Ethics and governance in the European Financial centers

Jack Blum, Chairman of TJN-USA and GFI advisor, has been called before the Senate Homeland Security Committee to testify on the Incorporation Transparency Act.

Mr. Blum, the former Head of the United Nations Experts Group on Asset Recovery and a former investigator for the Senate Committee on Foreign Relations Subcommittee on Narcotics, Terrorism, and International Operations, stressed both the economic and national security benefits of shutting down US shell corporations.

Read the testimony

The fourth European Union Organised Crime Threat Assessment (2009 OCTA) was just published. "The OCTA is a core product of the intelligence-led law enforcement concept and its drafting is one of Europol’s top priorities", Rob Wainwright, Director of Europol, said.

It is a general overview of crimes. I wish they assessed a country risk.

Senator Carl Levin, D-Mich., have introduced new legislation to stop the formation of U.S. corporations with hidden owners. It is subject of a Hearing before the Senate Committee on Homeland Security & Governmental Affairs.

Read draft

TJN has just published the Financial Secrecy Index i.e. secrecy jurisdictions that they have ranked according to both their lack of transparency and their scale of cross-border financial activity.

Number 5 is the City of London in the United Kingdom, the world's largest financial centre with a Financial Secrecy Index Value of 347.79.
Number 4 is the Cayman Islands with a Financial Secrecy Index Value of 403.48.
Number 3 is Switzerland with a Financial Secrecy Index Value of 513.40.
Number 2 is the Grand Duchy of Luxembourg with a Financial Secrecy Index Value of 1127.02.
Number 1 is  Delaware in the United States of America with a Financial Secrecy Index Value of 1503.80.

The average for the Financial Secrecy Index Value is 79.04 .

It is not a surprise for me to see Luxembourg with such score. I have been warning for years decision-makers in the jurisdiction to correct dysfunctions, lax behaviours. They did not that they thought that being a long-standing member of European Union, of the the Financial Action Task Force (FATF), of OECD... would provide both impunity and intouchability.

The censorship of Rainer Falk's report and the launch of LIGFI corroborate that the jurisdiction does not call itself into question.

I guess that as usual they will comment TJN's index by saying something like: Dubious index on financial secrecy: the ABBL responds. The ABBL deplores the fact that, behind a pseudo-scientific façade, this document calls into question thereputation and standards of the Luxembourg Financial Centre in general and of its members in particular. Luxembourg is a long-standing member of the Financial Action Task Force (FATF). Its efforts to preventmoney laundering have recently been highlighted by international organisations, such as the InternationalMonetary Fund (IMF). The ABBL has serious doubts about the methods used to draw up the study. The conclusions do not reflect a serious scientific approach. And blablabla.

TJN's work demonstrates to what extent OECD's work that is influenced by jurisdictions and political games is not relevant.

The Financial Times has reported that the Financial Secrecy Index will be published soon. This Sunday according to Richard Murphy.

The league table to be published by the Tax Justice Network, a respected campaign group, is led by the US state of Delaware and includes Luxembourg, Switzerland and Hong Kong in its top.

The index complies with Prime Minister Juncker's concern: it includes Delaware.

As TJN explains, the FSI (Financial Secrecy Index) is designed to identify the key contributors to global financial secrecy on a jurisdiction-by-jurisdiction basis. However, in some important cases, different level of secrecy prevail in different sub-jurisdictional entities. Since financial flow data are only systematically and comparably available at a jurisdictional level, this creates a potential problem. To deal with this, and recognising the impact that even marginal secrecy differences can have on the volume of illicit flows, we treat the most secretive sub-jurisdictional entity as representative of the potential for opacity of the whole jurisdiction, and therefore base its Opacity Score on this. The most obvious case where we have applied this technique is with the US state of Delaware, which is taken as representative of the maximum secrecy available within the whole jurisdiction (the USA).

This is exactly the point I raised a couple of months ago:

For Unions, Confederations and other multi jurisdictional states, the weakest link in the chain would give the country's final grade. For Switzerland it may be Zug, Delaware for the US, Andorra for France, Hong Kong for China...

The result would be surprising.

The media have reported that Austria, Liechtenstein and Switzerland yesterday met about banking secrecy.

This meeting was for german-speaking attendees.

Luxembourg was not in the group. The geography is only part of the explanation.

Some would see a sanction for a partner that is not reliable : when Luxembourg, Austria and Switzerland met in March in Luxembourg they agreed to coordinate their policies about banking secrecy.

After the publication of the OECD list, Luxembourg :
- did not care of the agreement to coordinate policies and signed more that the 12 required agreements whereas the culture did not change. It was removed from the "grey list" whereas the culture did not change.
- launched LIGFI for its own ethical promotion even though the new body was in the pipe since December 2008 and is a deceptive economic intelligence initiative without intelligence.

Nine organisations including TJN yesterday sent a letter to the Finance Ministers of G20 countries to call for:

1. Supporting a truly multilateral agreement for automatic exchange of information between jurisdictions, including the disclosure of beneficial ownership of assets and trusts. At the very least, a robust review mechanism must be put in place to evaluate the extent to which developing countries have been able to benefit from progress on information exchange.

2. Supporting an international accounting standard requiring multinational companies to report profits on a country-by-country basis. The OECD is currently investigating this proposal. We urge all G20 members to take an interest in this investigation and to use the St Andrews’ summit to request a formal report from the OECD to the G20.

Both measures aim effectively to combat tax evasion and, therefore, should be incorporated in regional and bilateral investment agreements with developing countries.

Read letter

"Si, aujourd’hui, l’évasion fiscale est égale à la fraude fiscale, et donc un crime, chaque Suisse en est complice pour avoir profité de la prospérité que nous a amenée tout cet argent étranger pendant des années!"

(Free translation: If today tax evasion is equal to tax fraud, and is therefore a crime, everyone in Switzerland is accomplice for having accepted the prosperity which brought us all this foreign money for years!”)

Source: Le Temps

Bloomberg has reported that two leading U.S. lawmakers proposed legislation that would impose new taxes on foreign banks that refuse to disclose the identity and contents of accounts owned by Americans.

The measure would impose a 30 percent withholding tax on income from U.S. assets held by non-U.S. institutions that refuse to name American account holders and report balances, deposits and withdrawals.

However the bill disappointed some of the most-aggressive critics of offshore-tax avoidance. It doesn't include a proposal from Mr. Obama to establish legal presumptions that favor the IRS in prosecuting suspected tax dodgers. It also leaves out more-stringent proposals from other lawmakers, including one that would treat offshore corporations as U.S. firms for tax purposes if their senior executives were located in the U.S. (see WSJ)

FATF has just published a study about money laundering and terrorist financing in the securities sector. 

40 jurisdictions submitted a response to the questionnaire that is annexed (pages 80-86).

The objectives of the FATF Securities Typology Questionnaire were to collect information about: (i) the range of products classified as “securities” in various jurisdictions; (ii) how jurisdictions supervise compliance with anti-money laundering/combating terrorist financing (“AML/CTF”) requirements for these products; (iii) potential areas of AML/CTF vulnerabilities in the securities industry; (iv) suspicious transaction reports (STRs) in the securities industry; and (v) enforcement actions in the securities industry.

Unfortunately the response for each jurisdiction is not circulated, which does not contribute to the transparency to assess the regulation in the jurisdictions.

I wish I had the answer for every juristiction.