The Expert Explains: Improving financial integrity is high on the agenda in Mauritius-How can it be strengthened?
Improving financial integrity is high on the agenda in Mauritius where the Parliament will shortly examine a new Integrity Reporting Bill, which is intended to ensure the integrity and transparency in the treatment of dossiers, transactions and business relations across all sectors of activity in the light of recent scandals. So, how can financial integrity be strengthened? For those who wish to dig deeper, here’s the explanation, straight from the desk of our expert guest contributor, Samantha Seewoosurrun, a reputed professional consultant in the financial services sector.
The issue of improving financial integrity is high on the agenda in Mauritius where the Parliament will shortly examine a new Integrity Reporting Bill, which is intended to ensure the integrity and transparency in the treatment of dossiers, transactions and business relations across all sectors of activity in the light of recent scandals.
What is Europe doing to promote financial integrity, by way of comparison? The EU has recently published a new Directive on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, which updates previous anti-money laundering legislation, which must be applied by EU Member States as of 26 June 2017. The Directive will apply to a range of businesses, ranging from banks and other financial institutions to auditors and accountants, and covers any firms which are involved in making or receiving cash payments for goods worth at least €10,000, whether in a single or linked transactions.
With regard to due diligence, the new Directive will introduce a number of new requirements, along with obligations to report suspicious transactions and maintain records of payments, and business subject to the rules will also be obliged to set up a number of internal controls.
In terms of tackling financial crime, the centrepiece of the new legislation is a new obligation on EU Member States to set up and maintain central registers. These registers will list information on the ultimate beneficial owners of corporate and other legal entities will enable greater transparency in financial transactions. They will be accessible by the authorities within each country, to ‘obliged entities’ such as banks performing due diligence on its customers, and to others who are able to demonstrate a “legitimate interest”, such as investigative journalists.
Under the new rules, there will be a far greater onus on financial services firms in the EU to spot any potential wrongdoing by their clients, and also to identify the beneficial owners of those involved in illicit transactions. There are also significant financial penalties for firms that fail to comply with the new legislation, of at least EUR 5 million or up to 10% of a company’s annual turnover. Further work remains to be undertaken by the European Commission’s DG Home Affairs to prepare proposals for the harmonisation of criminal sanctions for money laundering offences, which anti-corruption watchdogs are currently awaiting.
The new legislation has been welcomed by Transparency International, although it has expressed some concerns that the final legislation still falls short of full transparency of the real ‘beneficial owners’ behind companies and trusts, and it is concerned about how countries will assess who has a legitimate interest when it comes to granting access to information. It has also highlighted a number of other important changes include tightening up of rules for politically exposed persons, more effective cooperation between EU Financial Intelligence Units, and the adoption of a “risk-based approach”.
Is the new EU regime the right response to improving financial integrity? Firms subject to the EU rules will clearly have to bear substantial costs in implementing the regime, and concerns have been expressed by some in the legal community about the potential inappropriate use of personal data by journalists or citizens claiming a “legitimate interest”. The new EU regime is certainly ambitious but it remains to be seen if an appropriate balance has been struck between all the interests concerned. National parliaments and governments outside the EU should draw their own conclusions as they seek to reinforce financial integrity in their own jurisdictions