Ethics and governance in the European Financial centers

As I explained the OECD framework to counter tax evasion is not relevant and jurisdictions that are used for tax evasion do not want the review of the criteria.

It is a general principle that citizens pay the taxes where they live to contribute to the financing to the public policies and in international law there are assistance rules, which implies in tax matters communication of data relating to foreign citizens.

The protection of private life is limited to the actual residents of a given jurisdiction: in other words, banking secrecy to protect private life is fine for Luxembourg (or Swiss or any other) residents living in Luxembourg (or Switzerland or any jurisdiction for its residents), but it is not opposable to the tax administration of foreign citizens living in their country.

Banking secrecy is actually a tool for tax evasion as in most cases queries from foreign tax administration will not be satisfied despite the OECD tax model that requires accurate queries.

That is the reason why some people advocate for the automatic exchange.

There is a pragmatic way to fix the issue: there are international standards against AML-CFT that are taken into account in the procedures and codes of conduct of firms, and especially KYC. Why not enacting and enforcing Anti Tax Evasion (ATE) standards with a criminal liability for bankers help help to commit evasion?

There is no need for an international agreement at the OECD for that purpose.

Even though the enforcement of AML-CFT laws and regulations is dubious in some jurisdictions (for example in Luxembourg, according to the US Department of State, the scarce number of financial criminal cases is of concern, particularly for a country that has such a large financial sector: but it is true that, according to the Luxembourg FIU, 60% of banks never report any suspicious transaction. There are as well little declarations of suspicion from auditors whose commercial relationship with their auditees is emphasized and personalized by the small size of the jurisdiction… This would be evidence of the good faith of politicians and professionals, when they state their jurisdiction is no a tax haven and that banking secrecy has nothing to do with tax evasion.

The AFP has reported that Liechtenstein and Luxembourg, which have both been criticised by world powers for their banking secrecy, are planning a tax treaty to fall into line with OECD rules.

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This is the e-mail I sent today:

Dear Mr Gurria

Before the Association Luxembourgeoise des Professionnels du Patrimoine, Luc Frieden confirmed the objective to sign 20 OECD-compliant tax agreements by the end of the year.

One of these was signed with the USA this week, which was welcome by your organization that stated in a press release it is a major step forward in international efforts to counter tax evasion.

I am afraid your organisation is quite naïve to believe that data will be provided as most tax evasion funds will not be countered.

Before the Association Luxembourgeoise des Professionnels du Patrimoine Luc Frieden confirmed as well that Luxembourg will oppose the automatic exchange of tax data. The head of the Association welcomed this commitment by saying: "We rely on you. Our clients believe in us. They are there because of bank secrecy."

This is definitely an admission that bank secrecy is used for tax evasion purposes, all the more than tax evasion is neither prohibited by the "rules of conduct" nor sanctioned by e criminal law of tax havens, contrary to money laundering.

To assess to what extent the OECD Model agreement on exchange of information on tax matters is not relevant to counter tax evasion, let's use a metaphor.

Let's imagine that (Luxembourg) Financial Institutions are like a travel agency, clients being the foreign tax administrations. Should a client a want information about a destination (Are there flights to go from X to Y, what are the schedules... ?) to get a ticket, he /she would not get an answer as only accurately detailed requests would be satisfied: I want a ticket for the flight from X to Y at HH:MM, number Z.... The request is accurate and detailed enough and would be satisfied. This is exactly how the OECD tax model works for the exchange of information. Only a few tickets could be sold with the OECD tax model logic.

Additionally I do think that every topic is linked: tax evasion, corruption, money laundering... That is the reason why a new approach is needed and implemented by some NGOs as the OECD that depends on the jurisdictions is prisoner in a way of political games.


Yours sincerely

Jérôme Turquey
Consultant is business ethics and reputational risk
http://ethiquedesplaces.blogspirit.com