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Black money alarm puts to test India's bonhomie with a close friend

The Mauritius government has complained to India about its inclusion in a list of high-risk countries submitted to the market regulator, threatening to complicate close diplomatic and investment ties with the island nation.“Unfortunately, there is no indication on the basis that has been used to include a country in the high-risk category,” Mauritius said in a letter to the Indian High Commission that ET has seen.“The government of the Republic of Mauritius is deeply concerned by this situation and is of the view that the list stems from a misunderstanding of our financial services sector and has been based on incomplete information about our jurisdiction,” the letter dated July 6 said.This has occurred despite Mauritius making strenuous efforts to ensure that any concerns were resolved, it said. “This is regrettable in view of the significant and consistent efforts Mauritius has been making over time to safeguard the credibility of its jurisdiction — efforts which have been recognised by international standard setters such as the OECD (Organisation for Economic Cooperation) and IMF (International Monetary Fund),” the letter said.After the US, Mauritius accounts for the highest level (about 16%) of total foreign portfolio inflows. It’s an inexpensive and a favourite route for many non-resident Indian (NRI) and Person of Indian Origin (PIO) investment managers. The island nation has asked India to consider all the various actions it has taken to tackle money laundering, financial malpractices and terror financing before the final list is drawn up. It will take up the matter with the Prime Minister’s Office and with Sebi.SEBI WILL NOW FINALISE THE NAMESA week ago, global banks acting as custodians for foreign funds including HSBC, Deutsche Bank, Citi, Standard Chartered and JP Morgan shared a list of 25 countries that were tagged as “high-risk jurisdictions” with market regulator Sebi.Mauritius, China, the United Arab Emirates (UAE), Cyprus were countries that figured in the list of “high-risk jurisdictions”. The others are the Bahamas, Bahrain, Bermuda, British Virgin Islands, Cayman, Channel Islands, Cook Islands, Guernsey, Indonesia, Isle of Man, Jersey, Kuwait, Liechtenstein, Malaysia, Oman, the Philippines, Russia, Saudi Arabia, Thailand, Trinidad and Tobago, and Turkey.Hong Kong, Switzerland and Luxembourg have been dropped from the list. A senior banker said Sebi will now finalise the names on the basis of the list from custodians. “The Republic of Mauritius has apprised the Indian High Commissioner in Mauritius of its concerns arising out of the situation,” PK Kuriachen, Financial Services Commission (FSC) representative in Mumbai, told ET. “Mauritius is fully committed to fight illicit financial flows in all their forms. It has put in place the necessary legal and institutional framework to protect its shore from illicit financial flows.”It will persist in these efforts, he said. “Mauritius has over the years continuously and will continue, whenever required, to revisit its legislative and institutional framework with a view to reinforcing financial supervision, enhancing transparency and strengthening the regimes to fight tax evasion, terrorist financing, money laundering, corruption and other financial crimes,” Kuriachen said.The classification assumes significance following a new Sebi regulation in April. According to the new rule, NRIs and PIOs cannot be ‘beneficial owners’ (BO) of FPIs (foreign portfolio investors). BO would mean 25% ownership in a company or 15% in a trust or partnership — depending on how an FPI is structured abroad. The entry barrier is stiffer as the threshold (for establishing NRI control or dominance in the fund pool) would be at a lower (and therefore more stringent) level of 10% if the FPI is based in a high-risk jurisdiction.The BO rule would also be triggered if the fund manager is an NRI though not an investor. Thus, NRIs and OCI (Overseas Citizen of India) card holders will not be able to own more than 10% of such FPIs coming from high-risk jurisdictions while details of any investor who owns more than 10% in the FPI will have to be provided to the custodian.

Source: ET

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