Ethics and governance in the European Financial centers

Revenue & Customs officers investigating a suspected £20 million VAT missing trader and money laundering fraud swooped in early morning raids today making six arrests in Scotland. Codenamed Operation Vaulter, today's action is the result of a 24-month long investigation and follows the arrest of 17 persons in North West England last September.

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As Tom Lyons reported today in The Sunday Times, PAY-TELEVISION broadcaster Setanta Sports has slashed at least £17m from its tax bill by setting up a subsidiary in Luxembourg.

This will feed again the reputation of tax haven.


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The last report from the FATF that was issued a few days ago is definitely very interesting.

Besides a dubious grant from Luxembourg I have already commented, the report states that "The FATF remains vigilant on international co-operation issues and will not hesitate to act if a country poses a serious threat to the international effort to combat money laundering and terrorist financing" (paragraph 46 page 10 of the English version).

"Serious threat" : this is the risk-based approach as implemented at the FATF's level.
According to the dictionnary, serious means " having important or dangerous possible consequences"

Therefore a "single threat" is not enough for the FATF to do its duty. The threat must be "serious". Nobody knows what serious means as it is a subjective word. The serious threat is not enacting laws and regulations to please the FATF, as explained paragraph 45: "The FATF NCCT process has been very successful. All 23 jurisdictions that were identified as NCCTs in 2000 and 2001 are no longer on the NCCT list as they have made significant progress and many others have strengthened their anti-money laundering and counter-terrorist financing systems to ensure they would not be listed by the FATF as non-cooperative." Strengthening the anti-money laundering and counter-terrorist financing systems (legal and regulatory framework) does not mean implementing or enforcing laws and regulations as explained by a OECD speaker in the framework of the ten-year anniversary of the adoption of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions : "It is one thing to enact laws, and another to enforce them" (Angel Gurría, OECD Secretary-General).

This explains many things about negligence and/or inertias in some financial centers. They do not care of the FATF's Recs as the FATF does not take into account the implementation and the enforcement.

Let's imagine what the FATF's approach means at a center's level :

For the prudential supervision authority : The supervision autorities remains vigilant on AML issues and will not hesitate to act if a bank poses a serious threat to the center effort to combat money laundering and terrorist financing.

For a FIU : The FIU remains vigilant on international co-operation issues and will not hesitate to act if a bank poses a serious threat to the international effort to combat money laundering and terrorist financing.

For a bank : The bank remains vigilant on AML issues and will not hesitate to act if a client poses a serious threat to the bank effort to combat money laundering and terrorist financing.



At a center's level the serious threat is a sanction from the FATF. But as the FATF is willing to act only when a jurisdiction does not have a frontage of laws and regulations, it is not difficult to please the FATF and be compliant.

Everyone should admit once for all, by following the example of the laid-back and negligent current leaders of the financial center of Luxembourg, that ethics principles are a charade and what actually counts is making money as there is only one rule : MONEY OVER ETHICS.

I must add to be fair with Luxembourg that many professionals in this center do not agree with inertias and negligence but they have a feeling of fear for their job (compliance officers or internal auditor) or contracts (auditors), which I can understand : as an OECD report noted "There would seem to be very little likelihood in Luxembourg that a company employee who has been witness to misappropriation of funds will report this to the authorities. According to the union representatives interviewed by the examining team, the main reason for this is the country’s small size: everything becomes known very quickly, and so anyone who reports an offence will soon find himself labelled as an informant and excluded from the labour market". Should they feel supported by international organisations with an actual pressure to clean the center and eliminate negligent people either auditors or professionals of the financial sector, they might do their duty and break the silence for the sake of the center and of the international finance.