Ethics and governance in the European Financial centers

Didier Mouget, PwC Luxembourg Territory Senior Partner, was invited by Paperjam TV to comment PwC results, the crisis and the consequences of the current fight against tax havens.

He explained that the crisis in an opportunity for auditors to make more money and continue the growth because the provide they provide confidence. I do not agree with that because auditors, especially in a small jurisdiction like Luxembourg, are not independant enough from their clients who pay for the audit and ignore business ethics. That is the reason why those who state that audits of banks should be directly conducted by the regulators on a real time basis and external auditors of banks must not act as consultants to the banks or the directors are probably right as auditors seem incorrigible.

What he says about the current fight against tax havens is worth analysing as well.

In his opinion Luxembourg is not a tax haven because it has rules, which is not the case in some exotic jurisdictions with no rules or poor rules.

Unfortunately like many professionals in Luxembourg, he disregards dysfunctions of the center including those that are a direct threat for chartered accountants and registered auditors because of accounting actors that are controlled neither by the OEC (institute of chartered accountants) nor the IRE (institute of registered auditors ) and that create risky companies.

Above all he explains that if some tax havens are closed - Luxembourg not being one of them - it would be more business for Luxembourg. This is what I said.

But, it would be as well more reputational risks as there is no will to correct dysfunctions or issues that are condoned.

And I find it strange that a small country that find the money for its promotion with LuxembourgForFinance for exemple, should be unable to invest in the means required to correct dysfunctions.

I went through blogs and articles to read the comments following the bad TV documentary on the financial center of Luxembourg broadcasted last 21 October just before an interview with Prime Minister Juncker in the framework of the evening news on France 2.

It was a trap for Prime Minister Juncker, with definitely no will of journalists to be constructive as they did not focus on actual issues or dysfunctions.

Nevertheless I find it curious that many people including french politicians of Lorraine in the reactions should focus on jobs provided by Luxembourg while disregarding actual issues or dysfunctions in the jurisdiction.

They demonstrate that money can buy the silence.

In the context of the meeting agains tax havens that took place in Paris Mr Juncker, Prime Minister of Luxembourg, yesterday said on TV two relevant things that are worth commenting:

To establish an equation between banking secrecy and tax haven (...) in our eyes does not make sense.
(Etablir une équation entre secret bancaire et paradis fiscal (...) à nos yeux ne tient pas la route)

I agree with him. As I said banking secrecy is only a criterion of tax haven. It actually depends on the use of it. That is the reason why Mr Thiel's statement (it is not our duty to control is the taxpayer was honest) was inappropriate all the more than he is a powerhouse in the jurisdiction.

France has tax niches (...) France is not more exemplary as regards financial morality as Luxembourg
(La France aussi connait des niches fiscales (...) La France n'est pas plus exemplaire en matière de moralité financière que le Luxembourg)

I agree with him. With its "zones franches" for example France has areas like a “tax haven”. Additionally, Monaco and Andorra remain two of the three jurisdictions considered as a tax haven by the contested list provided by the OECD. France has a direct responsibility for these two jurisdictions. The French president is co-prince of Andorra and France has privileged relations with Monaco.

According to Mr Juncker, Luxembourg is not a tax haven. I don't agree with him. There is a lot of work to do in Luxembourg where the criterion of permissiveness is definitely met (see comparison with Switzerland), which is a threat for the reputation of the financial center all the more than the political practice has demonstrated the weakness of Politics before the financial sector that influence the decision-making power.

What is to be done?

This is what I explained late July this year

To justify and protect the principles of banking secrecy and attractive taxes Luxembourg must take the following actions that are not exhaustive:

1) Implement OECD and GRECO Recs to prevent corruption. Luxembourg does not care of the Recs, which is the reason why the "generous grant" to the FATF, that cannot ignore the GRECO and OECD reports, is a huge problem as, by accepting the grant, the FATF unfortunately ignored de facto the issues of the reports including AML concerns while promoting Luxembourg in the wording of its report ("Thanks to a generous grant...").

2) Fight the "system". The consequence of the "system" is that in most cases dishonest professionals never quit the business so the principle of professional standing as stated strictly in the law is not implemented. This is the most difficult thing because of the small size that creates situations of conflicts of interest that may turn into corruption. It is everyone's responsibility to repudiate every professional that do not comply with the requirements of professional standing as stated strictly in the law: every guarantee of irreproachable conduct (larger than the reasonable assurance, larger than licit).

3) Communicate on issues. Leaders in Luxembourg must be aware that only dishonest professional may fear transparency. Transparency is very important to ensure business ethics. It is not normal for a center like Luxembourg, which boasts such an important financial sector that big four like PwC and E&Y do not participate to studies of their brand relating to economic crime. As far as the CSSF is concerned, it should communicate like the FSA in the UK, which would have a salutary dissuasive effect.

4) Authorise only registered professionals in Luxembourg to certify the accounts i.e. members of the IRE (institute of registered auditors) or the OEC (institute of chartered accountants), and prohibit foreign professionals to certify the accounts (bogus firms from BVI, Isle of Man...)

5) Eliminate the “artists of accounting” that are controlled neither by the IRE (institute of registered auditors) nor the OEC (institute of chartered accountants) and are often involved in scams and other frauds through Luxembourg-based companies.

6) And above all accept opinions that are critics. The stake is to avoid that the center become zombie because it would have "created an insulated culture that systematically excludes any information that could contradict its reigning picture of reality", as S. Finkelstein explained.

Mr Juncker condones and denies lax business environment in Luxembourg that creates risks.



It is up to the politicians in the framework of the next general elections in Luxembourg to achieve the aggionamento.

It is up to the european organisations to ensure that every lax jurisdiction is blacklisted and beware of communicating vases.