. This code referred to the need for the disclosure of political donations in line with section 23 of the Model JEC Code of Ethics [1], proposed by the Joint Economic Council (JEC) in 2001. The JEC was the apex private sector organization in Mauritius. It merged with the Mauritius Employers Federation in 2015 to form Business Mauritius.

Funding of Political Parties as a Policy Issue in Mauritius

The aforementioned Model Code of Ethics [1] was elaborated in consultation with Bertrand de Spéville, the former commissioner of Hong Kong’s Independent Commission Against Corruption. It made specific reference to the financing of political parties by the private sector, stating that contributions to political organisations or electoral candidates should be specifically recorded as such in the company’s books and that the contribution should be made in accordance with all applicable laws.  Subsequently, the JEC deponed before the bi-partisan Select Committee of the Mauritius legislative assembly. In May 2002, this Select Committee (presided by  Emmanuel Leung Shing, Q.C Attorney General) was assigned the task of examining and elaborating the recommendations of the Commission on Constitutional and Electoral Reform 2001/02 regarding the public funding of political parties (chaired by retired South African Judge Albie Sachs) with a view “to promoting sound, dynamic, and lively democracy and eliminating the risks of corruption and influence peddling”[2].

The Select Committee submitted its report in October 2004 [3]. The report addressed three essential components of the regulatory framework, namely the powers of the Electoral Supervisory Commission (ESC), the sources of fund, and the rules governing the transparency and accountability of political parties.

There is a fundamental difference between the Sachs’ Report and that of the Select Committee with respect to the sources of fund.  Whereas Sachs’ position was radical and prescribed state funding as the only source of finance for political parties, the Select Committee took the view that funding could be made by various stakeholders with the State giving some “minimal” reimbursement. Sachs’ approach was exclusive and “state-controlled” whilst the Select Committee adopted a more participatory and inclusive approach.

The JEC supported the conclusions of the Select Committee, and at a Government/ Private Sector meeting held in February 2005, reaffirmed that the establishment of a regulatory framework was urgent, and invited Government to implement the recommendations of the Select Committee.

It is pertinent to highlight that there was no calendar set for the implementation of the recommendations of the Select Committee, contrary to the plan set by Government to establish the Financial Reporting Council and the code of Good Corporate Governance under the Financial Reporting Act.

In 2009, JEC reiterated the need for a regulatory framework in its submission to the Electoral Supervisory Commission in the context of the ruling of the Privy Council in the case of Ashok Jugnauth vs Raj Ringadoo, inviting the ESC to draw up a code of conduct for ministers and civil servants for the period after an election has been declared.

In 2017, Business Mauritius set up a Working Group on the funding of political parties and made representations to the authorities for the establishment of a regulatory framework. In 2019, the Political Financing Bill was introduced in the National Legislative Assembly, but unfortunately, it did not receive the support of the Assembly and was not enacted.

New Legislation Needed

The EU blacklisting announcement in May 2020, following the inclusion of Mauritius in the grey list of FATF in February 2020, was a wakeup call. Indeed, Mauritius has been quick in its response so far, especially with respect to the Designated Non-Financial Business and Professionals (DNFBPs) segment. The amendments brought in 2020 through the AML/CFT (Miscellaneous Provisions) Act [3] and the amendment of the Financial Intelligence and Anti-Money Laundering Act empowered the FIU, the FSC and the Bank of Mauritius (BOM) to be more effective in the combat against money laundering.

However, the absence of legislation that would empower the ESC to set the contours regarding the sources of funds and the rules for transparency and accountability of political parties with respect to their expenses, stands out as a major weakness in the regulatory landscape of Mauritius.

Indeed, the EU blacklisting has made it even more fundamental that our laws reflect such transparency, and that we ensure that the proceeds of predicate crimes do not find their way into any activities, including those within the political sphere.

We are today at a major junction to prevent further reputational damage. The political class, across all parties, has to show responsibility and leadership and introduce an appropriate legislation to regulate the funding of political parties as soon as possible, preferably before the next financial year.

 

[1] Joint Economic Council. Model JEC Code of Ethics. (2001).

[2] Report of the Select Committee on Funding of Political Parties. (2004).

[3] Anti-Money Laundering and Combating of the Financing of Terrorism (Miscellaneous Provisions) Act (AML/ CFT Act). (2020).

 

Charles Telfair Centre is an independent nonpartisan not for profit organisation and does not take specific positions. All views, positions, and conclusions expressed in our publications are solely those of the author(s).

1 COMMENT

  1. Very interesting points raised by Mr Makoond which clearly show the work that has been carried out so far to create an environment which could address funds going to political parties. With all economic sectors now being closely assessed and monitored for AML-CFT, political parties must also be subject to similar scrutiny. Both a proper legal framework, as well as the ability to monitor and investigate the flow of (illicit) funds, have become essential.
    When STRs are raised as concerns funding of political parties, we will be closer to what we aspire our country to be like!

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