Ethics and governance in the European Financial centers

In the context of the financial crisis and of errors in management and governance that are the root causes of the current situation, European bankers explain that despite collateral troubles due to what is going on in the USA everything is fine in Europe because of the PRO-CE-DU-RES.

Let’s have a look on what Daniel Bouton, Chairman of the Board, Société Générale, stated six years ago:


"one of the key issues revolves around off-balance-sheet commitments and the company's risk exposure. Off-balance-sheet items can include a large number of commitments given and received, and are often highly varied, ranging from financial commitments to payroll-related matters to sales relationships. The content of offbalance-sheet items also varies according to the accounting standards used. This situation
has sometimes caused insufficient attention to be paid to the commitments and risks resulting from liabilities not recognized in the balance sheet for various reasons, or even to a view that off-balance-sheet items constitute a kind of "regulation-free zone" beyond the reach of valuation and disclosure rules.
A company's first obligation in this area is and remains the true and fair application of two core accounting principles: prudence and the primacy of substance over form. Once that is established, the two main objectives should be a careful valuation of off-balance-sheet commitments and of the risks they generate, and appropriate disclosures on these subjects.
Each listed company must have in place reliable procedures to identify and value its commitments and risks, and to ensure to its shareholders and investors that it provides them with the relevant information on these matters

Everyone knows what happened at the Société Générale a couple of months ago : see PwC Report and General Inspection Report


Why bankers that state they have relevant procedures would be trusted?
Why accounts certified by auditors that are not independent enough in a blatant way would be trusted?
Why accounts certified by auditors that disregarded risks and the prudence principle in a blatant way would be trusted?

The problem is that because of poor ethics there are neither principles nor rules except the rule of making money.

I went through many banks annual reports available online in Luxembourg and Belgium. There are similarities in the organisation of registered auditors with the IRE in both jurisdictions and the IRE Luxembourg has links to the IRE Belgium on its website.

It seems that in Luxembourg, most audit reports are a copy/paste of the european template.

But in Belgium risks and uncertainties seem to have been taken into account, as the "réviseur d'entreprise" (auditor) whatever firm seems to add the following idea to every report:

"we are not in a position to express an opinion on the description of the principal risks and uncertainties facing the companies included in the consolidation, the state of their affairs, their forecast development or the significant influence of certain events on their future development"

E.g. :
See Dexia Report in Belgium p. 223
See Fortis report in Belgium

NBB Report

Compare Bank Degroof reports

The statements added in Belgium are particularly important for Fortis and Dexia with what happened last week.


Why did most auditors in Luxembourg seem to have disregarded uncertainties that were taken into account in audit reports in Belgium ?



This is a critical question in the current financial mess. In Luxembourg the auditor's job is client-oriented instead of stakeholder-oriented with the view of growing for the audit firms (see their press release).

Can investors rely on a financial center that do not care of business ethics (CSR in Luxembourg exclude ethics) with a collective responsibility ?

Tax justice Network has reported that the veil of Swiss banking secrecy is quietly being lifted — by Switzerland. This is the first line of a New York Times story, following the problems that Switzerland's embattled UBS bank has been having with the US authorities who are understandably angry about testimony and evidence (not to mention common knowledge) that Swiss banks have been helping American clients engage in criminal tax evasion

Read TJN Article

Read NY Times