Ethics and governance in the European Financial centers

Prime Minister Juncker today gave his annual speech before the parliament.

Some paragraphs of the speech in 2000 are worth reading and sometimes commenting as they illustrate that the Luxembourg authorities do not want to adapt to the reality of today’s world.




En 1999, nous avons eu une loi contraignante sur la domiciliation des sociétés, qui devrait mettre fin aux activités illégales et frauduleuses en marge du secteur financier.
(In 1999, we had a constraining law on the domiciliation of companies, which should put an end to the illegal and fraudulent activities in margin of the financial sector.)

The law is not enforced, as the abuse of offshore scams through Luxembourg remains.



Nous voulons conserver le secret bancaire pour de bonnes raisons. Nous voulons le conserver tant que nos concurrents le maintiendront aussi.
(We want to preserve banking secrecy for good reasons. We want to preserve it as long as our competitors will maintain it too.)

He does not quote the reasons. The only “good” reason why banking secrecy should be preserved is that there are competitors that maintain as well banking secrecy.



Notre économie déborde de force et croît de manière robuste. (…) Nous pouvons être contents de l’état de notre économie et de nos finances. Nous pouvons être contents de nous, mais pas au point de nous surestimer ni de nous dépasser.
(Our economy overflows with strength and grows in a robust way. (…) We can be satisfied with the state of our economy and our finances. We can be satisfied with ourselves, but not to the point to over-estimate ourselves nor to get ahead of ourselves.)



Juncker cannot see the coming crisis.

In the previous article relating to Luxembourg I have evoked the impossibility for the actors in the Luxembourg jurisdiction to deal with change.
My wording was based on Spencer Johnson’ famous book: “Who moved my cheese”

I am afraid Switzerland did not realise either the paradigm shift.

In an article Didier Remer lays emphasis on the Swiss situation.

Angel Gurría confirmed in the columns of le Temps that banking secrecy was in question and that the engine was launched, that it would not stop, that the collision was imminent
Swiss leaders were informed of the evolution of international mentalities, and systematically informed on collaboration between OECD and G20.
Additionally, neither Switzerland nor Luxembourg attended the OECD meeting last October, which was the beginning of the process of the reviewing of the OECD list.

The jurisdiction is not exactly in the same situation as Luxembourg. It has a long tradition of finance. It has various alternative industries to finance. And as Didier Remer observed there is a political debate.
(in an article I had highlighted huge business differences between both jurisdictions. )


To the contrary, in a recent interview, Jean Asselborn, who is Vice Prime Minister of Luxembourg stated (in order to soothe and to reassure?) that there is still the fund industry in Luxembourg which has great competences, and many countries trust us, and that there are as well the credit markets (il y a d’autres atouts. Par exemple, au Luxembourg il y a l’industrie des fonds qui a des grandes compétences et beaucoup de pays se fient à nous. Il y a aussi tous les marchés des crédits.)

The problem is that with Jean Asselborn’s statement Luxembourg goes on selling a stinking cheese with
- the Madoff story that just did not happen by chance in Luxembourg, and
- Bank Landsbanki that went bankrupt in a dubious context
- etc.

The problem is that Jean Asselborn belongs to the left wing of the governing coalition.

Which demonstrates that no politician in Luxembourg never ever questions the dysfunctions.

In an interview one month ago, Serge Allegrezza analysed without kindness the Crisis. If the financial sector had, in the Eighties, taken over from the iron and steel industry, he cannot see any new sector.


In the Eighties Luxembourg had actually implemented what Spencer Johnson explained in his famous book “Who Moved My Cheese”. In the style of a parable, Spencer Johnson described what is to be done to face change.

The process is the following as described in the book:

1. Change Happens
They Keep Moving The Cheese
2. Anticipate Change
Get Ready For The Cheese To Move
3. Monitor Change
Smell The Cheese Often So You Know When It Is Getting Old
4. Adapt To Change Quickly
The Quicker You Let Go Of Old Cheese, The Sooner You Can Enjoy New Cheese
5. Change
Move With The Cheese
6. Enjoy Change!
Savor The Adventure And Enjoy The Taste Of New Cheese!
7. Be Ready To Change Quickly And Enjoy It Again & Again
They Keep Moving The Cheese.

This is exactly what Luxembourg did to replace the iron and steel industry.

Luxembourg imagined new activities, and became a great financial center.

Luxembourg has always had a taste for niche opportunities, in fact selling its sovereignty.
Examples:
RTL
SES
Cargolux
Shipping Register and of course the
Financial Center.

When in 1974-75 the steel crisis broke out, it made socially and economically good decisions: creating the DAC, Division Anti Crise, and the BED or Board of Economic Development. Two remarks though: DAC was needed because nobody had seen the Cheese moving, and BDE failed to diversify because the actors saw the easy Cheese in Finance.

As far as the financial center is concerned, the problem is that the actors defined the center with specific parameters that were their cheese for business success:
- banking secrecy (despite the fact that it was not a tradition in Luxembourg contrary to Switzerland)
- little control and little sanctions compared to other jurisdictions (it may be proven with ratios)
- a trend to hush up issues or dysfunctions with a press that does not really act as a watchdog
- specific pragmatism with the meaning of laxism
- no fear of international sanctions thanks to the memberships : FATF, OECD, European Union.
- …

Since 2004-2005 I called to make an aggiornamento because the world was visibly changing and the parameters of development of the Luxembourg financial center were dramatically overhanging: in other words their “cheese” was becoming dangerous for the jurisdiction.

In a book that was published in 2006, I noticed that professionals in Luxembourg were self-satisfied with a lack of positive pragmatism as they were unable to see that the reality of the world was changing.

The cabal against the OECD, the G20… while they are not questioning the dysfunctions of the jurisdiction, demonstrates that the Luxembourg authorities and professionals do not want to adapt the cheese to the reality of today’s world.