Top Mauritius Bank Hit By Massive Fraud

by Lorys Charalambous, Tax-News.com, Cyprus

05 March 2003

After the Mauritius Commercial Bank (MCB) admitted last month to a massive fraud which saw more than Rupees 800m filched from accounts at the bank in the name of the National Pension Fund, the bank has come in for heavy criticism from many quarters.

Mr. Dev Erriah, fiscal and legal specialist from Erriah and Uteem Chambers, says that the MCB/NPF’s financial scandal “will be a big blow to Mauritius as an International Financial Center” as the consequences will be very serious. Mr Erriah says that the whole banking process that exists in Mauritius is out of date and outmoded and must be reviewed so as to make the process more transparent, stringent and accountable. Public funds in the nature of the National Pension Fund, he says, should not be deposited with commercial banks but with the Bank of Mauritius, which acts as banker to the Government as provided by the Bank of Mauritius Act.

There have been suggestions that the Bank of Mauritius (BOM) should take over MCB, but Mr Erriah explained however that there is no legal basis for this to happen, since MCB remains solvent.

The MCB itself says that the loss will absorb 60% of this year's profits, but represents only 10% of shareholders' funds. Some commentators however call for resignations (which have not been offered) and say that MCB's attitude is patronising, especially towards its shareholders, who include Lloyds TSB, foreigners, local and overseas investment portfolios, Insurance Companies, various institutions, small investors, and self-employed people's retirement funds.

'Few institutions were as smartly and as successfully Mauritian as the MCB,' says one critic. 'It contributed to the country's pride by giving us a collective sense of achievement. Now we are all humbled. Because the MCB, it seems, was never fully alive to its national responsibility and the debt of gratitude it owed to the nation for affording it the opportunities to develop into a great regional institution.'

Stung by the criticisms, the MCB has issued a further communique attempting to calm the storm: 'Our own internal investigation,' it says, has clearly established the mechanics of the fraud and this allows us to maintain our full trust in the managing team. Wild speculation, malicious innuendoes, red herrings, baseless rumour or defamatory remarks can only cast further doubt and suspicion. Overcoming these difficult times whilst ensuring the smooth running of the operations of the Bank calls for the sharpest sense of responsibility from everyone. More than ever, and beyond the cheap emotions generated by opportunism, one must think straight, analyse coolly and only refer to facts. We feel confident that we can rely upon everyone’s sense of responsibility and intelligence.'

The Bank says it has appointed Kroll Associates to investigate the fraud, but insists that its financial standing will remain hardly affected by the losses sustained. It will pay the expected final dividend for the financial year to 30th June 2003, and says its net asset value per share will not be impaired. It must have had a lot of 'secret reserves' to play with!

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