Adani Group rout puts spotlight on billions flowing through Mauritius

The tiny island of Mauritius has spent years trying to clean up its image as a base for money launderers and shell firms. The short-seller’s allegations against billionaire Gautam Adani are once again reviving questions about the country’s role as a tax haven for India’s tycoons.

Adani’s shares were plunged by $153 billion after Hindenburg Research said in a report in late January that it said entities controlled by the tycoon’s brother, Vinod, or his associates, had facilitated money laundering and stock-price manipulation in Mauritius. Used as a carrier for manipulation. While the report noted a “vast labyrinth” of shell companies from the Caribbean to the United Arab Emirates, it pointed to offshore firms in Mauritius as playing a significant role.

The US-based short seller said 38 firms linked to Vinod were domiciled in the tropical island located in the Indian Ocean off the east coast of Madagascar. Hindenburg claims some was used to redirect money from India, which was then used to buy shares in the group, and inflate its stock prices back home. In the five years preceding the blistering report, Adani equities saw some of their wildest rallies, with flagship Adani Enterprises Ltd surging nearly 2,600% against a 41-fold gain in the benchmark Nifty 50 index.

Staff at Vinod’s Dubai offices recently directed a request for comment to the Port-to-Energy Group’s headquarters in India. A representative for the Adani Group did not respond to a request for comment. In its 413-page rebuttal issued on January 29, the group said Vinod had no role in the day-to-day affairs of the Adani Group. The offshore entities are public shareholders in Adani portfolio companies and “the impression that they are in any way related parties to the promoters is wrong,” it said.

While it is not illegal to register businesses in low-tax jurisdictions such as Mauritius, the allegations against offshore shell firms appear to be an anagram of a time when the tourist haven featured in other Indian corporate disputes since the 1990s. The biggest among them was the stock market scam in which a broker had seen the prices of select stocks go up between 1998 and 2001.


The allegations against Adani – some reported by local media before Hindenburg dropped his report – come at an uneasy time for Mauritius, which is attempting to detox its financial industry and has drawn attention for its efforts. Has been: The European Union removed it only last year. A blacklist of countries deemed to be lacking in their money laundering and terrorism financing regimes.

“Adani’s use of Mauritius as a hub for shell companies is not unusual in the Indian context,” said Bhaskar Chakraborty, dean of global business at The Fletcher School at Tufts University. He said it would be unusual if this happened despite cleaning efforts. The “sheer scale” of what is being alleged by Hindenburg is “staggering” according to Chakraborty.

Hindenburg’s allegations came just ahead of the visit of Mauritius’ Financial Services and Good Governance Minister Mahen Kumar Seruthun to India to boost investments. In an interview with Bloomberg News in February, Siruttun said that the Adani group had complied with all regulations in his country’s jurisdiction and that his government would cooperate with the Indian authorities in the matter.

“We want to maintain our reputation as a jurisdiction of reputation and substance,” Siruttun said.

In earlier comments to Bloomberg, Dhaneshwarnath Thakur, chief executive of the country’s Financial Services Commission, denied that Mauritius is a tax haven. He added that the country complies with the minimum taxation standards of the Organization for Economic Co-operation and Development with a 15% corporate rate. In comparison, the British Virgin Islands imposes no taxes.

corrosive role

Mauritius-based shell companies have been at the center of at least four major investigations by Indian agencies over the past two decades for allegedly being conduits of illicit funds. The country has also been accused by the UK’s Tax Justice Network group of playing a “corrosive role in Africa”, causing tax losses of $2.4 billion annually.

Commenting this week, Seruttun said reports such as the Hindenburg report raise doubts about Mauritius in the minds of some, but the business community abroad has faith in its jurisdiction. “Predictability, certainty, stability are the key words they look for, and that is what Mauritius provides,” he said.

The origins of Mauritius’ status, which the Tax Justice Network calls a tax haven, can be traced to a treaty signed with India in the early 1980s to promote trade and investment, where it prohibited double taxation and capital gains. Levy abolished. At the time, Indian officials did not anticipate that their country would soon abandon its Soviet-style socialist economy and embrace foreign capital.

As the South Asian nation was opening up, Mauritius signed an Offshore Business Act in 1992, along with dozens of other bilateral tax treaties, allowing foreigners to set up companies with little disclosure or tax. For some entities, this effectively meant only 3%, despite a headline corporate rate of 15%.

With cultural ties to India – two-thirds of the island’s 1.3 million-strong population is of Indian origin – the treaties allowed Mauritius to become the South Asian nation’s largest source of foreign investment for some time until March 2018.

The country that gained independence from the British in 1968 is now one of the wealthiest countries in Africa. Services make up about 70% of its $12 billion economy. According to the Tax Justice Network, about 2.3% of global tax haven flows make their way through the island known for its luxury holiday resorts and pristine beaches. This compared to 6.4% for the top-ranked BVI.

“Historically the treaty with Mauritius was the standard way to invest in India,” said Reuven Avi-Yonah, a corporate and international taxation professor at the University of Michigan Law School. “There was no limit as to who could be the ultimate recipient of the income as long as the money flowed through Mauritius.”

‘layer’ of ownership

As those flows picked up, so too did suspicions that Indian entities were routing their money through Mauritius, a practice known as round tripping, which has been used by companies and individuals to evade taxes and pursue criminal proceedings. Can be done for, according to Arun Kumar, a retired professor who taught at New Delhi’s Jawaharlal Nehru University. He said that money trails and ownership from India were obscured by a process of “layering” through several foreign shell companies.

Kumar, who has written a book on India’s illegal economy, said, “They were basically using this web to stop the investigative agencies from finding out who is carrying how much money and it looks like it is real money.” are foreign funds and are not round-trip funds.”

Eventually, Mauritius came under global pressure after the Paradise Papers, a set of documents leaked to the International Union of Investigative Journalists in 2017, alleged the country was a secretive financial center that allowed businesses and wealthy individuals to hide their wealth and income from taxation. Allowed to save profits.

For India, a succession of financial scandals and frustration over efforts to get foreign corporates to pay more taxes prompted the two countries to renegotiate their treaty in 2016. It closed a popular loophole so that India could tax short-term capital gains, although zero levy remained on investments held for more than a year.

little effect

India also tightened rules on so-called participant notes, which were used to anonymously invest in Indian shares and derivatives, forcing issuers to verify the customer’s identity.

Mauritius reworked some of its tax laws and treaties in October 2021, backing a global deal that called for a minimum corporate tax rate as well as higher tax rates for businesses with annual revenues of more than 750 million euros ($791 million). disclosed.

Those measures saw the Financial Action Task Force – a global watchdog – remove Mauritius from its gray monitoring list in 2021. Within months, the European Union moved to remove it from its blacklist.

These moves also meant a diminution of Mauritius’ position as India’s largest source of foreign direct investment. After peaking at $15.9 billion in the year to March 2018, inflows have fallen sharply to $9.4 billion, according to data from the Reserve Bank of India, leaving the country behind Singapore and the US below.

“The Mauritius route is now less attractive due to changes in both the law and the tax treaty,” Avi-Yona said.

Nevertheless, Mauritius remains a popular offshore base for many investors looking for opportunities in some of the largest markets.

The stampede over Adani is not forcing the reckoning on the island’s sandy shores. Lovania Partab, president of the local chapter of Transparency International, an anti-corruption group, said no one wanted to destroy its lucrative offshore financial industry. But setting up 38 companies in Mauritius, as Hindenburg alleges Adani has done in his report, “seems very unusual,” he said.

“In Mauritius, nobody is talking about it,” she said. “They don’t want to be seen bashing India.”

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