Ethics and governance in the European Financial centers

Minister Luc Frieden was invited last May 2007 to participate to the annual assembly of the ALPP (Association Luxembourgeoise des Professionnels du Patrimoine), which is a non-profit organisation that includes over 100 independent companies, established in Luxembourg.

What was said is perfect illustration of the fact that in Luxembourg business is business without shame but with governmental support.


"We are loosing business and many clients are discouraged. It is necessary to renew and inject dynamism into the financial center", the Chairman said.


"Should a large financial center like ours exaggerate or be more lax with the risk of a couple of scandals. Yes we may have exaggerated some procedures but this was a general trend in Europe. I hope we have not done badly at that is still possible to go backward. I am ready to give up some requirements", Minister Frieden said.

The center is not lax enough compared to other centers and especially the United Kingdom and even Switzerland?


Read article in French

Last Friday the Isle of Man confirmed that its tax system, which it claimed complied with the requirements of the EU Code of Conduct for Business Taxation, has failed to secure the approval of the European Commission. As the Isle of Man press release on the issue said:

The EU Code Group met on 16 October 2007, and considered the DPC. It considered the DPC only and not the Isle of Man’s ‘0/10′ taxation system for companies which conforms to the principles of the Code of Conduct. The DPC, however, was found by the EU Code Group not to conform to the principles of the Code of Conduct.

Read official press release

Read Richard Murphy's analysis

The majority of Maltese believe it is very easy to evade income tax and conduct undeclared work, according to a new EU survey.
It is interesting to observe that data are not available in Ireland and Luxembourg.

read article

EU survey

Ther FSA communicates on crime so do auditors in the UK contrary to a financial center like Luxembourg that as yet more offshore assets than the UK but does not care of the credibility of its ethics.

The Financial Crime Sector Team this month published its newsletter.

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The Financial Services Authority has worked to reduce financial crime since its creation. From 15 December 2007, the anti-money laundering controls of leasing companies, commercial finance providers, safe custody services and certain other businesses will be supervised by the FSA for the first time. A document that was released in September 2007 explains how the FSA plan to supervise the businesses that will become itsresponsibility.

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The ABBL this month published its comments relating to the draft law to transpose the third directive (Directive 2005/60/EC of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing).
The third Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing aims to incorporate the June 2003 revision of the Forty Recommendations of the Financial Actions Task Force (FATF) into EU legislation.

Bankers' comments are definitely more responsible than comments at the time of the transposition of the second directive.

Especially they underline and deplore that Luxembourg will not tranpose all the provisions by the end of the year.

This is not serious for a center that communicates that it is at the Forefront of the Fight Against Financial Crime.

So is not seriousfrom the audit leader the absence of country report on economic crime.




Draft law
ABBL comments

In three recent articles I have commented PwC Luxembourg press release published last week:
Surprising PwC Luxembourg
PwC Global Economic Crime Survey
PwC Luxembourg and Corporate Social Responsibility


Time is up to lead to three conclusions, based on this press release, for the job of external auditor.

1) An audit firm cannot communicate on its growth as value like a vulgar commercial private company. Such a value involves risks to reach commercial objectives and can lead the staff to fail to fulfil the professional deontology not to lose the client or to gain clients. The external auditor has a legal assignment which definitely requires a reserve in the communication.

2) Audit reports are not for the client (who pays) but for the investors, the market and more generally the stakeholders. It is them that must trust the auditor's report. Aiming at clients’ confidence unfortunately does not guarantee the quality (ethics) of the work because the client can trust the auditor especially to condone fraud : after all Luxembourg is a small place where bankers stated officially that “offences such as forgery, use of forgery, false balance sheets, use of false balance sheets or unauthorised use of corporate property should not be included. These are offences with financial connotations which are confused with laundering for the sole purpose of applying exceptional powers to these vague offences”. This is the deep business culture.

3) An audit firm that censors clients’ economic criminality (including money laundering) in a small country that boasts a large financial sector cannot inspire confidence with stakeholders. If it is unable to speak freely about economic criminality while having strong commercial objectives, how can stakeholders be certain that issues will be raised in the framework of the audit assignments? The absence of country report is very significant of situations that definitely impair or tend to impair the independence.

Luxembourg unfortunately concentrates all dysfunctions of the financial sector and of the audit professions worldwide. And because of the small size compared to the growth of the business, dysfunctions are amplified so is amplified that “Code of conducts” or “philosophies” are a charade.

What counts is making money, always more money without shame.

"Fricum prior omnia"

GRECO held its 34th Plenary Meeting in Strasbourg, from 16 to 19 October.

The Group adopted the Addenda to the First Round Compliance Reports on Bosnia and Herzegovina and Malta, as well as the Addendum to the First Round Final Overall Assessment Report on Georgia and thus concluded the first round compliance procedures in respect of these three countries; the Group also adopted the Second Round Compliance Reports on Albania, the Netherlands, Spain and “the former Yugoslav Republic of Macedonia”. GRECO noted with satisfaction that the authorities of Georgia and Spain authorise the publication of their respective reports and invited Albania, Bosnia and Herzegovina and “the former Yugoslav Republic of Macedonia” to authorise as well, as soon as possible, the publication of their reports.

GRECO held a tour de table on Rules and guidelines regarding revolving doors / pantouflage, including special presentations by intervenors from France, Latvia, the United Kingdom and the United States of America. The summary of the tour de table will soon be available on GRECO’s homepage.

Finally, GRECO discussed possible options for action to be taken in respect of the International Anti-corruption Day (9 December 2007).


Source : GRECO website

The FATF last week published Guidance regarding the implementation of activity-based financial prohibitions of United Nations Security Council Resolution 1737.

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Pensylvania and Montana have qualified Luxembourg as a tax haven in their legislation.

Penlyslavia defines a tax haven as "a jurisdiction that at the beginning of a taxable year is a tax haven as identified by the Organization for Economic Co-operation and Development, plus the sovereignties of Bermuda, the Cayman Islands, the Bailiwick of Jersey and the Grand Duchy of Luxembourg."



Montana

Pensylvania