Ethics and governance in the European Financial centers

I have reached a milestone in my studies about business ethics in the Luxembourg Financial Center, at a moment when most of its stakeholders finally seem to adhere, though reluctantly, to some of the ethical principles that I have always advocated. This requires that I thank those who encouraged these inedited studies in Luxembourg.

I would like to thank Bob Kneip, from KNEIP (formerly Kneip Communication). He is the one who is at the origin of my orientation towards the questions of CSR and ethics in Luxembourg. By his actions (see for example a conference that was given in March 2009)  he encouraged me a lot in my pragmatic approach, i.e. relating to matters of fact or practical affairs. 

I would like to thank the CRP Henri Tudor (which is not founder of the LIGFI, which is a good thing) and his Managing Director, who is retiring, which by refusing my project on ethics and CSR late 2004, made me start the studies with a freedom that I would not have had if deliverables had been subjected to validation at the CRP.

Should my project have been borne by the CRP, I would probably have produced politically-correct deliverables despite issues resulting from matters of fact or practical affairs not to worry nor to oppose the financial community.

“My goal has always been clear — to get those taxpayers hiding assets offshore back into the system.” -

IRS Commissioner Douglas Shulman

 European tax administrations of jurisdictions that are victims of tax evasion should have the same approach as the IRS in the USA by implementing new disclosure guidelines and a penalty structure intended to encourage taxpayers to voluntarily disclose assets held in offshore accounts.

They should offer those who comply the chance to avoid criminal prosecution and a barrage of significant penalties.

Anticipating that a large number of French taxpayers will repatriate their assets back to France, given the recent clampdown by the Organisation for Economic Cooperation and Development on tax havens, and on banking secrecy in particular, France’s Budget Minister Eric Woerth has proposed various “solutions” designed to facilitate this process, although he has firmly ruled out any offer of according a tax amnesty.

Jurisdictions of tax evasion like Switzerland or Luxembourg or Liechtenstein should negociate a tax amnisty for their clients with a use of the money of evasion to fight the crisis in the common interest.

For example the money from tax evasion could be affected to a fund managed in the framework of the European Economic Area, which gathers European Free Trade Association (EFTA), the European Community (EC), and all member states of the European Union (EU) .

Early this year I was quoted by the Financial Times.  

This is what I said: “The [financial centre of Luxembourg] wants to brush up its governance. If it doesn’t do that in the next few months, the centre will collapse. ”If the regulatory situation is not sorted out, dissatisfied investors and asset managers will move their business elsewhere.”

Two facts in the last couple of weeks demonstrate that the jurisdiction is unable to brush up its governance as it is in perdition.

1.      The launch of LIGFI

It appears that this institute has nothing to do with business ethics. Its genesis is an economic intelligence operation.

It is borne by professionals that never ever demonstrated a will to implement what they are now promoting: ethical conduct and its standards and practices in regard to the principles of integrity, which are fairness, transparency, responsibility and accountability.

All these professionals with business standing were especially unable to address the truth or reality of the Luxembourg shutter of the Madoff affair: the law of transposition of the UCITS directive removed two provisions of the directive and the depositary’s liability was rephrased in a way which opened the drift.

2.      The findings of the CSSF on UBS and Madoff

The findings of the CSSF on UBS and Madoff are not a surprise: all is now in order with UBS regarding procedures; it is up to the courts to decide compensations in the contractual framework between UBS and its clients that may include possible valid and opposable contractual clauses contrary to the normal liability of the depositary. It is a caricature.

The Luxembourg “system”, with all its “professional incest” (auditor-auditee, regulator-bank, administration-bank, and so on), because of the small size, is unable to produce anything else than an emollient conclusion from the regulator.

Investors and asset managers cannot be satisfied with such attempt to manipulate facts and such absence of governance in the jurisdiction.

Finance is too serious to be left to amateurs in business ethics…