Ethics and governance in the European Financial centers

In a recent study KMPG UK shows that two thirds of companies believe that there are countries in the world where it is not possible to do business without being involved in bribery and corruption, and yet only a third (35 percent) say they have stopped doing business in any countries due to the bribery and corruption risk. The majority of companies say they rely on enhanced controls and third party due diligence when doing business in such countries in order to minimise the dangers.

Alex Plavsic, Head of Fraud Investigations at KPMG Forensic, said: “Companies have a greater awareness now of the bribery and corruption threat due to increased investigations and regulatory activity from the UK and other authorities. However, with the recession companies are having to fight harder than ever to win new contracts, and as a result there could be an increased pressure on those in the front line to over-ride anti-bribery and corruption laws. Compliance processes need to be robust, with special emphasis on due diligence with regard to third party agents, if companies are to protect themselves from regulatory scrutiny and reputational damage. The signs are that many companies could be doing more to manage the risks."

The findings – from a survey of over 100 FTSE listed UK companies – come as companies report an increase in their own internal investigations into possible bribery and corruption breaches. In a similar survey two years ago by KPMG, 27 percent of companies said that they had carried out internal investigations in the previous two years – but this has now grown to nearly four in ten companies (39 percent). The average number of investigations has also grown, from one or two a couple of years ago to three or four now.

Richard Murphy observes that the new UK / Liechtenstein Tax Information Exchange Agreement moves information exchange into a new era.

The preamble is worth reading as it goes beyond the OECD Tax Information Exchange Agreement (TIEA):

The Government of the Principality of Liechtenstein and the Government of the United Kingdom of Great Britain and Northern Ireland (together “the Contracting Parties”) desiring to:

(a) regulate the exchange of information with respect to taxes between the Contracting Parties and facilitate tax cooperation and taxpayer assistance, and

(b) assist the maintenance and development of the Principality of Liechtenstein’s financial services industry,

have on this date reached an understanding covering various matters including the introduction by the Government of the Principality of Liechtenstein of a five-year taxpayer assistance and compliance programme and the introduction by the competent authority of the United Kingdom of a five-year special disclosure facility.

It is the Contracting Parties’ intention that by the conclusion of the five year period contemplated by the taxpayer assistance and compliance programme, there will be no beneficial owners who are liable to taxation within the jurisdiction of one Contracting Party who are using the laws of the other to disguise such liability without paying appropriate tax in the manner contemplated by the understanding.

As Richard observes, the standard TIEA is, to all intents and purposes, a passive document. The tax haven / secrecy jurisdiction signs it, sits back and waits for something to happen whereas Mr Gurria is happy.

The deal between the UK and Liechtenstein requires action of Liechtenstein, action that will be audited. What is more, that action has a timescale attached to it and a performance criterion is set: there will be no UK tax evaders left in the place after five years.

'The fact that the UK has signed two agreements today - a TIEA and a second one, ensuring that uncooperative UK taxpayers have their Liechtenstein accounts shut down - is a clear sign that TIEAs are almost impossible to use (...) The G20 should now reflect this acceptance that TIEAs do not work by urgently bringing forward a new multilateral agreement on tax information sharing. Information must be exchanged automatically, to ensure that developing countries benefit', Christian Aid Policy Manager Alex Cobham said (Source Reuters).

Richard calls the procedure Proactive Information Exchange (PIE), giving rise to Proactive Information Exchange Agreements (PIEAs).

To comment this agreement Jeffrey Owens, Director of the OECD’s Centre for Tax Policy and Administration said: " I am particularly pleased about the innovative and co-operative design of this joint UK-Liechtenstein initiative which may well serve as a model for other countries".

As I said, those who thought that by signing quickly 12 or more agreements, they would be clean, did not realise the changes. The speed of the signatures only demonstrated that the OECD tax model is not an actual constraint

However, Tax Information Exchange Agreements are dead and the OECD should move to this proactive procedure as soon as possible: in the framework of the OECD meeting planned for 1-2 September?

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The AFP has reported that Monaco has adopted a new law on money-laundering as part of a drive to clean up its financial sector in line with international standards.

Under the new rules, insurers, accountants, notarial firms, high-end traders and lawyers helping with property or financial transactions will all be asked to carry out checks on their clients.

The law also introduces a new 30,000-euro (47,000-dollar) cap on cash payments, and boosts the powers of the FIU.

I will comment later the possible traps in this legislation.