Ethics and governance in the European Financial centers

I wrote an article last week to comment the launch of an UFO in the international debate about business ethics: the Luxembourg Institute for Global Financial Integrity (LIGFI).

I raised a couple of issues. The first one was: Will the institute be a tool to change the business culture or is it an opportunist ethical frontage for the center? A clue to assess the credibility is the project team: is the project team relevant to promote stronger ethical practices and standards based on the principles of integrity: transparency, fairness, responsibility and accountability.  Should there be team members involved in corruption issues or promotion of fraud or tax evasion or other dubious business behaviour (verifiable public lie to mislead the investors...), the institute would not be credible. Another clue will be the capacity to welcome "critics" especially when they lay emphasis on public and official dysfunctions that are the visible part of the iceberg. The word critic comes from the Greek κριτικός (kritikós), "able to discern", which in turn derives from the word κριτής (krités), meaning a person who offers reasoned judgment or analysis, value judgment, interpretation, or observation. In practice critics are blacklisted in the Luxembourg business.

Is the project team relevant to promote stronger ethical practices and standards based on the principles of integrity: transparency, fairness, responsibility and accountability?

The project team is the founder-members that are quoted in the statutes:

Jacques Santer, Luxembourger, Honorary Minister of State and former Prime Minister of Luxembourg, former President of the European Commission: his commission failed and resigned on 16 March 1999 because of the findings of an independent report on Allegations regarding Fraud, Mismanagement and Nepotism in the European Commission. As far as Mr Santer is concerned, the report states that "6.5.7. In the Security Office case, the Commissioner responsible, Mr Santer, acted swiftly after the allegations of fraud appeared in the press. This said, audit results as early as 1993, if followed up, could have made it possible to identify the nature of the problems in the Security Office much sooner. The prime responsibility of Mr Santer in this case is that neither he, as the official nominally responsible for the Security Office, nor his private office took any meaningful interest in its functioning. As a result no supervision was exercised and a ’state within a state’ was allowed to develop, with the consequences described in this report." What is described is exactly the problem in Luxembourg: no action to correct dysfunctions, trend to condone issues. In his statement the day after the resignation of the Members of the Commission Mr Santer states that he “notes that on the basis of a tiny number of cases of fraud and malfunctioning, which did indeed merit criticism, the Committee’s report paints a picture of total absence of responsibility on the part of the institution and its officials. This picture is distorted. I consider the tone of the report’s conclusions to be wholly unjustified”. Such wording reminds me of what politicians and professional in Luxembourg said when critics raise issues in the jurisdictions. (see for example Luc Frieden last week: we would like that the description of our jurisdiction corresponds to the reality)

Michel Maquil, Luxembourger, President of the Luxembourg Stock Exchange. The Principles of Corporate Governance of the Luxembourg Stock Exchange allows company to find reasons why integrity of accounts should not be applicable: integrity is not a principle but a recommendation (the 9th recommendation under the 9th principle which requires "rigorous rules": all the companies that were involved in the scandals of the last years had "rigorous rules"). Only principles are mandatory (comply).

Lucien Thiel, Luxembourger, Member of Parliament of Luxembourg and Honorary Director of the ABBL. He is the one who stated at the begining of the Liechenstein scandal in February 2008 that “it is not our duty to control if the taxpayer was honest” and "we are not compelled to communicate clients' data" without being repudiated for such wording. In the annual report 2003, at the time when he was Director of the ABBL, it was written page 21 that "offences such as forgery, use of forgery, false balance sheets, use of false balance sheets or unauthorised use of corporate property should not be included. These are offences with financial connotations which are confused with laundering for the sole purpose of applying exceptional powers to these vague offences".  Are forgery, use of forgery, false balance sheets, use of false balance sheets or unauthorised use of corporate property, vague offences?

Patrick Zurstrassen, Belgian, Chairman of the Institut Luxembourgeois des Administrateurs. I was unable to find any declaration where he would repudiate dysfunctions in Luxembourg, especially the strange code of governance of the Luxembourg Stock Exchange that makes facultative the integrity of accounts or the so-called vague offences that are forgery, use of forgery, false balance sheets, use of false balance sheets or unauthorised use of corporate property.

Yves Wagner, Luxembourger, President of the Association des Analystes Financiers et Gestionnaires de Portefeuilles. He is as well Member of the EFAMA Working Group on Risk Indicators and Member of the Board, The Directors' Office, Luxembourg. I was unable to find any declaration where he would make amend of the inaccurate transposition of UCITS directive, which definitely caused drifts in the jurisdiction.

François Schanen, Luxembourger, Manager of the BCEE. He is a brilliant linguist. He manages an agency of the BCEE downtown in Luxermbourg.

Gilbert McNeill, Swiss, Professor and Counselor. He defended a thesis in 1976 in Economics. He does not seem expert in business ethics.

Luc Henzig, Luxembourger, Senior Partner of PricewaterhouseCoopers Luxembourg. His firm unfortunately did not participated to the global crime survey despite Luxembourg is a large financial center. No press release on the Survey but a commercial webpage quoting the 2007 survey and promoting PwC services.

Guy Harles, Luxembourger, Senior Partner of Arendt & Medenach: the law firm is in a touchy situation for the Madoff case in Luxembourg  as there is one partner that chairs the ALFI and another partner that is UBS's lawyer.

Jed Grant, Irish, Senior Partner of Sandstone S.A: he used to be Director of Club Monnet. Club Monnet went banckrup in 2002 because it did not pay its rents.

René Brülhart, Swiss, Director of the Financial Intelligence Unit of the Principality of Liechtenstein: According to the annual report 2007, a total of 205 suspicious activity reports (SARs) were submitted under the Due Diligence Act in 2007. There were 52 cases more than in the previous year, representing an increase of more than 25% in the area of due diligence. Nearly 95% of the SARs in 2007 were triggered by banks and professional trustees. 12 of the 15 banks operating in Liechtenstein submitted one or more SARs.

Most people in this team are unfortunately not homines novi all the more than they

-          did condone, and/or

-          did support at least by their silence or inaction

corruption issues, or promotion of fraud or tax evasion or other dubious business behaviours and therefore are not credible to promote stronger ethical practices and standards based on the principles of integrity: transparency, fairness, responsibility and accountability

Is there a capacity to welcome "critics"?

Richard Murphy was contacted. I was not. In his answer, Richard observes that the fees to participate are prohibitive.

He explains that there’s one reason for these fees: and that is to ensure the opinion offered is those of the wealthy alone.

In other words, opinion of those that are not critics and do not repudiate drifts in the business.