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.

Claude Meisch, a Luxembourg member of parliament has yesterday questionned the Minister of Finances on banking secrecy in the context of the meeting against tax havens that took place today in Paris.

He asked five questions for which I will provide an answer or a comment.

• What will be the attitude of the Luxembourg government at this meeting?

Luxembourg did not participate. So did not Switzerland.

• How Mister the Minister does it react vis-a-vis the reproach also addressed to Luxembourg to exonerate in a perpetual way to cooperate with the other tax authorities?

I will quote (In L’Essentiel) Lucien Thiel, who is former chairman of the Luxembourg Bankers’ association and curently MP in the same party as the Minister of Finances :

It is not our duty to control if the taxpayer was honest

we are not compelled to communicate clients’ data

This means two words for other countries that require cooperation : up yours !

• Is Luxembourg in the future likely to see itself registered on the list of tax havens drawn up by the OECD?

To be fair, it should be registered if Switzerland is, as requested by Germany, all the more than Switzerland demonstrates less permissiveness than Luxembourg.

• How Mister the Minister explains the reason why the financial crisis is now called upon in order to fight against banking secrecy despite it is not the the root of the crisis?

The problem is the abuse of banking secrecy and low taxes to attract investors in a lax jurisdiction.

Richard Murphy has reported the following statement regarding regulating offshore jurisdictions:

"As global leaders meet to strengthen international financial regulation, it is urgent that they address the secretive and largely unregulated world of offshore jurisdictions.

By offering financial services built around secrecy, minimal taxation, and hands-off regulation, the offshore jurisdictions promote tax evasion and undermine transparency, government oversight, and the rule of law. Offshore jurisdictions routinely unleash anonymous corporations, hedge funds, trusts, and other financial entities on the world, and hinder international efforts to detect, stop, and punish misconduct. Inaction by the international community has encouraged an alphabet of countries to engage in offshore abuses, from Austria to the Cayman Islands, the Isle of Man, Liechtenstein, Monaco, Singapore, Switzerland, and more.

It is long overdue for the world community to take a collective stance against the offshore jurisdictions’ secretive, unregulated way of doing business. The nations of the world must adopt mechanisms to bar uncooperative offshore financial institutions from accessing international financial systems. We can fight back, and I hope the United States will take a leadership role in the overdue effort to combat offshore abuses"

Sen. Carl Levin (D-MI)

As I already said auditors have a responsibility in the collapse of confidence : many of them certified accounts despite red flags all the more than the relationship auditor-auditee is a commercial relationship. I the auditor does not certify he knows that he may lose the client. As far as declarations of suspicion are concerned, of the auditor report a declaration of suspicion he knpws that he will lose the client (and the prospects).

An Early Day Motion was published last 16 October in the UK :

That this House is concerned to find that the banks which have failed in the US, Britain and the EU all had clean bills of health from auditors who are dependent for their appointment and fees on companies and their directors; notes that in all these cases auditors also acted as consultants to the companies and reported on the transactions they created, resulting in a financial dependency which inhibited auditors from doing effective audits or drawing public attention to the questionable mixture of toxic debts, off balance sheet accounting, and dubious asset values which brought the banks down; points out that in 2007 PriceWaterhouseCoopers charged Northern Rock £2.4 million (2006: £1.8 million) of which £1 million (2006: £1 million) was for consultancy, KPMG charged Bradford and Bingley £1.4 million (2006: £1.7 million) of which £0.8 million (2006: £0.8 million) was for consultancy, KPMG charged HBOS £11.4 million (2006: £11.2 million) of which £3.4 million (2006: £4.4 million) was for consultancy, Deloitte and Touche charged RBS £31.4 million (2006: £23 million) of which £14.2 million (2006: £11.1 million) was for consultancy and PriceWaterhouseCoopers charged Lloyds TSB £14.6 million (2006: £17 million) of which £1.5 million (2006: £2 million) was for consultancy; and therefore suggests 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

I wish other parliaments reported the issue.


Read motion

The OECD's Working Group on Bribery sharply criticised the United Kingdom’s failure to bring its anti-bribery laws into line with its international obligations under the OECD Anti-Bribery Convention and urged the rapid introduction of new legislation (watch the press conference).

Current UK legislation makes it very difficult for prosecutors to bring an effective case against a company for alleged bribery offenses. Although the UK ratified the OECD Anti-Bribery Convention 10 years ago, it has so far failed to successfully prosecute any bribery case against a company.

In light of the numerous issues of serious concern, the Working Group has requested the UK to provide quarterly written reports on legislative progress for each Working Group meeting. It may also carry out follow-up visits to the UK, and may take further appropriate action after it considers the reports or any on-site visits.

The Working Group warned that uncertainty over the UK’s legislative framework may trigger a need for increased due diligence over UK companies by their commercial partners or multilateral development banks.


Read press release

President George W. Bush, French President Nicolas Sarkozy and European Commission President Jose Barroso yesterday agreed invite world leaders to participate to a series of summits on the global financial crisis, with the first held in the U.S. after the US presidential election.

"We live in the 21st century, but we continue to apply 20th century rules. Hedge funds cannot continue operating as they have in the past; tax havens, neither; financial institutions that are under no supervisory control -- this is no longer acceptable, this is no longer possible. Together, among friends, among allies, we must be able to say to the world that we are determined to find a solution together, to find answers together."

(President Nicolas Sarkozy)


Know more

The last days the press reported that Fortis and Dexia, two major European banks that would have collapsed without the rescue of States, organised in Monaco a costly meal a couple of weeks after this rescue.

This is indecent.

Even though management of the banks explained these lunch were scheduled a long time ago, because of the crisis, they should have been cancelled or at least postponed.

Furthermore the lunchs took place in Monaco, a financial center that is considered as a tax haven, and even a non cooperative tax haven in the small list provided by the OECD . It was for the launch of a subsidiary in this tax haven for Dexia Private Banking.

“When one is banker, it is necessary to know to have blinkers”: This is what said last Tuesday a former head of Paribas at a trial that is taking place in Paris. For the charge, the bankers of Paribas closed the eyes on the trade of weapons which they could not be unaware of as the media had reported the issue.

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