Ethics and governance in the European Financial centers

A couple of questions are online on Fortis Luxembourg Website. One is very interesting.

Is banking secrecy intact now that the state has an interest in the bank?
Yes. Under the legislation governing the banking sector in Luxembourg, no shareholder has the right to obtain information concerning the bank's commitment to a particular client. Representatives of the state acting in a management capacity or as members of the board of directors may have access to some information, but are themselves subject to the rule of banking secrecy. They would thus be liable to the same criminal penalties as any other agent of the bank if they used such information for any purpose not directly relating to the bank.


In other words, in the current financial mess because of the lack of regulation and of the failure of " the soft law" the most important for professionals in Luxembourg is to ensure that this criteria of tax haven remains for the clients as Luxembourg is not compelled to communicate its clients'data and has no responsibility to control if the tax payer is honest (See Lucien Thiel's doctrine).

I have been studying CSR in the financial center of Luxembourg since 2004. This center has definitely advantages for investors. But it relies too much on its certitudes by denying or condoning problems.
This insularity that prevents any criticism has become a risk . And unfortunately anyone who states issues is repudiated while everyone in the system is fascinated by the growth that is expected forever.

I went through a brochure: Luxembourg Bank Insight 2008, that was published on May 2008.

It is amazing to see how officials deny or condone risks :

Message by Mr Luc Frieden

Banking institutions worldwide have experienced turbulent times recently. The global financial crisis, initially triggered by the subprime mortgage crisis in the United States, has caused significant losses, both socially and
economically. Fortunately, the Luxembourg financial institutions have so far been less hit than some other banks elsewhere.

Brilliant analysis.

Opinion of Mr Jean-Nicolas, Schaus, CSSF

In our supervisory area we did not identify any drastic problems caused by the subprime crisis. Of course, credit for this is not entirely ours, rather there are several reasons behind it. When the problems began in August
last year, we had no difficulties in getting a fast and comprehensive overview of the situation with the Luxembourg Banks

What about Dexia and Fortis a couple of months later?

Analysis of Carlo Thill, Fortis

The merger with ABN Amro was one of great satisfaction and pride for Fortis management and employees, as Fortis managed to achieve this result despite some people saying that Fortis was too small to play in this league.

I think they definitely should have listen to these people. Don't you?



As they should have listened and listen to those who haven been warning them the last years that there are specific risks for the financial center in a competitive environment with a paradigm shift for transparency and ethics.

As I wrote professionals and politicians in Luxembourg operate with a distorted sense of reality. Finkelstein calls institutions that are unable to question their prevailing view of reality zombies. A zombie company, he says, is “a walking corpse that just doesn’t yet know that it’s dead—because this company has created an insulated culture that systematically excludes any information that could contradict its reigning picture of reality”. (See Finkelstein, Sydney, Why Smart Executives Fail: And What You Can Learn from Their Mistakes. Portfolio Hardcover, 2003)

It is true as well for a financial center.

I went through many banks annual reports available online in Luxembourg and Belgium. There are similarities in the organisation of registered auditors with the IRE in both jurisdictions and the IRE Luxembourg has links to the IRE Belgium on its website.

It seems that in Luxembourg, most audit reports are a copy/paste of the european template.

But in Belgium risks and uncertainties seem to have been taken into account, as the "réviseur d'entreprise" (auditor) whatever firm seems to add the following idea to every report:

"we are not in a position to express an opinion on the description of the principal risks and uncertainties facing the companies included in the consolidation, the state of their affairs, their forecast development or the significant influence of certain events on their future development"

E.g. :
See Dexia Report in Belgium p. 223
See Fortis report in Belgium

NBB Report

Compare Bank Degroof reports

The statements added in Belgium are particularly important for Fortis and Dexia with what happened last week.


Why did most auditors in Luxembourg seem to have disregarded uncertainties that were taken into account in audit reports in Belgium ?



This is a critical question in the current financial mess. In Luxembourg the auditor's job is client-oriented instead of stakeholder-oriented with the view of growing for the audit firms (see their press release).

Can investors rely on a financial center that do not care of business ethics (CSR in Luxembourg exclude ethics) with a collective responsibility ?