Ethics and governance in the European Financial centers

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.


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