FATF ‘grey list’: Mauritius on FAFT ‘grey list’: Why is there panic among FIIs and on Dalal Street?

As the Financial Action Task Force (FATF), the inter-governmental body that sets anti-money laundering standards, has put Mauritius on the “grey list” alongside the likes of Pakistan, it has dealt a body blow to the foreign institutional investors domiciled or registered there. There have been jitters in India equity market ever since, as these FIIs have significant exposure to Indian markets.

Indian markets regulator Sebi on Tuesday said these FPIs from Mauritius would continue to be eligible for registration with increased monitoring as per Financial Action Task Force (FATF) norms.

So what is FATF, how does it work and what is the effect of its grey-listing Mauritius? Here’s a lowdown

1. What is FATF?
   Established in 1989, the Financial Action Task Force (FATF) is an inter-governmental body, which sets standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. It works with countries to generate the necessary political will to bring about national legislative and regulatory reforms. The FATF’s decision-making body, the FATF Plenary, meets three times per year.
2. What is FATF grey list?
   Jurisdictions under the ‘grey list’ face increased monitoring. When the FATF places a jurisdiction under increased monitoring, the country has to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. Currently, there are 18 jurisdictions identified as having strategic deficiencies, including Mauritius and Pakistan, as per the FATF.
3. Why was Mauritius placed on FATF grey list?
   Mauritius has been a tax haven for foreign investors for the past three decades to bet on Indian stocks. For several years, there have been apprehensions about Mauritius being a money-laundering route for FPIs due to its limited regulatory oversight. But, the Indian Ocean island nation has been taking several steps in recent years to address the concerns. The country will work actively with the FATF to address strategic deficiencies in the regime to counter money laundering, terrorist financing, and proliferation financing.
4. Why are FPIs worried about FATF grey listing Mauritius?
   A significant percentage of foreign portfolio investors (FPIs) investing in the Indian market is registered in Mauritius. The island nation is the second-largest source after the United States from which foreign portfolio investments come into the country. As per January NSDL data, assets under custody of US FPIs are worth Rs 11,62,579 crore and those from Mauritius stood at Rs 4,36,745 crore. Following the FATF notice, some fund managers knocked on Securities and Exchange Board of India’s (Sebi) door overnight, raising concerns over validity of FPI registration done through the tax haven. Mauritius in FATF grey list: What does it mean?
5. What are Sebi views on status of Mauritius-registered FPI?
   Market regulator Sebi on Tuesday said foreign investors from Mauritius will continue to be eligible for FPI registration with increased monitoring as per international norms. “It is noted from FATF website that when a jurisdiction is placed under increased monitoring, it construes that the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring,” Sebi said.