Ethics and governance in the European Financial centers

Reuters has reported that Swiss prosecutors said on Wednesday they are investigating allegations that an unnamed high-ranking Swiss official took a bribe from a U.S. client of UBS to help cover up tax fraud.

Federal prosecutors said in a statement the tax authority had filed charges against unknown persons which it was now investigating, without giving further details.

A U.S. client of the Swiss bank, which is at the centre of a U.S. tax fraud case, pleaded guilty on Tuesday to using Swiss bank accounts to hide money from the U.S. taxman and said he paid a Swiss official $45,000 to help cover up the fraud.

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UBS is more and more disappointing. They had a video on Corporate Social responsibility, with the participation of Jermyn Brooks, Director Transparency International. It is no longer online but I have it as it is a very good example of the deceptive use of Corporate Social Responsibility for the good image while not respecting rules all the more than there are links between money laundering, tax evasion and financial regulation.

What Jermyn Brooks said is quoted in a brochure : “UBS was instrumental in creating the Wolfsberg Group, named after their own management training center in Switzerland. With the help of the anti-corruption organization, Transparency International, 12 of the worlds largest banks – banks which would normally be guarded about sharing internal procedures with their competitors, collaborated to develop and publish the “Anti Money Laundering Principles” called the “Wolfsberg Principles” …which have received worldwide recognition as good practice – filling gaps in national laws and regulations.”

Over the years, my focus on financial centres has been primarily on Luxembourg and occasionally on some other jurisdictions, mostly in Europe.

Knowing Luxembourg best is the starting point for a project of guide, which has as an ambition to identify characteristics both good and bad of what is generally considered a “financial centre” or a “tax haven” or a “judicial haven”.  

Luxembourg has also assumed leadership of a group of tax havens, even inviting them to a coordination meeting to Luxembourg, which offers a good starting point, as Luxembourg has been a coordinator.

Lastly, numerous reactions are available because of that leadership from institutions such as OECD, G20, European Commission or public comments on issues such as Madoff, double taxation agreements, compliance and banking secrecy.

Starting with Luxembourg as a benchmark, the guide will cast a present day picture of the Luxembourg financial center, and evolve from there into an analysis of other jurisdictions.

Jean Meyer’s open letter in the Lëtzebuerger Wort (he is the chairman of the ABBL, the Luxembourg Bankers’ Association) to my attention to decline my help gave me the idea of the guide for the clients and the investors to compare jurisdictions on the basis of precise and objective criteria:

- Wording of the laws and regulations: in particular words that were cut off or on the contrary added compared to the original directives (or other standards) and the practical effects in the implementation of the standard of origin (in particular for the EU members, law and regulation of transposition of the countries versus formulation of the OPCVM Directive, the Savings Directive and the Deposit-guarantee schemes Directive)

- System of protection for the investor and/or the client (mechanisms under the leadership of regulator, trend of the jurisprudence in the litigations banks/customers…)

- Use of ratios of comparison of the effective implementation of the regulation: for example the comparison with Monaco, with which Luxembourg has just signed an agreement for exchange of information, it appears that the ratio of Suspicious Transaction Reports per $1billion in assets for Luxembourg, fund industry excluded, is 6 times less than Monaco and the ratio of Suspicious Transaction Reports per $1billion in assets for Luxembourg, fund industry included, is almost 17 times less than Monaco. That is to be brought closer to the CRF (the Luxembourg FIU) reports every year that 50% of the banks never make Suspicious Transaction Reports. Unfortunately, the amount of assets that the aforementioned banks represent is not known

The idea is to assess the quality of the regulation in the broad sense to guide the customers and investors in their choices.

On a subsidiary basis, for the jurisdictions which lodge an activity of general interest for the international financial sector (for example, clearing), will be posed logically and practically the question of the relevance of the maintenance of the activity if it appears a deficit of regulation compared to what is done in the other jurisdictions.

I do not prejudge results but I unfortunately fear a bad classification for Luxembourg, which is being rammed by its actors themselves.

Richard Murphy has detected an interesting message on Youtube posted by someone who put her life savings on deposit with Kaupthing Isle of Man after being assured that my money was safe. With the backing of the Financial Supervision Commission the directors put over 50% of the bank's assets into Kaupthing UK which subsequently went into Administration. She received no letter of explanation or apology from the directors, and now she has to wait 6 years before she gets a fraction of her money back. Her message to anyone who is thinking of depositing in the IoM is: "don't bank on the Isle of Man"

Richard comments his guess is she’s one of at least 10,000 who have lost out by doing so. That’s what comes from relying on ‘well regulated’ jurisdictions made of straw.