Ethics and governance in the European Financial centers

Reuters has reported that HSBC is being sued by the trustee liquidating the Madoff businesses, Irving Picard, who claims $578 million. Lawsuit names Herald Fund’s beneficiary bank, London-based HSBC Bank Plc, and its asset custodian  HSBC Securities Services (Luxembourg) S.A.

As Reuters observes the defendants are not accused of knowing about Madoff's vast fraud, but the trustee contends they ignored red flags and should have realized that the disgraced financier's returns were too good to

Luxembourg was congratulated by Angel Gurria. Great.

Its bankers applaud the Luxembourg government for its swift implementation of the OECD standards and for getting Luxembourg removed from the so-called grey list. They state that the government has not only proven that Luxembourg’s presence on such a list was completely unnecessary in the first place, but has also demonstrated its commitment to ensuring a global level-playing field. Great.

The Luxembourg tax administration has displayed online the conventions and the exchange of letters.

To be accepted, a request shall have to specify:

(a) the identity of the person under examination or investigation;

(b) a statement of the information sought including its nature and the form in which the applicant State wishes to receive the information from the requested State;

(c) the tax purpose for which the information is sought;

(d) grounds for believing that the information requested is held in the requested State or is in the possession or control of a person within the jurisdiction of the requested State;

(e) to the extent known, the name and address of any person believed to be in possession of the requested information;

(f) a statement that the request is in conformity with the law and administrative practices of the applicant State, that if the requested information was within the jurisdiction of the applicant State then the competent authority of the applicant State would be able to obtain the information under the laws of the applicant State or in the normal course of administrative practice and that it is in conformity with this Convention;

(g) a statement that the applicant State has pursued all means available in its own territory to obtain the information, except those that would give rise to disproportionate difficulties.

This only does not comply with what Pascal Saint-Amans, Head of division for the co-operation and tax competition, quoted by L'Expansion said : "Il faudra seulement fournir l'identité d'une personne soupçonnés de fraude, et c'est tout" (free translation : it will only be required to provide with the identity of a person suspected to commit fraud and that's all) all the more than Swiss professionals admitted that "Il sera, en pratique, très difficile pour les autorités fiscales étrangères qui appliquent les standards de l’OCDE de fournir ce degré de details" (free translation: “It will be, in practice, very difficult for the foreign tax authorities which apply the OECD standards to provide this degree of details”)

The OECD is being fooled or it is fooling the audience.

 Should Luxembourg has been proactive by a handing-over in question the last years, it would have avoided the current risks that harms the sustainability of the country.

One cannot deny the will of Luxembourg to sign agreements, but one can be only septic on the effectivity. The interpretation given by Luxembourg of Article 26 of the OECD Model Tax Convention on Income and on Capital is not the one of OECD recalled by Pascal Saint Amans, Head of division for the co-operation and tax competition: as recalled by Luc Frieden and as stated in the press releases, Luxembourg will requires evidence to provide with information v. for Saint Amans the name of a person suspected of fraud will be sufficient. That promises interesting litigations. When OECD and the States that are victims of evasion realize that the exchange is a charade, they might be angry to have been fooled..

The European Commission has just referredLuxembourg to the European Court of Justice over its incorrect application of the Savings Tax Directive

Nothing was done to correct the legal and regulatory framework  but also the business environmenet which allowed the Madoff fraud in Luxembourg. One can defend discretion on the dysfunctions (I do), in so far as the corrective actions follow: however in Luxembourg no corrective action is taken in the event of  ethical dysfunctions whatever matter. There are undoubtedly other situations of nonconformance with Directive UCITS with a related risk for the investors, who discover a country risk for the client.

Nothing was done to eliminate scams despite many "red flags".

What I am saying is not against Luxembourg but against a way of doing business that harms the ethical credibility and therefore the sustainability of the jurisdiction that deserves to be a respectable jurisdiction in the European Union.

But for that the governance wants brushing up and a cultural change is required. A small jurisdiction cannot afford a poor governance as dysfunctions are empasized in a world of communication and transparency.

I am afraid the communication the day before yesterday demonstrates that nothing has changed. The leader that stated that "it is not ou duty to control if the taxpayer was honest" and that is a founder of the LIGFI, showed the true colours. Luxembourg does not care of the European Union as it does not want to implement the Savings Directive that envisages the automatic exchange of information : what counts is that Luxembourg is not disadvantaged and no matter if other Member States are.