Ethics and governance in the European Financial centers

I went through blogs and articles to read the comments following the bad TV documentary on the financial center of Luxembourg broadcasted last 21 October just before an interview with Prime Minister Juncker in the framework of the evening news on France 2.

It was a trap for Prime Minister Juncker, with definitely no will of journalists to be constructive as they did not focus on actual issues or dysfunctions.

Nevertheless I find it curious that many people including french politicians of Lorraine in the reactions should focus on jobs provided by Luxembourg while disregarding actual issues or dysfunctions in the jurisdiction.

They demonstrate that money can buy the silence.

In the context of the meeting agains tax havens that took place in Paris Mr Juncker, Prime Minister of Luxembourg, yesterday said on TV two relevant things that are worth commenting:

To establish an equation between banking secrecy and tax haven (...) in our eyes does not make sense.
(Etablir une équation entre secret bancaire et paradis fiscal (...) à nos yeux ne tient pas la route)

I agree with him. As I said banking secrecy is only a criterion of tax haven. It actually depends on the use of it. That is the reason why Mr Thiel's statement (it is not our duty to control is the taxpayer was honest) was inappropriate all the more than he is a powerhouse in the jurisdiction.

France has tax niches (...) France is not more exemplary as regards financial morality as Luxembourg
(La France aussi connait des niches fiscales (...) La France n'est pas plus exemplaire en matière de moralité financière que le Luxembourg)

I agree with him. With its "zones franches" for example France has areas like a “tax haven”. Additionally, Monaco and Andorra remain two of the three jurisdictions considered as a tax haven by the contested list provided by the OECD. France has a direct responsibility for these two jurisdictions. The French president is co-prince of Andorra and France has privileged relations with Monaco.

According to Mr Juncker, Luxembourg is not a tax haven. I don't agree with him. There is a lot of work to do in Luxembourg where the criterion of permissiveness is definitely met (see comparison with Switzerland), which is a threat for the reputation of the financial center all the more than the political practice has demonstrated the weakness of Politics before the financial sector that influence the decision-making power.

What is to be done?

This is what I explained late July this year

To justify and protect the principles of banking secrecy and attractive taxes Luxembourg must take the following actions that are not exhaustive:

1) Implement OECD and GRECO Recs to prevent corruption. Luxembourg does not care of the Recs, which is the reason why the "generous grant" to the FATF, that cannot ignore the GRECO and OECD reports, is a huge problem as, by accepting the grant, the FATF unfortunately ignored de facto the issues of the reports including AML concerns while promoting Luxembourg in the wording of its report ("Thanks to a generous grant...").

2) Fight the "system". The consequence of the "system" is that in most cases dishonest professionals never quit the business so the principle of professional standing as stated strictly in the law is not implemented. This is the most difficult thing because of the small size that creates situations of conflicts of interest that may turn into corruption. It is everyone's responsibility to repudiate every professional that do not comply with the requirements of professional standing as stated strictly in the law: every guarantee of irreproachable conduct (larger than the reasonable assurance, larger than licit).

3) Communicate on issues. Leaders in Luxembourg must be aware that only dishonest professional may fear transparency. Transparency is very important to ensure business ethics. It is not normal for a center like Luxembourg, which boasts such an important financial sector that big four like PwC and E&Y do not participate to studies of their brand relating to economic crime. As far as the CSSF is concerned, it should communicate like the FSA in the UK, which would have a salutary dissuasive effect.

4) Authorise only registered professionals in Luxembourg to certify the accounts i.e. members of the IRE (institute of registered auditors) or the OEC (institute of chartered accountants), and prohibit foreign professionals to certify the accounts (bogus firms from BVI, Isle of Man...)

5) Eliminate the “artists of accounting” that are controlled neither by the IRE (institute of registered auditors) nor the OEC (institute of chartered accountants) and are often involved in scams and other frauds through Luxembourg-based companies.

6) And above all accept opinions that are critics. The stake is to avoid that the center become 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 explained.

Mr Juncker condones and denies lax business environment in Luxembourg that creates risks.



It is up to the politicians in the framework of the next general elections in Luxembourg to achieve the aggionamento.

It is up to the european organisations to ensure that every lax jurisdiction is blacklisted and beware of communicating vases.

Claude Meisch, a Luxembourg member of parliament has yesterday questionned the Minister of Finances on banking secrecy in the context of the meeting against tax havens that took place today in Paris.

He asked five questions for which I will provide an answer or a comment.

• What will be the attitude of the Luxembourg government at this meeting?

Luxembourg did not participate. So did not Switzerland.

• How Mister the Minister does it react vis-a-vis the reproach also addressed to Luxembourg to exonerate in a perpetual way to cooperate with the other tax authorities?

I will quote (In L’Essentiel) Lucien Thiel, who is former chairman of the Luxembourg Bankers’ association and curently MP in the same party as the Minister of Finances :

It is not our duty to control if the taxpayer was honest

we are not compelled to communicate clients’ data

This means two words for other countries that require cooperation : up yours !

• Is Luxembourg in the future likely to see itself registered on the list of tax havens drawn up by the OECD?

To be fair, it should be registered if Switzerland is, as requested by Germany, all the more than Switzerland demonstrates less permissiveness than Luxembourg.

• How Mister the Minister explains the reason why the financial crisis is now called upon in order to fight against banking secrecy despite it is not the the root of the crisis?

The problem is the abuse of banking secrecy and low taxes to attract investors in a lax jurisdiction.