Maritime Due Diligence: Mauritius at crossroads

The striking fact with these revocations is that all these Authorised companies were involved in the shipping business. The action taken by the Financial Services Commission has in its wake given rise to a situation where any shipping related business activity in the offshore sector is being unfortunately and wrongly viewed with suspicion and considered as high-risk business activity.

Section 74(5) of the Financial Services Act reads as follows:

“(5) Where the Commission is satisfied on reasonable grounds that the revocation of the Global Business Licence is necessary to protect the good repute of Mauritius as a centre for financial services, to prevent or mitigate damage to the integrity of financial services
industry or any part thereof, or to protect the public in general, it may revoke a Global Business Licence.”

It is based on the above provision of the law that the FSC has acted to revoke the licenses of the shipping companies, as a measure to implement targeted financial sanctions in compliance with The United Nations (Financial Prohibitions, Arms Embargo and Travel Ban) Sanctions Act 2019 (UN Sanctions Act). This Act seeks to implement targeted sanctions and other measures imposed by the United Nations Security Council under Chapter VII of the Charter of the United Nations and is complemented by the FATF Recommendations which Mauritius, as a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) is committed to enforce. The financial services regulators also give due consideration to the sanctions lists issued by the US, UK and EU government agencies under the economic sanctions programs given the dependence of the Mauritian financial institutions on global financial system.

A closer look at the entities which have had their licensed revoked prompts the question as to whether the vessels owned and operated by these Authorised Companies, the cargo transported, and the trading patterns were submitted to some level of investigation or underwent any maritime compliance check prior the authorisation granted to the entities to be registered under our jurisdiction. As mentioned in the FATF Report of June 2025 entitled “Complex Proliferation Financing and Sanctions Evasion Schemes”, those actors engaged in sanctions evasions are attracted to jurisdictions which present vulnerabilities in their regulatory framework and exploit the unregulated or inadequate oversight of certain sectors these jurisdictions to hide the traceability of their transactions. One of the sectors identified in the FATF Report as vulnerable to the exploitation of PF and sanctions evasion actors are the maritime and shipping sector.

The Financial Services sector in Mauritius has, throughout the years, built a broad due diligence framework made up of preventive, mitigating and counter measures to ensure the implementation of the sanctions regimes and for the global business sector to steer clear of the traditional threats underlying the non-implementation of these sanctions for the jurisdiction. However, the looming threat that shipping activities of the entities operating within our offshore sector and using our financial service providers may pose seems to have been overlooked throughout the years and has not caught the attention of the concerned authorities until very recently.

The Financial Services community, including both the private and public sectors, are engaged in the promotion of the Mauritian jurisdiction as an ideal platform for the conduct of shipping business. Mauritius is indeed very well positioned to develop the ancillary marine and financial services as a component of its blue economy strategy, given its extensive maritime domain and the various preferential trade agreements and fiscal incentives for shipping activities that are in place. That being said, similar to every other business activity, legal and administrative parameters must be set for the activities to be undertaken in line with established international market practice. The peculiarity of shipping business is that any framework to be set in place to exercise appropriate monitoring and control over the activities must be two-pronged; there should be due diligence carried out on the ownership and also an efficient exercise of checking undertaken on the movable assets of the entities – the ships.

Individuals and entities involved in proliferation financial activities and targeted financial sanctions evasion are perpetually engaged in devising unconventional ways and means to continue their illegal or sanctioned activities, such as the use of technology and intermediaries in third countries to veil beneficial ownership identification, vessel location or cargo identification. Maritime and shipping activities represent a favoured modus operandi and target for evading sanctions, raising funds and acquiring dual-use goods. Jurisdictions which fail to keep up the pace with the evolving threats and with potential blind spots in their existing AML/CFT/CPF controls are highly vulnerable and become attractive playgrounds for these individuals and entities.
Shipping, in terms of safety and security, is a highly regulated sector, with a comprehensive set of international treaties and guidelines worked out under the aegis of the International Maritime Organisation (IMO) for the monitoring of vessels’ operations, including compilation of vessel ownership history, ports of calls and 24/7 vessel tracking.

However, the critical aspect remains the exercise of appropriate due diligence and compliance requirements by both the States where the vessels are flagged and where the registered owner is incorporated. Where either or both concerned countries fail to exercise the required diligence on the ship owning entity and the vessels, the actors involved in illicit or sanctioned maritime transportation of cargo are quick to identify the loophole and exploit the weakness of the regulatory system of the concerned jurisdiction. The credibility of the jurisdictions is thus put in jeopardy, at risk of being blacklisted by international financial regulatory agencies. One of the initiatives that the IMO and its Member States have devised to enhance vessels’ monitoring is the regional agreements on port state control.

Port state control (PSC) is the inspection of foreign ships in a national port to verify the compliance of the vessel and its crew to international maritime safety and security conventions. PSC MOUs are agreements among the maritime authorities in adjoining maritime domains and play a significant role in identifying and tracking substandard ships, vessels’ trading patterns, shipments and compliance with international maritime safety and security norms. The information gathered by each respective PSC MoU is shared among both the Member States, thereby creating an invaluable database on ownership and vessel and cargo movements and helping to raise red flags on potential suspicious activities. There are to date 9 regional PSC MOUs which are in force around the globe.

The effectiveness of the PSC MoUs unfortunately varies among the PSC regions and even among the Member States within the same regional MOU. The Paris Port State Control Memorandum of Understanding is the internationally agreed benchmark as regards effectiveness of ship inspections. The organisation consists of 28 participating maritime administrations and covers the waters of the European coastal States and the North Atlantic basin from North America to Europe. As per the statistics published under the 2024 annual report, 16,508 inspections were performed for that year by its Member States.

Mauritius forms part of the Indian Ocean Memorandum of Understanding on Port State control (IOMOU). The other countries that are party to the IOMOU are: Australia, Bangladesh, Comoros, Eritrea, France (La Reunion), India, Iran, Kenya, Madagascar, Maldives, Mozambique, Myanmar, Oman, Seychelles, Sri Lanka, South Africa, Sudan, Tanzania and Yemen. According to the latest report published the IOMOU for 2024, a total of 5,334 inspections were carried out by 18 out of the 20 Member States. Mauritius and Eritrea are the 2 countries which have not carried out any inspection on the vessels calling in their respective ports. As a country strategically positioned on the maritime highway and engaged in the development of its blue economy, Mauritius has the obligation to ensure that maritime safety and security standards are efficiently implemented within its port and its maritime zones. Additionally, a coordinated approach between financial services and maritime authorities to effectively use the information available on the database of the various Port State Control MoUs to enhance maritime due diligence should be given due consideration.

An assessment of the current situation regarding due diligence as far as shipping activities is concerned shows that clear directives regarding maritime due diligence do not comprehensively form part of the domestic counter measures framework locally in place. This absence of formal guidance from the regulatory bodies on shipping business compliance evaluation under our existing AML/CFT/PT counter measures has been explored and exploited by shipping entities seeking maritime transport sanctions evasion. The current due diligence framework focuses on the corporate ownership, with the shipping element of the equation being overlooked.

According to information gathered on the net, the main reason for the revocation of the licenses of more than 25 Authorised Companies is that these entities were either suspected of engaging or actively engaged in illegal or sanctioned shipping activities, ranging from the carriage of Russian oil, the illegal transportation of weapons and stolen Ukrainian products to the delivery of oil to the Houthis.

The corporate structures set up in Mauritius are suspected or have been involved in the operation of what the International Maritime Organisation has termed as “the shadow fleet” or the “dark fleet”, under the IMO Resolution A.1192(33).

Key Areas of Maritime Due Diligence

Maritime due diligence is the process of investigating and identifying financial, safety, environmental, and human rights risks in transactions involving the maritime domain and where the assets of the corporate entities to be structured include ships. It is an essential practice for stakeholders like financial institutions, vessel owners, charterers, and port operators to ensure compliance with regulations and protect against regulatory risks and reputational damage.

Maritime due diligence cannot be summed up at merely obtaining the vessel IMO Unique Identification Number. It involves a thorough exercise of obtaining and interpreting data in 3 main components of the shipping business, namely:

Vessel and Asset Integrity

This involves assessing the physical condition, age, maintenance history, and technical specifications of vessels or other maritime assets. It also includes reviewing their regulatory and survey status to ensure they meet applicable safety and environmental standards (e.g., SOLAS, MARPOL, ISPS Code) and their track record with the various port state control MoUs. Substandard ships represent a red flag which is to be given due consideration in the due diligence exercise.

Operational and Management Assessment

This area focuses on evaluating the efficiency of the safety management systems (ISM Code), and overall operating procedures of a maritime business or asset. The experience of the technical management of the vessel, the insurers, the commercial management are investigated to assess whether the maritime assets are being managed, insured and operated with the assistance of reputable and professional maritime stakeholders.

Compliance and Sanctions Screening

This is a critical part of due diligence, involving rigorous screening of vessels, beneficial ownership history, the trading pattern, and all stakeholders directly or indirectly participating in the maritime business being carried out against international sanctions lists. The nationality and any change in nationality of the vessels also gives an indication on the type of ship registry under which it is operating – whether or not a flag of convenience – and the degree of enforcement of the country of registration of the international sanctions’ regime. “Flag hopping” and “zombie vessels” are very often resorted to by those owners engaged in illegal shipping activities. Indeed, flag risks are increasingly shaping maritime due diligence, impacting regulatory scrutiny, financial exposure, and operational integrity. The strategic use of high-risk flags in evasive practices such as shadow fleet operations, underscores the complexities of compliance in global shipping.

Maritime due diligence exercise carried out by Appleby has thus enabled the law firm a few months back to identify latent red flags on vessels linked to an offshore entity seeking incorporation in Mauritius.

Given the multifaceted nature of the maritime industry, standard due diligence on vessels and their related parties may not reveal ties to governments, entities, and individuals that are sanctioned. A specialised approach is needed. Strengthening risk assessment frameworks and integrating systematic maritime due diligence is essential for mitigating exposure and ensuring resilience in an evolving regulatory landscape. Having a maritime due diligence framework in place is crucial for our financial services as deceptive shipping practices are constantly evolving and advancing, and bad actors have changed direction and now seek to benefit from illegal activities while looking as if it’s “business as usual,” or hiding in plain sight.

It is important to also highlight the fact that insurers and financial institutions are, in view of the growing number of sanctioned vessels and the threat of international exposure and reputational damage, tightening their financing and coverage policies. A re-engineering of the current compliance framework to integrate the maritime due diligence component is warranted.

The incorporation of more than 25 shipping related entities under our jurisdiction by one single management company may be a clear indication that similar other such shipping entities have been and are being incorporated through our financial services sector. The vessels operated by these global business companies are flagged in other jurisdictions while the registered ownership is Mauritian. The question that remains unanswered is whether a maritime due diligence exercised has been carried out on these vessels as explained above prior proceeding with the incorporation phase of the offshore companies. Additionally, it is not clear as to how monitoring of the activities of these vessels is being undertaken by the local representatives of these GBCs in the absence of any guideline on or acquaintance with the measures to be put in place in addition to classic compliance requirements.

Conclusion

Mauritius is an attractive jurisdiction for the conduct of international shipping business and many ship owners are already operating their vessels – flagged either under the Mauritius or foreign Flags – and owned by Mauritian domestic or offshore entities. Any loophole in due diligence exercise that is prescribed must be remedied to maintain the reputation of the jurisdiction. Business is no longer as usual, we can and should encourage shipping activities using our financial services sector as a platform while at the same time ensuring that we stay clear of any negative public exposure through a reinforcing of our existing regulatory compliance framework. With the upcoming mutual evaluation by the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) scheduled for 2027, the time to act is now.