Ethics and governance in the European Financial centers - comparison

UK Regulator v. Luxembourg Regulator

noreply@blogspirit.com (jturquey) — Tue, 10 Nov 2009 07:28:00 +0100

The Financial Services Authority (FSA) fined UBS AG (UBS) £8million for systems and controls failures that enabled four employees to carry out unauthorised transactions involving customer money on at least 39 accounts. The £8m fine is the third largest the FSA has ever imposed.

The FSA investigation found that UBS had failed to:

manage and control the key risks, and the level of risk, created by its international wealth management business model;
implement effective remedial measures in response to several warning signs that suggested the business' systems and controls were inadequate; and
provide an appropriate level of supervision over customer-facing employees.

By the way, what was the pragmatic solution for UBS in Luxembourg in the context of the Madoff affair, with issues similar to the ones that are fined by FSA (poor execution of the due diligence obligation, failure of human and technical means and of internal rules) ?

Let's read again a press release from CSSF and the happy end in another press release:

On 25 February 2009 the Commission de Surveillance du Secteur Financier (the "CSSF") ordered UBS (Luxembourg) SA ("UBSL") to implement, within a period of three months, the necessary infrastructure, i.e. sufficient human and technical means and the necessary internal rules in order to fulfil all the tasks relating to its function of depositary bank of a Luxembourg UCI in accordance with the Law of 20 December 2002 on undertakings for collective investment, as amended, and Circular IML 91/75, and to provide evidence and guarantees thereof.

After several updates of a draft, UBSL submitted to the CSSF by post dated 25 May 2009 a final detailed report regarding improvements made to its infrastructure and substantial amendments to its internal procedures relating to the function of depositary bank. After analysing said report, the CSSF is of the opinion that UBSL has now delivered evidence and guarantees of having the necessary infrastructure and the necessary rules for its internal organization in place, in line with the injunction imposed on it and in compliance with professional standards applicable in the Grand Duchy of Luxembourg.

Reactions about TJN Index : UK v. Luxembourg

noreply@blogspirit.com (jturquey) — Thu, 05 Nov 2009 05:37:00 +0100

If bankers and politicians (that are their servants) in Luxembourg denies TJN's findings, in the UK, David Taylor, Member of Parliament for North-West Leicestershire, asked:

"The Tax Justice Network has done the world a great service in producing its global index of secrecy, which reveals the most secretive financial centres—the City of London being the fifth worst. Why cannot we take an international lead in tackling tax avoidance by first ending the clandestine and corrupting culture that permeates the City of London?"

GRECO celebrated its first ten years of existence

noreply@blogspirit.com (jturquey) — Wed, 14 Oct 2009 06:30:00 +0200

On 5 October 2009, the Group of States against Corruption (GRECO) celebrated its 10th Anniversary with a High-level Conference which brought together a large number of Ministers and Secretaries of State as well as representatives from its 46 member States, several non-member States, international organisations and civil society.

Numerous speakers highlighted the need for enhanced cooperation among all international stakeholders in the fight against corruption with a view to avoiding duplication and promoting synergies.

Files including videos about the event are available there.

It is interesting to analyse the national delegations. There is a kind of clue about the involvement of the jurisdiction in the fight against corruption.

MONACO (2.02 Km2)

M. Philippe NARMINO, President du Conseil d’Etat, Directeur des Services Judiciaires, Direction des Services Judiciaires, Palais de Justice

Mme Claudette GASTAUD, Ambassadeur Extraordinaire et Plenipotentiaire, Representante Permanente, Representation Permanente de Monaco aupres du Conseil de l’Europe

M. Andre MUHLBERGER, Directeur de la Surete publique, Direction de la Surete publique

M. Thierry PERRIQUET, Conseiller pres la Cour d’Appel, Palais de Justice

M. Frederic PARDO, Secretaire des Relations Exterieures, Direction des Affaires Internationales, Departement des Relations exterieures, Ministere d'Etat

M. Frederic COTTALORDA, Chef de Section, Service d’Information et de Controle sur les Circuits Financiers (SICCFIN)

LUXEMBOURG (2586 Km2)

M. Jean BOUR (Chef de délégation au GRECO), Procureur d’Etat, Parquet du Tribunal d’Arrondissement de Diekirch

Comment:

Noone from the Corruption Prevention Committee (« COPRECO ») in Luxembourg. As explained, COPRECO is an interministerial body responsible in particular for preparing and proposing to the Government measures to combat corruption and for co-ordinating within the public administration the enforcement of any measures adopted.

Criminal liability of legal persons is not enforced in Luxembourg despide an injunction last year and a new one this year:

- "OECD urges Luxembourg to introduce liability of legal persons for foreign bribery" (OECD Working Group on Bribery, 27 March 2008)

- "Toutefois, force est de constater que plus de deux ans se sont écoulés depuis le dépôt du projet de loi, sans que celui-ci n’ait encore franchi une étape décisive dans la procédure parlementaire. Le Groupe de travail de l’OCDE sur la corruption reste donc sérieusement préoccupé par l’absence de responsabilité des personnes morales en droit luxembourgeois, dix ans après l’entrée en vigueur de la Convention sur la lutte contre la corruption d’agents publics étrangers dans les transactions commerciales internationales. Cette situation constitue un manquement grave et continu aux obligations du Luxembourg par rapport à la Convention." (Mark Pieth-OECD Working Group on Bribery, 22 July 2009)

Bankers’ state of mind between lines: Switzerland v. Luxembourg

noreply@blogspirit.com (jturquey) — Wed, 05 Aug 2009 17:15:00 +0200

Le secret bancaire helvétique existera tant que les Suisses le soutiendront. Ce qui est différent, c’est qu’il ne sera plus possible de se réfugier derrière le secret bancaire pour les activités réalisées avec la clientèle à l’étranger. On ne pourra plus faciliter l’évasion fiscale en s’appuyant sur le secret bancaire. (free translation : The Swiss bank secrecy will exist as long as the Swiss will support it. What is different, is that it will not be possible anymore to take refuge behind banking secrecy for the activities carried out with foreign clients. One will not be able to facilitate tax evasion anymore using banking secrecy) (Oswald Grübel, CEO, UBS today in le Temps)

He is said to have sent an e-mail to the staff to call for the strict respect of laws and regulations to enhance the good reputation of the bank. "Aucun écart ne sera toléré" (free translation : “No variation will be tolerated”), he wrote.

At the same time in Luxembourg:

« L’échange d’information sur demande fera qu’un contribuable étranger, soupconné de fraude fiscale grâce à des faits ou documents probants, pourra faire l’objet d’une enquête par son fisc national » (free translation: “the exchange of information upon request results in that a foreign taxpayer, suspected of tax fraud based on documentary evidence, can be investigated by his national tax department)
(Jean Meyer, Chairman ABBL, in the Lëtzebuerger Wort)

In Switzerland there is a commitment that states: “One will not be able to facilitate tax evasion any more” whereas in Luxembourg it will depend on evidence provided by the foreign tax administration.

Above all, in Switzerland they use the term “tax evasion” whereas in Luxembourg they use “tax fraud”.

This is confirmed by the recent ABBL press release that states against the study made for the “Cercle de cooperation”, : “Without making any noticeable distinction, the document in question assimilates very diverse issues such as tax fraud, tax competition, Money laundering, the problematic of North-South relations and intra-European discussions on the taxation of savings”

Why “tax evasion” is not quoted by the ABBL?

Tax evasion will remain in Luxembourg as many actors consider it is practically part of tax competition.

Tax Havens: International Tax Avoidance: the figures

noreply@blogspirit.com (jturquey) — Tue, 04 Aug 2009 17:20:00 +0200

Figures from the CRS report

Comment:

1. Median: 4.4

2. Canada is leader of the "G7" group

3. Luxembourg is leader of the "Larger Countries (GDP At Least $10 billion) on Tax Haven Lists and the Netherlands" group

4. Bermuda is leader of the "Small Countries on Tax Haven Lists" group

5. Luxembourg 8th jurisdiction every category (See list of US companies in Luxembourg)

6. All the jurisdictions before Luxembourg are small countries on tax haven lists

7. There are 5 jurisdictions after Luxembourg that are small countries on tax haven lists

8. The first jurisdiction of the G7 group (Canada) is 20th.

Luxembourg Prime Minister is quoted in the report page 10: "Luxembourg Prime Minister Jean-Claude Junker urged other EU member states to challenge the United States for tax havens in Delaware, Nevada, and Wyoming"

His name is misspelled like the word that means “something (as an automobile) of such age and condition as to be ready for scrapping (See Junker in the dictionary)

Is it a the work of the unconscious?

Jean Claude Juncker is the oldest active political governmental leader in the European Union.

He did not see the hurricane on tax havens coming.

It is very interesting to read again all of Juncker’s annual speeches before the parliament. In particular the one he gave last year whereas the text of the Levin, Coleman and Obama bill was known and that the Liechtenstein scandal took place. In 2008, Angel Gurria stated that "Excessive bank secrecy rules and a failure to exchange information on foreign tax evaders are relics of a different time and have no role to play in the relations between democratic societies"

In 2008, Jean-Claude Juncker
- did not speak about the problems of banking secrecy ("secret" : word missing)
- did not speak about the problems of tax evasion ("évasion" : word missing)
- did not speak about the problems of tax haven ("paradis" : word missing)
- did not speak about the abuses the offshore ("offshore" : word missing, "domiciliation" : word missing)
- did not speak about fraud ("fraud" : word missing)

-…

The former years he had spoken about these issues but definitely ignored their acuity in 2008.

In a nutshell, he did not see or did not want to see that he was up against the wind that now is blowing in his face.

He is once again Prime Minister after the General Elections. On 29 July 2009, the new government published the official version of its programme for the period 2009 - 2014. As far as the financial centre is concerned, the government foresees the following priority initiatives (Source: LFF):

Pro-active support policy for the development of the financial centre as a main pillar of the Luxembourg economy.
Strengthening of the international orientation of the financial centre. In European negotiations, the Government will ensure that all obstacles to an efficient working of the internal market shall be removed.
Besides contributing to the development of the international activities linked to wealth management and investment funds, the government intends to diversify the activities of the financial centre (micro-finance, SRI, Islamic finance, philanthropy as a corollary to private banking).
Geographical diversification of the financial centre. Besides the traditional European markets, the government will attract new investors from other regions, by making the centre better known in, amongst others, the Americas, Asia and the Gulf countries. The network of double tax treaties shall also be extended to the countries of origin of new potential investors.
In order to ensure the legal security of new financial products, the government will accompany them with an appropriate legal framework. Particular attention will be paid to investor protection. The Government will closely monitor legal developments in other countries in order to safeguard the competitiveness of the Luxembourg financial sector.
The Government places great importance on the professional supervision of the financial sector and will actively contribute to international and European developments in the matter. With a mind to prevent risks, the government will encourage cooperation and exchange of information mechanisms amongst competent national and European actors

There is nothing to correct the abuses that create the “tax haven”:

- There is nothing about strengthening supervision and sanctions.

- There is nothing about sanitizing the judicial and regulatory haven.

- There is nothing about revising and correcting the transposition of directives

Regulators: France v. Luxembourg

noreply@blogspirit.com (jturquey) — Mon, 03 Aug 2009 08:51:00 +0200

In the context of the debate on the depositary, let’s compare the regulators in France and in Luxembourg on a couple of telling criteria.

Comment

There are much more committees/commissions in Luxembourg than in France but none for the clients. The members of these Committees represent the companies subject to the prudential supervision of the CSSF, professional associations representing the various segments of the financial sector as well as external auditors and legal advisers active in the financial field. Clients are not represented in the numerous committees in Luxembourg whereas clients are represented in the retail Investors Commission in France.

The internal committees in Luxembourg are tailored for the financial sector to have very close and direct say on the evolution of the Luxembourg prudential regulatory environment. The regulation in Luxembourg is practically subordinate to professionals in the framework of the numerous committees whereas in France the regulator, establishes the guiding principles for the organisation and operation of market infrastructures and monitors the markets and the transactions made on them.

Download table

Sources:

France

AMF : Consultative Commissions and Specialised Commissions

AFG: Relationships with the regulator

Luxembourg

CSSF: Consultative committees

ALFI : Relationships with the regulator

Depositor & Investor Compensation Schemes: Luxembourg v. France v. Belgium

noreply@blogspirit.com (jturquey) — Fri, 31 Jul 2009 07:38:00 +0200

Figures (in EUR)

As far as investors are concerned, the Directive sets a Community minimum level of compensation per investor of Euro 20 000, while at the same time authorising Member States to provide for a higher level of compensation if they so wish. However, certain categories of investors may be excluded by Member States from the scheme's coverage or may be afforded a lower level of coverage. The arrangements for organizing and financing schemes are left to the discretion of Member States.

Clever investors will realize they seem less protected in Luxembourg than in France or Belgium, that both go beyond the directive.

Source:

Luxembourg

France

Belgium

Luxembourg regulator much better than Irish regulator to communicate on Madoff

noreply@blogspirit.com (jturquey) — Wed, 22 Jul 2009 20:07:22 +0200

I have raised that the Luxembourg regulator is much better than Irish regulator in the communication on Madoff.

The Irish regulator this week published its annual report 2008. It ignores Madoff despite Thema fund.

The Luxembourg regulator had published its annual report 2008 a couple of weeks ago. It does not condone Madoff.

Swiss cheese is not as good as it used to be and Luxembourg sells a stinking cheese.

noreply@blogspirit.com (jturquey) — Tue, 21 Apr 2009 18:38:11 +0200

In the previous article relating to Luxembourg I have evoked the impossibility for the actors in the Luxembourg jurisdiction to deal with change.
My wording was based on Spencer Johnson’ famous book: “Who moved my cheese”

I am afraid Switzerland did not realise either the paradigm shift.

In an article Didier Remer lays emphasis on the Swiss situation.

Angel Gurría confirmed in the columns of le Temps that banking secrecy was in question and that the engine was launched, that it would not stop, that the collision was imminent
Swiss leaders were informed of the evolution of international mentalities, and systematically informed on collaboration between OECD and G20.
Additionally, neither Switzerland nor Luxembourg attended the OECD meeting last October, which was the beginning of the process of the reviewing of the OECD list.

The jurisdiction is not exactly in the same situation as Luxembourg. It has a long tradition of finance. It has various alternative industries to finance. And as Didier Remer observed there is a political debate.
(in an article I had highlighted huge business differences between both jurisdictions. )

To the contrary, in a recent interview, Jean Asselborn, who is Vice Prime Minister of Luxembourg stated (in order to soothe and to reassure?) that there is still the fund industry in Luxembourg which has great competences, and many countries trust us, and that there are as well the credit markets (il y a d’autres atouts. Par exemple, au Luxembourg il y a l’industrie des fonds qui a des grandes compétences et beaucoup de pays se fient à nous. Il y a aussi tous les marchés des crédits.)

The problem is that with Jean Asselborn’s statement Luxembourg goes on selling a stinking cheese with
-the Madoff story that just did not happen by chance in Luxembourg, and
-Bank Landsbanki that went bankrupt in a dubious context
-etc.

The problem is that Jean Asselborn belongs to the left wing of the governing coalition.

Which demonstrates that no politician in Luxembourg never ever questions the dysfunctions.

FIU Luxembourg v. FIU Monaco

noreply@blogspirit.com (jturquey) — Wed, 18 Mar 2009 18:06:00 +0100

The annual report 2007 of SICFIN, the Monaco FIU, informs of the staffing of SICFIN and of its positioning:

Le SICCFIN, est un service administratif relevant du Département des Finances et de l’Economie qui répond à la définition internationale des Cellules de Renseignements Financiers. Le service est composé de 9 agents, spécialement commissionnés et assermentés. Le personnel du SICCFIN possède un profil bancaire et financier, complété par des connaissances juridiques, avec, pour certain, une spécialisation en audit et en contrôle. Ces compétences sont également complétées par des stages auprès d’autres CRF, notamment CTIF-CFT. A ce titre, des échanges réguliers ont lieu avec TRACFIN ainsi qu’avec la Commission Bancaire française afin de confronter les expériences de chacun en matière de lutte contre le blanchiment de capitaux et le financement du terrorisme.
Depuis 2005, le SICCFIN est doté d’un nouveau système informatique développé afin de répondre aux besoins nés de l’évolution de son activité.

There are 9 people with a banking and financial profile.
It is like most FIUs an administrative body under the responsibility of the Ministry of Finance.

The annual report 2007 of the CRF, the Luxembourg FIU, informs of the staffing of the CRF and of its positioning:

La structure de la CRF est demeurée identique à celle existante pour l’exercice précédent, à savoir qu’elle est composée de deux magistrats à plein temps, d’un magistrat à mi temps, d’un analyste financier et d’une secrétaire. Les activités de la CRF se déroulent sous la direction du Procureur d’Etat Robert BIEVER et du Procureur d’Etat Adjoint Jean-Paul FRISING. La CRF est épaulée dans ses devoirs de renseignement financier par un membre de la Section Anti-Blanchiment du Service de Police Judiciaire. Les quatre autres membres de cette section se consacrent plus particulièrement aux enquêtes pénales proprement dites (enquêtes préliminaires, informations judiciaires, exécution d’ordonnances prises dans le cadre de l’exécution de certaines commissions rogatoires internationales dans lesquelles le blanchiment est libellé par l’autorité requérante).

There are 4.5 people including a secretary in the CRF stricto sensu plus the support of members of the Service de Police judiciaire.
The CRF acts under the supervision of the prosecuting authorities.

We have seen that the number of declarations of suspicion in Luxembourg is not consistent with the importance of assets managed. The ratio of Suspicious Transaction Reports per $1billion in assets for Luxembourg, fund industry excluded, is 6 times less than Monaco

If I take into accounts only banks, as I have a comparison point with Monaco, the number of declarations of suspicion in Luxembourg is not consistent with the business activity in the jurisdiction.

In 2007, of 156 banks, 63 only reported a declaration of suspicion, which is almost the number of banks in Monaco according to CIA World Factbook. This means that 60% of banks in Luxembourg never ever had a dubious client to be reported to the FIU. This is not serious and is definitely worrying for the enforcement of the AML procedures in the jurisdiction.

My observations are consistent with the Narcotics Control Strategy report 2009, which observes that in Luxembourg the scarce number of financial crime cases is of concern, particularly for a country that has such a large financial sector.