Ethics and governance in the European Financial centers

John Cummings has reported that American senators want that the Obama administration’s fiscal year 2010 budget to include an array of measures aimed at shutting down what they describe as “offshore tax abuses".

Levin clearly sees an opportunity to ride a wave of outrage over the deployment of the Troubled Asset Relief Program. Many of the firms listed in a GAO report are TARP recipients. For example, Morgan Stanley, which has 273 subsidiaries in tax havens or financial privacy jurisdictions such as the Cayman Islands, Luxembourg, and the Marshall Islands, has received $10 billion from the fund. Citigroup, with 427 subsidiaries in such jurisdictions, and Bank of America with 115, have each received $45 billion"

Reuters has reported that French Economy Minister Christine Lagarde said on Monday her U.S. counterpart, Treasury Secretary Timothy Geithner, was moving closer to European countries' position on tax havens.
"I noted with great interest when I was in Washington and I met my (U.S.) counterpart that on the issue of tax havens in particular ... my U.S. colleague is moving closer to our positions," Lagarde told Europe 1 radio.

For the first time there is an opportunity to end the abuses of tax havens.

But it is important to be fair with the jurisdictions that are considered as tax havens and currently quoted in the media.
- One cannot stigmatise Switzerland or Luxembourg on the one hand and tolerate Monaco, Andorra or Delaware on the other hand.
- One cannot limit the tax havens to questions of banking secrecy and non-existent taxes or relatively low taxes. As I said, the key problem is permissiveness. And Luxembourg is worse than Switzerland.
- The argument of employments provided often used by the leaders of the jurisdictions (For example Jean Asselborn : "We have 150,000 workers who cross the borders daily to work; 73,000 come daily from France, just as many come from Germany and Belgium. If the banking centre is destroyed, it is a disadvantage for not just Luxembourg, but the whole region") is a perfectly fallacious argument that looks like blackmail: if such pragmatism were admissible, it would be necessary for the incomes that gets to the families to tolerate the child labour, to tolerate the childish prostitution, etc. But, it is necessary to help the jurisdictions to achieve their aggiornamento not to make rest their economic development on a lax legal and regulatory framework.

Time is up to promote a new standard for a certification to ethics that I have already presented two years ago.

Six criteria should be taken into account:

1. Credibility of the ethical statements : are leaders reliable and trustable in their communication?
2. Means for detection of improper business conduct : are the police, the justice and the tax administration given the means in relation to the economic and financial development ?
3. Credibility of sanctions : are sanctions dissuasive enough, or is it worth frauding?
4. Transparency on issues : are media playing their role of watchdog, is the regulatory body communicating on issues, are judgements easily available?
5. Independence of auditors : are auditors actually intependant from their auditees?
6. Protection of the customer: is the customer protected when professionals did not meet their requirements or did not do their duty?

The RTBF diffused a report carried out with a hidden camera in a Luxembourg bank a couple of days ago.
Questioned by Medhi Khelfat, Jean Jacques Rommes, director of the ABBL (The Luxembourg Bankers Association) rose: "This is the case of an alleged customer who comes and says “we will defraud the tax department, how to make? ”. It is the starting assumption. The banker has an answer which I would not have made if I had been in his place. It is not the banker who started. ” If a Luxembourger presented himself in a Belgian bank, in the same situation as the one of the report, it would do the same thing exactly, according to Jean-Jacques Rommes: the applicable rules are the same ones in the two countries.
The greatest tax havens of this world are the United Kingdom, the United States and especially the State of Delaware in the United States. Does somebody one speak? I do not have of it anything considering”

For Jean-Jacques Rommes, "saying that small states are tax havens and large states are the victims of the tax havens is a way of presenting the things that is a complete manipulation."



A couple of comments:

I agree with Mr Rommes when he raises the question of the UK and of the United States and especially the State of Delaware that is not quoted as a tax haven in the Stop tax Havens Abuse act.
I agree with him when he states that saying that small states are tax havens and that large states are the victims of the tax tavens is a way of presenting the things that is a complete manipulation.


But, the RTBF experiment reminds me of the documentary carried out by the German TV about the Luxembourg subsidiary companies of German banks a few months ago.

Above all when the business doctrine of Mr Rommes predecessor, who chairs the special parliamentary commission “economic and financial crisis, is that “It is not our duty to control if the taxpayer was honest”, one should not expect another behaviour.

Noone in Luxembourg repudiated the doctrine that definitely favours frauds.

I do not think that we will be able to find in another jurisdiction a leader who standardises fraud, thanks to the legendary luxembourgish pragmatism : therefore applicable rules as implemented are not the same ones in both countries.