Ethics and governance in the European Financial centers

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


The stated good intention is broken by the last sentence of the last but one paragraph which is a consent:

 “We rely on you. Our clients believe in us. They are there because of bank secrecy.”

Why on earth are clients there because of banking secrecy?

For tax evasion all the more than there will be no systematic information exchange.

Am I exaggerating?

Let's have a look on the rules of conduct of the Association Luxembourgeoise des Professionnels du Patrimoine.

Article 16 states that "Les membres seront particulièrement attentifs aux tentatives d'utilisation de leurs services aux fins de blanchiment de capitaux. Ils veilleront à s'assurer de l'identité de leurs clients au moyen d'un document probant." (free translation: Members will be particularly attentive with the attempts to use their services for purposes of money laundering. They will take care to make sure of the identity of their client by means of a documentary evidence).

What does that mean?

If money laundering is not allowed, tax evasion or fraud is definitely allowed in practice as there are no provisions in the rules of conduct to prohibit.

Can they rely on Minister Frieden?

Yes they can.

The answer was given two years ago before the same Association Luxembourgeoise des Professionnels du Patrimoine (ALPP):

Est-ce qu'une grande place financière comme la nôtre doit exagérer un peu ou bien être plus laxiste au risque de laisser passer quelques scandales ? Oui, il peut arriver que nous ayons exagéré certaines procédures, mais c'était dans une tendance générale en Europe. J'espère que nous n'avons pas mal fait et qu'il est encore possible de revenir en arrière. Je ne veux surtout pas que l'on dise que nous ne faisons plus rien et je suis prêt à abandonner certaines exigences  (free translation: "Should a large financial center like ours exaggerate or be more lax with the risk of a couple of scandals. Yes we may have exaggerated some procedures but this was a general trend in Europe. I hope we have not done badly at that is still possible to go backward. I am ready to give up some requirements")

The pragmatic state of mind remains because of  the “We rely on you” stated this year.

Even though Minister Frieden is sincere to comply on paper with the OECD requirements, it remains that most professionals in Luxembourg demonstrate that they are definitely the major power and that commitments will be of no avail in practice as tax evasion is not repudiated and will go on.

In a nutshell, the goal of the OECD to counter tax evasion (OECD wording to welcome the US-Luxembourg treaty) will be bypassed, as many pragmatic professionals knowingly support and help to commit fraud. Foreign tax administrations will be required to submit detailed and accurate queries to be informed, which is a long shot:

To understand why the OECD tax model is not a realistic framework, let’s imagine that (Luxembourg) Financial Institutions are like a travel agency, clients being the foreign tax administrations. Should a client want information about a destination (Are there flights to go from X to Y, what are the schedules… ?), 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.

That is the reason why some NGOs are rumored to build their list that complies with the reality of the support of tax evasion. Thanks to the methodology of mystery shopping, they would demonstrate that the support for tax evasion is the reality of many professionals is some jurisdictions.

Quod erat demonstrandum.

Luxembourg has signed an agreement for the exchange of bank information on request in all tax matters with the USA, marking a major step forward in international efforts to counter tax evasion. This is the first agreement by Luxembourg with an OECD country which meets the OECD standard for information exchange.

Read OECD Press Release

Read Luxembourg Press Release

The Luxembourg Institute for Global Integrity (LIGFI) that was launched last week turns out to be a charade.

The acronym LIGFI seems actually to stand for: Luxembourg Is Going to Fool the Institutions/Investors.

As I explained:

- The fees with the relating voting rights are prohibitive and exclude those that are not wealthy,

- Its powerhouses did not demonstrate in a recent past a true involvement for ethical business behaviour.

Who could bear such initiative to promote ethics in Luxembourg?

Only new leaders (“homines novi”), with a proved capacity to question and not to condone or hush up issues, could promote with a minimum of credibility the initiative.

- The think tank Cercle Joseph Bech
- Marco Zwick, Luxembourgish,  who is Director at PRIM, Head of Compliance and Risk for Schroder Investment Management and author of a book about money laundering and banking secrecy where he did a relevant SWOT analysis of the Luxembourg Financial Center

- Carlo Damge, Luxembourgish,  former chairman of the Chartered Accountants that raised publicly the issue of the abuse of fiduciaries, which is not solved.
- Georges Gudenburg, Luxembourgish,  who admitted recently the end of banking secrecy and raised issues
- Egide Thein, Luxembourgish,  who is Founder and Chairman of Truth Technologies, Inc., a Vienna, VA based company providing anti money laundering and anti fraud solutions to the financial industry (www.truthtechnologies.com).
- Laurent Halbgewachs, French, who organises the ALFI Spring Conferences

- Luc Henzig, Luxembourgish, although he is involved in the stillborn project, he is credible in the field of ethics

...
and maybe myself as I have been calling for the paradigm shift since 2004 and as I have identified what is to be done to enhance the good reputation of Luxembourg that deserves to be a successful jurisdiction.

In a nutshell, LIGFI in its design shows that nothing was understood.