Mr Governor, it?s more than a week you are back from abroad. Why is it that you have been so silent ?

It?s not the business of a Governor to meddle in the affairs of those in full liberty to speak 100 words per minute ? with gusts occasionally exceeding 150 words per minute. After having been back home I reached an understanding with myself not to speak unless it improved on silence. Anyone who has a good command of language understands the importance of silence. I focused my attention on a problem that I guess you must be aware of and resolved it.

Even if you have been criticized ?

Truths are often relegated to the backseat. Rumours, gossips and folklores commonly take the driving seat. I have lived enough to agree with the famous philosopher, Arthur Schopenauer, that truth is often ridiculed in the first stage, it is opposed in the second stage and finally it is accepted as being self-evident. Let me tell you honestly: I am certainly not the person with a loud mouth at one end and no sense of responsibility at the other.

You were called by the Independent Commission against Corruption (ICAC) the day before. May we know contents of the inter-view ?

Entrée was a cup of tea with the courtesy of ICAC. It was not Jackson?s Earl Grey Tea. The main course was the Guidelines issued by the Bank of Mauritius (BoM).

Any dessert ?

Yes there was ? the cameras at the sortie and the instant transmission of the news.

Any bad feeling, Mr Governor ?

No bad feeling. But I was disturbed in the middle of my lunch.

Various problems have surfaced with some banks during your Governorship. Would you like to give us your views ?

The problems you are referring to date back to many years. It?s only when you start cleaning up that the dirt rises to the surface. What you are referring to as problems reflects the increasing effectiveness of banking supervision in Mauritius in recent years. I have myself highlighted the problems in my various public addresses. If your readers would care to objectively go through all my end of the year addresses to the private sector, my concern regarding the deficiencies of some of the banks is evident and hence the emphasis I have laid on the upgrading of banking supervision right from 1999.

Mr Governor, you have been interpreted in various ways for having come up with the statement that you are ?solidaire? with bankers in Mauritius. Would you mind clarify matters ?

L et me put what I meant by solidaire in its proper perspective. In early 1999 I discovered that the IMF was no longer willing to provide technical support to the BoM for reasons that I better not say. On Sunday 26, April 1999, I met with Mr Michel Camdessus, former Managing Director of the International Monetary Fund (IMF) for about half an hour to finally obtain his support for technical assistance in the area of banking supervision. On July 7, 1999, I held a meeting with all the Chief Executives of Category I and Category II banks wherein I had strongly raised serious concerns regarding the soundness of some banks. I had during that meeting highlighted to all those present various areas of banking operations that urgently needed drastic review. It was a new departure for our banking supervision. I had devised a comprehensive agenda for actions.

Ever since, the BoM has been striving to catch up with the long overdue upgrading of our regulatory and supervisory policies. I do not wish to dwell into the panoply of the guidelines and guidance notes that the BoM has issued to banks in the last few years. They are all published in the Annual Report of the BoM on Banking Supervision that I decided to issue as from year 2000.

All the banks operating in Mauritius decidedly took bold initiatives to review their respective systems and operational procedures. Some of them even carried out and are still in the process of carrying out drastic improvement in their organizational structures. The use of the word solidaire was made against this background of important changes actually taking place within several banks. I believe that BoM should be fully solidaire with banks and bankers who have already made or are in the process of making genuine efforts to initiate bold and corrective steps to strengthen their respective organizations.

All the bankers who are represented in the quarterly Banking Committee that is held under my Chairmanship fully understand and indeed appreciate the common goal set by the BoM. The BoM and Chief Executives of banks have unanimously agreed to make concerted efforts to develop our financial markets. The precondition for success is that the foundations of all the banks should be strong. This is a common goal of the BoM and commercial banks. The implications and dimension of the word solidaire stretch beyond a particular point in time. The dictionary will certainly not give you the idea intended to be conveyed by the word solidaire here.

I did use the word solidaire. And I do stand by the word for I have worked assiduously in this important area in the last few years.

But Mr Governor you are perceived as having been ?solidaire? with the Chief Executive of MCB and his Assistant ?

In Mauritius we have a high propensity to jump to conclusions. The perception you are referring to reflects the collective wisdom of individual ignorance. Have you so soon forgotten my support to the IOIB? I have in recent months repeatedly expressed my support to the new Board of Directors and new management of the IOIB. The new management of the IOIB has been wise enough to initiate all the corrective actions. I suggested to its Board of Directors. The new management has so far been driving changes within the IOIB. My support to the IOIB has been aired in the radio and television. I supported this bank because the management has made genuine progress in its re-organization. I also supported another small bank that was in a precarious situation. That bank is back on rail and kicking around well today. I have supported yet another bank that of late is making important strides in our banking industry.

True I supported the MCB. I supported the MCB as an institution in its endeavour to speed up progress in its re-organization efforts that are under way and not the persons employed by its Board of Directors.

Of course the day any bank that needs to take remedial actions fails to do so despite the persuasion of the BoM, my support to that institution shall instantly stop.

But the Chief Executive of the MCB and his Assistant have taken quite some time before stepping aside ?

The Chief Executive and his Assistant have taken time from your standpoint. But in my view and having insider?s knowledge, the story is quite different. As I said earlier, the organizational restructuring at the MCB has until the last weekend been under full swing. The last two weeks were very critical for the MCB. Last week major changes took place at the Head Office of the MCB and that change spilled over into the weekend. From the regulator?s and supervisor?s standpoint that change had to be carried through to the finish. You do not instantly chop off your head when you have a headache.

Would you have adopted the same stand vis-à-vis some other banks ?

Indeed, yes. I would certainly have adopted the same approach. Allow me to say that regulatory authorities with even a slight sense of responsibility are not bulls that move around with their own china shop. Do you still recall the Delphis Bank episode? After the discovery of the fraud at Delphis Bank, the BoM had decided not to instantly revoke its Banking License. Instant revocation of the license would have seriously damaged the banking industry in Mauritius. The BoM persuaded the Delphis Bank over a period of as long as 12 months to initiate remedial actions. The Delphis Bank repeatedly flouted the directives issued by the BoM and was not at all amenable to reasons. Eventually, after 12 months, the BoM had no other alternative but to revoke the Banking License of Delphis Bank. The BoM acted with a great sense of fairness. The BoM did not act impulsively but with a sense of responsibility backed by sound reasoning in the best interest of our financial system and our economy. It?s just over year ago and BoM watchers seem to have so readily forgotten. The perception that emerged from the comments I made reminds me of the famous two lines of T.S. Elliot:

Where is the wisdom we have lost in knowledge ?

Where is the knowledge we have lost in information ?

I cannot be clearer than that.

But in the process the Banking Act has not been strictly applied. What do you have to say ?

For you to appreciate my stand let me take a hypothetical case familiar to regulatory and supervisory authorities across the world. Assume that the Governor of the BoM was required by the law of the land to be answerable to a Committee of the Elected Representatives of the people. Suppose the Governor had taken a firm decision to devalue the rupee by 30 per cent on the day two. On day one he was queried by the Committee whether he intended to devalue the rupee. Should he refuse to give the right answer, the law of the land would punish him. Should he confess, the financial market would most likely collapse on the same day. On the one hand, the Governor has to abide by the law of the land simply by confessing whilst, on the other hand, he has to refuse an answer because he has the duty to protect the financial market from collapsing. I leave to the critiques to decide between the two options and bear the brunt of their decisions.

To those of us who are not that familiar with the roles and responsibilities of the regulatory and supervisory authorities the world over, let me highlight a basic principle. The golden rule of any such authority is to ensure the financial stability at any cost. The regulatory and supervisory authority constructs. It builds. It ensures financial stability. The authority does not operate like a demolition man at work. In specific circumstances, the authority does not strictly stick to the letter of the law. But it does in a constructive manner call the concerned institution to abide by the law of the land. The regulatory and supervisory authority does so without unleashing forces that could turn out to be damaging not only to the financial industry but also to society as a whole.

I do understand Mr Governor. But the law has to be applied !

The Banking Act encompasses a set of provisions. The philosophical underpinning of the set of legal provisions rests on one fundamental objective and that objective is the restoration and the maintenance of monetary and financial stability. You will appreciate that the provisions of the Banking Act cannot be used to defeat the very purpose of the Act itself. From a regulatory and supervisory standpoint, the law is an instrument available to the BoM for use in a manner that promotes rather than jeopardizes monetary and financial stability. Mechanical application of the law in the realm of regulation and supervision of financial institutions can potentially induce instability that is not desirable by any cannon of logic. No regulatory and supervisory authority, anywhere in the world, uses the law as an instrument in same way as the Samurais in Japan used to chop off the heads of people merely to test the sharpness of their swords. The spirit of the law governing regulation and supervision of financial institutions has to be fully appreciated and the legal provisions be discreetly and judiciously applied. After all the due process of law has to take its course.

Does it go say that the BoM is pacifist ?

It?s debatable. The correct principle is for an act to be morally permissible, not merely that its moral benefits outweigh its moral costs, but that there is no other alternative action available with less moral costs. Any pacifist position that considers the effectiveness of pacifist techniques is labeled as tactical rather than moral. But if a pacifist holds that because certain techniques of significant effectiveness are available it is morally wrong to wage a war, he is putting forth a comprehensible position that is a moral one. What is legal is not necessarily moral and what is moral is not necessarily legal. Perhaps a legal person could give a better explanation. If I may recall correctly, I should recommend to your readers the views expressed in Moral Complications and Moral Structures, Natural Law Forum, 1968, and if I am not mistaken, especially the discussion of Principle VII.

Let me move on to your views on suspicious transactions. You appear to have gone far in your statement regarding the difficulties involved in identifying suspicious transactions. Do you have any comments ?

Your readers may wish to re-read the statement I gave to your paper. It is true that I stated that it is not always easy to identify suspicious transactions. It is often difficult because of the lack of complete information of each and every financial transaction.

What is suspicion ?

The Oxford English Dictionary defines suspicion as follows: ?suspecting; partial or unconfirmed belief; slight trace; mistrust; inkling; the imagining of something without evidence or on slender evidence.?

The definition appears to be simple. Every valued text is open to interpretation. Everyone, including the most authoritative experts, concerned with anti-money laundering and suspicious transaction reporting cannot pin down suspicion to a definite definition. It is universally agreed that giving suspicion a definite definition in the context of suspicious transactions reporting is an almost impossible task.

According to FinTRAC Guideline 2 on Suspicious Transactions Reporting:

«Suspicious transactions are financial transactions that you, as a reporting person or entity, have the reasonable grounds to suspect are related to the commission of a money laundering offence ?.. ?Reasonable grounds to suspect? is determined by what is reasonable in your circumstances.»

It goes to say that suspicion is not simply uncertainty and lack of information. Nor is suspicion based solely on something unusual. But if a combination of such factors were to result in a genuine belief that money laundering may or could be occurring, more details should be sought to support any assumption made.

Let me refer to FinTRAC Guideline 2 again. It says : ?As a general guide, a transaction may be connected to money laundering or terrorist finance activity when you think that it raises questions or gives rise to discomfort, apprehension or mistrust.?

It is clear that at all times it is the behaviour that is coming under scrutiny, not the people themselves. In a nutshell, whatever the criteria used for determining and reporting suspicious transactions, it is the behaviour that matters most. The behaviour underlying hundreds of thousands of banking transactions has to be studied by the reporting officers of banks. You can imagine the gigantic task. The detection of cradle-to-grave flows of financial transactions in the context of country whose financial system is integrated with the world?s financial system is evidently not an easy task. The ramifications of such transactions are generally complex. It is in this context that I made the statement about the difficulties involved in determining suspicious transactions to your paper. This is far from saying that the BoM is refraining from throwing its hat on the ring to combat money laundering.

What is the current mood in the banking industry ?

Normally bankers, because they are in a profession that demands discretion, never express their feelings regarding certain issues openly. On their behalf, I have to say that they are all frightened. Let me clarify:

As a law-abiding institution, a bank had voluntarily reported a suspicious transaction sometime back. Last week the name of the bank that has a reputable track record throughout the world appeared in one of the local papers. This gave rise to a perception abroad that the bank was connected to money laundering business. Is it fair? A few years ago another international bank of excellent repute was similarly treated. Banks are today wary of their reputational risk. The authorities have to exercise caution and discretion more so when suspicious transactions are voluntarily reported.

Let me sound a note of caution. Should we fail to tackle suspicious transactions reporting by banks in a discreet and cooperative manner, I will not be surprised if the international banks operating in Mauritius finally decide to pull out of the country. I have done my best to stop moves in that direction and I shall continue to do so. But I cannot force their presence in Mauritius.

The combat against money laundering and reporting of suspicious transactions requires total cooperation of financial institutions. Rather than instilling fears authorities should seek their cooperation and refrain from damaging their reputation. Authorities should seen to be fair. Otherwise we will lose the battle against money laundering.

Do you believe that money laundering and terrorist finance is on a big scale in Mauritius ?

Money laundering however defined is a worldwide problem. Terrorist finance is generally country-specific. It is not in order for me to reveal the technique adopted by the BoM?s on-site and off-site examiners to single out certain financial flows for scrutiny. I can tell you that our banking industry is not short of whistleblowers. There is a perception that money laundering is a common phenomenon in Mauritius because of the disproportionate coverage given to some cases in the press. The scale of the problem is much lesser than what we are made to believe.

An anecdote is in order here. One of our local banks recruited an officer about 4 months ago. The new recruit decided to open an account with the bank that had employed him. Would you believe that the bank sought so many details from the new recruit that it took the latter more than a month to open an account with his own employer?

The new recruit protested to one of the BoM?s Bank Examiners. In the last few years our bankers have made important strides in this as well as other areas. Following the discovery of the fraud at the MCB, I may say that bankers? concern regarding money laundering has heightened.

How would you rate the standard of banking supervision in Mauritius today ?

We have swiftly moved from a primitive stage in 1999 to modern stage in 2003. The entire framework of banking supervision has dramatically improved. The number of Guidelines issued to deposit-taking institutions, the quality of on-site and off-site inspections, the quality of the management report prepared by the on-site inspection team, the quality of staff recruited by the BoM and the overall capacity building in the Banking Supervision Department have all substantially improved.

It?s only after having examined the files and the report prepared by the BoM?s on-site inspection team that the FSAP mission of the IMF observed that the BoM has made tremendous progress particularly in the last three years. An IMF Consultant based in Africa visited the BoM?s Supervision Department for nine days. I have been told that our standard of supervision is one of the very few best in Africa. We have an internationally acceptable standard.

A former employee of the BoM has mentioned that you ought to have shown objectivity in dealing with the MCB after the arrests of the Chief Executive and his Assistant. Do you subscribe to this view ?

I am not aware who is under reference here. But if it has been said it must have been said while I was still abroad attending a meeting of Central Bank Governors at the Bank of England. However, it reminds me of George Orwell?s Animal Farm. I do not think much of a person who is not wiser today than he was yesterday.

I do not believe that I should go back on a refresher course on deductive and inductive logic. I know the difference between subjectivity and objectivity. The steam that blows the whistle does not move the engine.