Ethics and governance in the European Financial centers

The French Cour de cassation (Supreme Court) last Thursday published three important jurisprudences in three litigations where the French journalist Denis Robert was prosecuted by Clearstream (former Cedel) for publishing a book explaining ML through Clearstream.

Clearstream is a clearing house like its competitor Euroclear. It is amazing to observe that both clearing houses are located in secrecy jurisdictions: according to TJN, Luxembourg is scored 87% secrecy and Belgium is scored 73% secrecy. 

Lucy Komisar wrote in English about Clearstream and Denis Robert's work 10 years ago.

I am afraid what Denis Robert investigated and wrote is now a judiciary truth.

However after FATF report, that is another huge slam in the face for the "professional standing made in Luxembourg" and the so-called compliance of the center.

It is no use multiplying compliance regulations and procedures when facts are denied. Business ethics is not a matter of procedure but a matter of behaviour.

PS: for French readers, the three jurisprudences are available there.

In various articles of this blog I have highlighted dysfunctions and deficiencies in the Luxembourg financial center to show poor ethics and poor governance, contradicting the official propaganda on compliance with FATF Regs and on the positive IMF assessment on the legal and regulatory framework to fight ML and the financing of terrorism.

Two years ago I had warned that when FATF visits Luxembourg in the next months, it might consider what is behind the frontage of compliance.

The Mutual Evaluation of Luxembourg, which was published in 2010, was actually terrible for the center and required a strong political action with new legislation built in emergency.

Despite the last FATF report which underlines many areas of noncompliance, I can see positive evolutions over the last year:

-              Introduction of criminal liability for legal persons (Law 3 March 2010),

-              Creation of a TI Chapter,

-              Confirmation by FATF that the Luxembourg FIU is efficient (what I already said) and confirmation of the original status of the body as part of the prosecuting authorities,

-              Strong reactivity to change legislation and comply with AML Regs after the release of FATF report

However opinions that are critical should be accepted and welcomed, but they are too often not. The stake is to avoid that the center becomes zombie, because it would have "created an insulated culture that systematically excludes any information that could contradict its reigning picture of reality", as S. Finkelstein wrote.

How can the talk about compliance be credible when people are upset even with with healthy criticicism of public dysfunctions?

At stake is as well the possibility to be credible enough to actually promote less regulation and rules.

Compliance requirements should actually be adapted to financial centers and financial institutions taking into account the ethics and compliance awareness: the more credible a centre/company is for its regulation, the less requirements it should have.

Cayman Net News Online has reported that Luxembourg law firm Arendt & Medernach recently set up a representative office in Hong Kong.

Fund sponsors that would usually structure their funds in the Cayman Islands are increasingly seeking advice on relocating those structures to Luxembourg and using lightly regulated types of vehicles available there, says the local Arendt & Medernach representative quoted by Cayman Net News Online.