Ethics and governance in the European Financial centers

There is a motto in Luxembourg, Mir wellen bleiwen wat mir sin, which means "We want to remain what we are"

Yesterday the CSSF, Minister Luc Frieden, the Director of LuxembourgForFinance, and the chairman of the ALFI communicated on the Madoff case in Luxembourg. What they say, which wants analysing between lines, confirms that there is no evolution. And that there will not be any.


The CSSF limits the assessment to a list where it seems that there may be missing funds (for instance what about the possible Luxembourg side of Thema?). It specifies that the amount of EUR 1.7 billion, which is even lower than the amount of EUR 1.9 billion that was stated in December, is given according to the information at its disposal. This means that it may ignore other funds. The CSSF does not contradict the figure of EUR 5-7 that was circulated.

In the first interview Luc Frieden confirms the amount of EUR 1.9 billion, which is a discrepancy with what the CSSF stated the same day, what sounds strange. He denies that Madoff case is a Luxembourg issue, as in his opinion it is an American issue. He denies that Luxembourg is a tax haven saying that France and other jurisdiction are jealous of Luxembourg success. The regulatory framework in Luxembourg is said to be "open and clear". The word "pragmatic" is no longer quoted but the word clear has a similar meaning. The order of words is switched as if Minister Frieden wanted to insist that there is no flexibility in the enforcement.

In the second interview, Luc Frieden explains that Luxembourg adopts an attitude which he describes as favourable to economic development, with decisions fast and close the needs of the economic actors but to in no case contrary with the European rules. It is true that every rule in favour of the business is transposed without delay, which is not the case for rules of regulation (see for instance debates on the directives relating to AML). He admits that decisions are close to the needs of the economic actors: but are the “needs of the economic actors” the needs of the stakeholders: investors, international community (OECD, GRECO)…

In an interview, Fernand Grulms, who is director of LuxembourgForFinance, explains that they must be better known and recognized like a credible and reliable partner.

In an interview, Claude Kremer, who is Managing Director of the ALFI, raises the question of conflicts of interest. He explains that he works in no case connected to Madoff and that "technically" their is no conflict of interest. One of his fellow colleagues in the Law Firm is the Lawyer of UBS and HSBC. Claude Kremer underlines that within his company, he informed the associates that he wishes to remain out of any case having a relationship with Madoff. But there is a huge problem in the small jurisdiction where “everybody knows everyone and where there is a kind of self regulation” as the same Law Firm as legal person is the cornerstone of the regulation.
1. The Law firm provides advises and opinions on law and regulation and has probably a responsibility in the pragmatic wording that harms today the Luxembourg funds by placing the investor in the doubt. As I explained, the famous circular relating to UCITS does not comply with the Luxembourg authorities’ statements. When Luc Frieden said that the professional in Luxembourg had an obligation of conservation, monitoring, control and restitution of the assets of the funds, I am afraid this clear obligation is not what the pragmatic circular says.
2. The Law firm is member of CSSF Committees.
3. The Law firm provides the Chairperson of the ALFI.
4. The Law firm provides representatives at the ABBL
5. The Law firm was chosen by UBS
6. The Law firm was chosen by HSBC
Etc.




All the above leaders never wonder why regularly there are issues and scandals involving Luxembourg, which is definitely the relevant question.
Not a word about the absence of penal liability of legal persons
Not a word about the "fiduciaires" that are neither members of the IRE nor the OEC, which organise scams with exotic jurisdictions
Not a word about statutory auditors from exotic jurisdictions.
Not a word about the absence of balance sheets database
Not a word about bankruptcies with the same individuals that can create companies
Not a word about the wording of the circular relating to UCITS
Not a word about the limited conception of CSR in Luxembourg, which excludes business ethics
Not a word about the persistence of professionals with red flags of bad management and bad governance in the business.
Etc.

It is so easier always to take refuge behind the jealousy undoubtedly probable of the other countries, to start with France which is anyway far from being a model.

Because of all that, there is definitely a country risk for any investor in Luxembourg or any supplier of a Luxembourg client.