Ethics and governance in the European Financial centers

Some national legislation relating to anti money laundering is gathered on the Council of Europe website.


It is interesting to compare the (anti-money laundering) AML law in Luxembourg (which is not on the website) and the one in Lichtenstein that were both voted in November 2004 based on the same European directive.

As far as effectiveness of such legislation is concerned, sanctions must be effective, otherwise AML legislation turns to be charade.

Penal provisions are stipulated
- in article 30 of the law of 26 November 2004 on Professional Due Diligence in Financial Transactions in Lichtenstein
- in article 9 of the law of 12 November 2004 on the fight against money laundering and the financing of terrorism in Luxembourg.

The article is longer and more detailed in the applicable text in Lichtenstein where provisions for non respect are either imprisonment of up to six months or a fine of up to 360 daily rates. Only a fine from 1.250 euros to 125.000 euros is applicable in Luxembourg.

In both cases the wording limits the effectiveness : The text in Lichtenstein requires that the person should act intentionally and the text in Luxembourg requires that the person should act knowingly.

These are two different degrees of culpability.

A person acts intentionally with respect to a material element of an offence when:
- if the element involves the nature of his/her conduct or a result thereof, it is his/her conscious object to engage in conduct of that nature or to cause such a result; and
- if the element involves the attendant circumstances, he/she is aware of the existence of such circumstances or he/she believes or hopes that they exist.

A person acts knowingly with respect to a material element of an offence when:
- if the element involves the nature of his/er conduct or the attendant circumstances, he/she is aware that his conduct is of that nature or that such circumstances exist; and
- if the element involves a result of his/her conduct, he/she is aware that it is practically certain that his/her conduct will cause such a result.

There are two other degrees:

A person acts recklessly with respect to a material element of an offence when he/she consciously disregards a substantial and unjustifiable risk that the material element exists or will result from his/her conduct. The risk must be of such a nature and degree that, considering the nature and intent of the actor's conduct and the circumstances known to him/her, its disregard involves a gross deviation from the standard of conduct that a reasonable person would observe in the actor's situation.

A person acts negligently with respect to a material element of an offence when he/she should be aware of a substantial and unjustifiable risk that the material element exists or will result from his/her conduct. The risk must be of such a nature and degree that the actor's failure to perceive it, considering the nature and intent of the actor's conduct and the circumstances known to him/her, involves a gross deviation from the standard of care that a reasonable person would observe in the actor's situation

In a nutshell:
- A person causes a result purposely/intentionally if the result is his/her goal in doing the action that causes it,
- A person causes a result knowingly if he/she knows that the result is virtually certain to occur from the action he/she undertakes,
- A person causes a result recklessly if he/she is aware of and disregards a substantial and unjustifiable risk of the result occurring from the action, and
- A person causes a result negligently if there is a substantial and unjustifiable risk he/she is unaware of but very much should be aware of.

When a statute provides that criminal negligence suffices to establish an element of an offence, such element also is established if a person acts intentionally, knowingly, or recklessly. When recklessness suffices to establish an element, such element also is established if a person acts intentionally or knowingly. When acting knowingly suffices to establish an element, such element also is established if a person acts intentionally.

The definitions of specific crimes refer to these degrees to establish the necessary mens rea (mental state) necessary for a person to be guilty. The stricter the culpability requirements, the harder it is for the prosecution to prove its case.

As stated in a report from the United Nations "Many lawyers, accountants and bankers are (often unselfconsciously) adept at not asking questions that would require them to refuse business or even to report their clients or potential clients to the authorities. But a major component of the motivation for crime is also the expected probability and scale of reward, while the reverse is the expectation (if contemplated) of prevention and/or salient punishment. Any form of crime for economic gain can have its relative attractiveness rating altered significantly by changes in detection and sanction levels both for it and for other crimes such as narcotics sales." (Financial Havens, Banking Secrecy and Money Laundering. Issued as: Double issue 34 and 35 of the Crime Prevention and Criminal Justice Newsletter, Issue 8 of the UNDCP Technical Series, 1998)

The prosecution authorities in Luxembourg wrote in the last report dated March 2006 that it is almost impossible to prove the "knowingly".


Know more

UN Source :
Financial Havens, Banking Secrecy and Money Laundering (1998)

Applicable texts in Lichtenstein:
Due Diligence Act (November 2004)
Ordinance on the DDA (January 2005)

Applicable text in Luxembourg:
Law of 12 November 2004 (in French)

An analysis of the websites of the CSSF (www.cssf.lu) in Luxembourg and the SFBC (www.ebk.admin.ch) in Switzerland demonstates that the body responsible for the control of the financial sector in Switzerland has no problem to communicate on issues in the framework of press releases or bulletins, which is not the case in Luxembourg where issues are usually either denied or dropped. Hence, the CSSF is unfortunately mute on issues : no example will be provided because this blog is not intended to chuck names. but only to assess if regulation may be effective.

Examples of press releases in Switzerland :
SFBC_orders_removal_of_bank’s_general_manager.2.pdf
SFBC_Reprimands_UBS_over_US_Dollar_Banknotes_Trading.2.pdf
SFBC_has_withdrawn_its_pending_investigation_against_Mr_J...

Examples of Bulletin in Switzerland :
bull47_Suisse.pdf



Due to the exemplarity thanks to the transparence on issues, the financial sector may be much more ethical in Switzerland than in Luxembourg.

Both Switzerland and Luxembourg have the same requirement for professionals in their law : all the guaranties of an irreprocheable activity i.e. all the guaranties of proper conduct of business operations :
- for Switzerland, see notably article 3 of Federal Act of 8 November 1934 on Banks and. Savings Banks and article 3 of Federal Act of 24 March 1995 on Stock Exchanges and Trading in Securities.
- for Luxembourg see articles 7 and 19 of the Law of 5 April 1993 on the financial sector, as amended.


We may state three observations :
- The wording is similar
- The requirement is stricter than the audit requirement that whould be a "raisonnable assurance" of an irreprocheable activity.
- the word irreprocheable itself is more extensive than licit and accept no drift in the behevior.


It seems that Switzerland is much more serious in the implementation of the requirement :
- thanks to a stronger communication and transparence on the issue that can be traced on the Web with a search engine,
- thanks to evidences of the implementation, especially in public judgements.

There are no evidence of an actual implementation in Luxembourg, especially on www.codeplafi.lu, which is the official extensive database, of all laws, regulations and circulars governing the regime and the activities of banks, of investment firms and other professionals of the financial sector, of insurance and reinsurance companies, the financial markets and instruments and the Luxembourg monetary status as well as to indications on case law and writings. We find only the text of the law and regulation. Most cases that are presented are relating to Bank secrecy.

On the opposite, there are many evidence that the system is actually living in Switzerland beyond the official texts. There is especially a circular that summerise the requirement and the implementation including law cases. This document is unfortunately available only in French and German.
Irreprocheable_activity_French_text_.pdf
Irreprocheable_activity_German_text_.pdf