Ethics and governance in the European Financial centers

In the context of the financial crisis, Véronique Poujol from the Lëtzebuerger Land has recently published a lucid analysis of the situation in Luxembourg that unfortunately leaders deny.

In an article called “La souricière” (“The trap”), she observes that this crisis takes the Luxembourg leaders out of clipper and at the same time occupies them on two fronts:

Initially, it is necessary for them to dissuade the savers to withdraw their money to put it at home.

But the breach for Luxembourg opened on a second front: the contradiction of the Luxembourg model. Nothing is more volatile than the capital. The success of the Luxembourg business model, it is to be business friendly, flexible and pragmatic with the economic operators, including in the banking legislation. Luxembourg was flexible with the investors, more slackness with the savers that have a poor level of the guarantees. There will not be doubt in the arbitration which these people will make between the safety of their funds and discretion with which they are managed. The State have reserves which are not inexhaustible.

I could add the third front. As explained the lawyer Alex Schmidt the investor is not protected in Luxembourg when banks failed in their duty. In a book called La Responsabilité du Banquier en droit prive luxembourgeois (Banker’s liability in Luxembourg private law) he concludes that one could be pleased with what Luxembourg jurisprudence generally shows very clear-sighted vis-a-vis the investors from day to day (“L'on pourra se féliciter de ce que la jurisprudence luxembourgeoise se montre généralement très clairvoyante face aux investisseurs à la petite semaine”). In other words in case of litigation because of a bank failure, there is a country risk as the foreign investor will not win in justice.

I could add the fourth front, may be the most important: the international fight against tax havens and offshore jurisdictions with “powerstates” like the USA, France and Germany. These countries lack money to support their respective economy and I do not thing that the Luxembourg business doctrine as expressed by Lucien Thiel (former chairman of the Luxembourg bankers’ association), will be appreciated:
- It is not our duty to control if the taxpayer was honest,
- Luxembourg is not compelled to communicate its clients’ data

If Luxembourg leaders do not realise the paradigm shift to do the required aggiornamento, give them a couple of years not to say months and look them go bust.


Title from La Fontaine