Interview: Our Banking System Is Weak, Said Manou Bheenick

Le Mauricien this Sunday was Rundheersingh Bheenick, Governor of the Bank of Mauritius. The following interview was conducted yesterday morning at the offices of the Bank of Mauritius, where the counter was opened to save the victims of the scam Rs 700 million. This scam, its consequences and the breach in the law did not permit the detection time are the main topics we discussed with Manou Bheenick. 

>Mauritians are startled to discover that their country, which aspires to become an international financial center, we can fly Rs 700 million without the authorities being aware. 

I think it's fair to say that the authorities were not aware of the extent of damage. That said, I said that I do not speak on behalf of all the authorities, but on behalf of the Central Bank. We responded as soon as we were made aware of the fact that things were happening in the shady area parallel to the banking sector. We had early indications by an anonymous letter, and I immediately started procedures. We were proactive, have issued press releases, reported the case to the police, the Ministry of Finance wrote to ask for more powers, and even offered our services to mount a joint operation with the police. I do not see that the Central Bank could do more. 
>According to my information, the case began in April of last year? 

At that time, indeed, the Financial Intelligence Unit receives Suspicious Transaction Report (STR) on the White Dot. This report is not sent automatically to the Central Bank. It is only since the beginning of this year, after a formal request to the Mauritius Bankers Association, other STR were sent to the Central Bank. 

>You say you have been alerted by an anonymous letter. Is that the instruments put in place by the authorities responsible for identifying said illegal financial transactions, do not work or are not sufficient? 

The Central Bank is the inspection of banks, that is all it can do. It is in the light of the information I received, December 10, 2012, I requested an investigation the next day. 

>This scam of Rs 700 million mean it that while authorities monitor the functioning of banks, a parallel circuit was set up and operated without anyone noticing? 

I can only answer that the Central Bank has done in this case. When we received the letter on December 10, we have opened an investigation into Sankai Company, which was denounced as an investment product selling for a whopping return. According to the contract, it was an investment product, not a deposit, which would have Sankai fall under our control. Inspectors BoM went to see the head of Sankai. She did not receive. As we have no power to go beyond, and respecting the Banking Act, we referred the case to the police. In the first half of January 2013, an article appeared in The Challenge, speaking the same company who took public investments in promising to double in three months. 

>Police she had finished its investigation following your action in December 2012? 

I can not answer for the police. In the press, the head of Sankai said she did not need permission or license from the FSC or the Central Bank to operate, and that he had been told by his lawyers. We responded by sending a letter to the police by offering our help to investigate this matter. We have also written a letter to the company demanding to send us accounts and documents within 14 days. Having received no response, we sent a reminder to the company stating that in case of non-response, we would take action against it. And, according to banking laws, which allows us to close - in collaboration with service DPP - society, and to impose a fine not exceeding Rs 500,000. These are the powers of the Central Bank in this case. 

>You took nearly two months to try to make the company comply with the law! 

This is all that the Central Bank may lawfully, according to existing laws. 

>In this particular context, the BoM is a toothless bull dog! 
Insofar as this term has already been used, I would prefer that you say the BoM is a toothless tiger! 

>Should interpret what has happened as an indication that (i) the Mauritians have no confidence in the banking system, and (ii) there is a lot of money not declared in the country? 

Do not go too fast. First, I refer you to the battle that takes place within the Monetary Committee of the BoM, we must face the facts: a "low interest rate environment" is conducive to the proliferation of toxic chemicals. Interest rates very low in negative territory for a long time, is one of the factors responsible for this situation. Secondly, since in this type of environment the banks do not offer attractive returns on deposits and investments, people seek other alternative investments providing a return more interesting ... 

>Violating the law ...? 
By using investment funds in parallel circuits completely legal, which offer products with higher risks a bank deposit. 

>This is the case of the companies we're talking about? 

No. The groups involved in this scam, the names are the headlines this week, are not permitted. I am talking about investment funds and financial products quite in order. They are required to inform prospective investors that entrusting their money, they take risks. These investments are aimed at a target audience and informed. 

>I return to this question you do not seem to want to answer: Is there too much money in Mauritius gained illegally, which would explain the figure of Rs 700 million in the scam we're talking about? 

I got there. This is the second factor that can power a parallel financial system. Everyone knows about the black economy comes to the world of gambling and unregistered traders, among others.This money does not go to the banks. When you see the list of depositors of the scam which we speak, we realize that it will deposit Rs 25,000 to several million. All cash paid in cash. The majority of those who have "invested" knew they were taking risks, but they still did, attracted by the returns that they promised. There are even people who have emptied their savings account in the bank to "invest", others went to borrow money to do so. 

>How should we interpret this? 

There are a lot of money flowing in Mauritius but which may be declared officially. Our bylaws prohibit Mauritian banks dealing with dirty money, money whose source is not known. 

>We are talking about amounts derived from statements made by victims, which are about 700 to date. Is there a category of victims who can not say, because it is unable to explain the source of his money? 

As you rightly said there are "victims" who can not come to declare that they were stolen. I believe that this type of victim, it would double, maybe even triple the total amount that is mentioned. 

>What was your opinion, the trigger that prompted hundreds of Mauritians to engage in this risky? 

The return on investment so enticing spread by word of mouth. Which in this case was much more powerful than traditional forms of advertising. 

>Those who have created these investment companies are not, at first sight, experts or people with extensive knowledge of finance. These are "small traders" rather than licensed crooks, right? 

I do not share this opinion. I think nowadays, gangsters and other crooks are very savvy and know how fraudulent mechanisms work elsewhere and transpose here. I do not think there is a big brain behind it. 

>Is it possible that in this parallel world, there is a much more sophisticated organization aimed at high-end customers for the same type of operations? 

I have no reason to believe that there is such an organization in Mauritius. I think there are several small organizations, such as those that have been discovered, which operate in Mauritius. They mopped up a lot of money for a public who could believe it was regulated entities like banks, which is not the case. That said, it is clear that the contracts - the investment agreements - I've seen are documents that have been referred by lawyers. So there are lawyers - barristers, solicitors, notaries - involved. 

>It should be denounced. 

This is the police track down these people. The BoM can only help the police do their work in bringing the maximum possible data. I would add that the name of a lawyer is listed next to multiple accounts on the list. It would be nice to know if it is client accounts or personal accounts of the lawyer. 

>How these Rs 700 million could they leave Mauritius? 

A sum of Rs 700 million has not been able to leave the country through the banking system. 

>This amount has not been able to leave Mauritius in suitcases through the airport. 

I do not think there is one of those companies that hold Rs 700 million in the bank. The bank concerned would have recorded a STR. We received two at the beginning of the year and have opened an investigation tightened which allowed us to discover elements incorrect. A bank could not give us an explanation of the account movements of the companies involved. In this case, we may impose a fine on the bank, and an investigation is underway on another. The bank, which we intend to fined chose to close the account of the company in question and return the money to its owner, a sum of Rs 45 million. When we were made aware of this maneuver, and using the powers available to us, we asked the bank to freeze the transaction until the authorities go and ask a judge in chambers to freeze the account. Otherwise, the money would have been returned to the company and would have disappeared in the wild. 

>What is the "victims" of this operation can expect? 

If ever you come to freeze the accounts of the companies concerned, victims may be able to recover a fraction of what they lost. But the chances are not very good due to the operation of the system in which they have invested. It takes money to repay those latecomers who were there before, thus there is no money for the repayment of latecomers. So the chances of recovery are minimal losses, unless the companies involved have real estate - real estate, cars - that could be seized and sold. 

>Victims who could, with a lot of luck, recover some of their money is misplaced they may not be prosecuted for participating in an illegal operation? 

No, because that Maurice is not illegal to participate in this kind of operation. If I may say so, it is not illegal to be ripped off, but it is playing with scammers. You can protect savers' money when they put it in a bank. Although, again, there are gaps in the law. There should be provision for the appointment of an Ombudsperson for the financial sector 

>If the BoM can not do anything, do not have laws to act, why has she in this case as an association for the defense of victims? 

We do so in the absence of laws and structures to deal with these problems. If there was an Ombudsperson for the financial sector, the victims would have gone to see instead of coming to the BoM. We opened our doors to try to fill this gap. 

>Ultimately, this scam is to make an additional argument to your request for amendment of laws. 

I've been saying for some time: our system is weak, there are gaps in the law and must be inspired by what others are doing to improve and modernize. In Mauritius there is no duplication between the BoM and the FSC, but a gap between the two, and crafty know how to play the system inconsistencies. 

>Should a single regulator to stop the problem? 

I said long ago: the country is too small to allow us to have two regulatory bodies. I understand that those who are regulated by the FSC prefer his approach, much more relaxed than that of the BoM. 

>What lessons can be drawn from this scam, Governor? 

He must be very careful, be aware that no one is immune to this type of financial crime. Our approach should be reviewed in terms of financial infrastructure, gaps that exist must be met, there must be the Ombudsperson for the financial sector, unify our regulatory system allowing the promotion of offshore separated from the BoM. If there was a single regulator in the financial system, we have taken action against this scam from day one. At the lessons to be learned, it must also be financial education to the public since the primary. It is also better to sell bank products, better pay, thereby avoiding Mauritians to look elsewhere ... 

>Increasing ... the interest rate on deposits? 

We must offer an interest rate more productive, higher than inflation. This is another battle of the BoM vis-à-vis other institutions who believe that inflation will be the winner. Not at all. 

>Is that the reputation of Mauritius, which is projected as a financial hub in the region, may be splashed by the scam of Rs 700 million? 

While we sympathize with those who have been mowed by these shady operators must keep things in perspective. We have a robust banking sector, well-regulated, which is not based on any suspicion of a misdeal. Value of the day, are involved in this scam does not exceed Rs 700 million, representing a drop of water compared to the sum of bank deposits is more than Rs 310 billion. It is not the loss of Rs 700 million which will jeopardize the financial reputation of Mauritius. 

>Let me point out to you that for the ripped, it is much more than a drop of water. In some cases, this is all they had. They have lost everything. 
I understand and I know it hurts. But it is the price of risk. Seeking a high return on their capital, they are reduced to hoping to recover a little, just a little bit of what remains of the same capital. To continue perspective, the number of known victims is about 700. The number of savings accounts in Mauritius is more than two million. Therefore, relativize, and especially not dramatize. Our financial sector is doing very well and had an accident as it happens from time to time. 

>Is that your last word of this interview? 

No. My final word is this: I wish that the Central Bank has at least as much power as those available to the FSC, which has more extensive powers than us. It can initiate investigations, asset freeze request to a judge in chambers. We asked the same powers, which would have allowed us to be more efficient, and we reject them. 

>I'll end up believing that this scam is a blessing for you to defend your claims, Governor. 

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