The fine-tuning of the India–Mauritius double taxation avoidance agreement (DTAA) may appear, at first glance, to be a technical adjustment in a long-standing fiscal partnership. But beneath the treaty language lies a deeper question: can Mauritius still persuade the world that its financial institutions are independent, credible, and trustworthy? For international regulators, investors, and ordinary Mauritians alike, the answer will not be found in clauses but in institutions—and in whether they are truly free from capture.

The treaty, originally signed in 1982, was for decades Mauritius’s golden goose. It allowed foreign capital to flow tax-free through Port Louis into India, helping Mauritius become the single largest source of Indian FDI. Yet what India saw as investment, many regarded as round-tripping and tax avoidance. The 2016 amendments closed the door on new tax-free share transfers, and the 2024 protocol brought the treaty into line with the OECD’s Base Erosion and Profit Shifting (BEPS) standards. The addition of the Principal Purpose Test now means that transactions motivated mainly by tax avoidance may lose treaty benefits. It is a shift from form to substance, and Mauritius must now prove it offers more than a postbox.

The difficulty is that international assessors are already sceptical. Mauritius was grey-listed by the Financial Action Task Force (FATF) in 2020, alongside the EU’s high-risk jurisdiction list, due to deficiencies in anti-money laundering and counter-terrorism financing enforcement. It was removed in 2022 after a flurry of legislative changes. Yet global regulators know the difference between paper compliance and effective enforcement. FATF and the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) want prosecutions, not protocols; independence, not mimicry. This distinction is what continues to haunt Mauritius’s financial credibility.

The fragility of institutions is not abstract. It is embodied in appointments and scandals that shape how the world reads Mauritius’s commitments. At the Financial Services Commission (FSC), supposed to be the offshore sector’s watchdog, leadership has been repeatedly politicised. The Silver Bank collapse in 2023 and the unresolved legacy of the Bramer/BAI affair reveal systemic failures of oversight. Leaked minutes have shown how politically sensitive decisions were pushed through despite regulatory red flags. The FSC’s dual mandate—to regulate and to promote the sector—has long been a conflict of interest. When supervision lags years behind statutory requirements, and enforcement actions rarely see daylight, assurances to FATF ring hollow.

The same pattern extends higher up the financial hierarchy. Dr. Rama Sithanen, simultaneously Chairman of the FSC and Governor of the Bank of Mauritius, epitomises the problem of concentrated power. A long-time political ally of Prime Minister Navinchandra Ramgoolam, his appointment has raised questions of both competence and independence. The Bank of Mauritius, custodian of the currency and guardian of monetary policy, is now led by a man more remembered for political loyalties and past austerity battles than for technocratic neutrality. Critics call it “Dracula at the blood bank,” and the metaphor is hard to shake.

Scandals at the Mauritius Investment Corporation (MIC), the central bank’s pandemic-era rescue vehicle, add to the unease. Reports of forged board minutes—documents listing members as both present and absent—expose not just administrative sloppiness but an institutional willingness to bend record-keeping to political needs. If a body handling billions in public funds can falsify minutes, why should foreign investors or global watchdogs trust its assurances of fiscal discipline?

At the apex of this pyramid sits the Prime Minister himself, facing pending cases at the Financial Crimes Commission (FCC)—a body whose director he nominates. His former lawyer now serves as Attorney General. In such a context, the problem is not isolated mismanagement but systemic capture. Regulators do not operate independently; they orbit political centres of gravity. FATF and ESAAMLG, seasoned in reading small-state dynamics, are unlikely to overlook the signs.

These structural weaknesses matter for the treaty with India because treaties are only as strong as the institutions that uphold them. India may be satisfied with closing loopholes through the Principal Purpose Test, but the world’s regulators ask harder questions. Can Mauritius demonstrate that its financial gatekeepers are insulated from political pressure? Can it prove that treaty benefits will not be arbitraged through hollow structures? Can it show that enforcement is real, not cosmetic?

The stakes extend beyond offshore finance. Mauritius remains a heavily import-dependent economy, reliant on offshore flows to sustain reserves, stabilise the rupee, and finance its trade deficit. Phantom capital has been the island’s lifeline, but its legitimacy rests on international trust. Once lost, credibility is far harder to restore than reserves. Other jurisdictions—Dubai, Singapore, even Seychelles—have invested in supervisory technology and stronger enforcement. Mauritius risks being left behind, clinging to a model that the world no longer buys.

The sociology of this crisis is as revealing as its economics. Mauritius is a small society, where elites recycle through politics, law, and regulation. Overlaps are inevitable, but when they converge in the very institutions tasked with policing finance, the result is what political scientists call state capture. It is not dysfunction but design: institutions function smoothly for those in power, while projecting compliance to the outside world. It is this duality that FATF, IMF assessors, and ratings agencies are now calling out.

The fine-tuning of the India–Mauritius treaty will proceed, and the clauses may reassure investors seeking predictability. But the credibility of Mauritius as a financial centre is no longer judged on paper. It is judged on the independence of its regulators, the transparency of its prosecutions, and the integrity of its central bank. So long as political loyalties and personal networks dominate appointments, Mauritius’s offshore towers rest on sand.

In the end, the treaty is less a victory than a mirror. It reflects the uneasy compromise of a state that trades credibility for convenience, sovereignty for patronage. India may accept the clauses, but the world is watching the institutions. For Mauritius, the question is stark: will it fine-tune its treaties while leaving its watchdogs toothless, or will it finally confront the capture that corrodes its credibility? The answer will decide not just its tax treaties, but its place in the global financial order.

Based on reporting, FATF and ESAAMLG evaluations, treaty protocols, and financial oversight case records (2020–2025).