Ethics and governance in the European Financial centers

The ALFI has today published the Interim report of the ALFI Madoff Task Force in Luxembourg and technical guidelines for Fund of Funds concerning the valuation of investment Funds affected by Madoff.

The report states that Lxembourg legislation on fund depositaries faithfully reflects the provisions of European Council Directive 85/611/EEC (the UCITS Directive) and that Luxembourg has a suitable framework for a proper protection of investment fund assets and investors in line with European standards. The Luxembourg legal and regulatory environment is equivalent to that of the other major European jurisdictions.ynop
This statement does nor comply with the synoptic table of the UCTIS directive and the luxembourg legislation.

The reports states that the group wishes to issue practical industry guidance on the due skills, care and diligence (initial as well as ongoing) a depositary should apply when entering into a relationship with third parties. This means that the current texts are not clear enough or rather may create opportunities for drifts.

If I were the ALFI I would investigate WHO introduced Madoff in Luxembourg despite "red flags".


Report
Technical guidelines

Reuters has reported that Monaco will soon join moves to relax bank secrecy, following Belgium, Liechtenstein, Andorra, Switzerland, Austria, Luxembourg and others.

I will develop in the following days the situation in this jurisdiction that is smaller than Luxembourg, with a special responsibility for France.

Read IHT

Last week, many jurisdictions that fear to be on the OECD black list said they are going to relax there their banking secrecy legislation.
As Senator Levin said (), “That is a very welcome development which is long overdue, and we look forward to effective implementation of the promised new policies. (…) The promised new limits on offshore secrecy will not only likely take years to implement, but even after taking effect, will not eliminate all offshore tax abuses”. That is the reason why he will proceed with legislation he introduced in the Senate last week.
As far as the G 20 is concerned, the experience of the Luxembourg financial center demonstrates the need for continuing the pressure. Luxembourg minister Luc Frieden said last Friday that Angel Gurria told him that Luxembourg is not a tax haven. I guess Angel Gurria will be happy to be to be evoked or rather called upon for a “satisfecit” of morality in business by a jurisdiction of 2500 Km2:

- that provided the FATF with a generous grant that was not quoted as a funding of the FATF while not implementing the OECD convention on corruption;

- where there is neither a balance sheets database nor the judiciary judgements available online;

- where many registered companies are scams (Shareholders from exotic jurisdictions that exist only in the Luxembourg Corporate Registration, Statutory auditors from exotic jurisdictions that exist only in the Luxembourg Corporate Registration…);

- where there are only a few “repressive” procedures;

- that finds the means for its promotion while not putting into place the necessary infrastructure i.e. all sufficient human and technical means and internal rules in order to carry out all the duties and tasks related to the role of a major financial center: for example, despite the large financial sector, the Luxembourg FIU (the CRF) is made up of two magistrates full-time, of a magistrate at half time, an financial analyst and a secretary . There is a very simple rule: If you don't put in place the relevant means to control, nothing can be found. It is like in a bus, if there are too little controllers for the bus network, most fraudsters will not be detected;

- and so on.

The small size emphasizes dysfunctions. I know that I have readers that are upset when I focus on Luxembourg. But the small size of the jurisdiction allows identifying these dysfunctions all the more than they are in public and official sources that are the visible part of the iceberg.




That is the reason why a couple of pragmatic decisions should be taken at the G 20:

Encourage the jurisdictions that said they are going to relax banking secrecy, including Luxembourg, by deciding a “grey list” to test the effective implementation. The black list and grey list would be updated every three months. Any jurisdiction that would not respect the international commitments would be blacklisted.

Ensure that the OECD has an integrated view of sensitive topics. Currently a jurisdiction like Liechtenstein is on the list of non cooperative countries, but it is no longer on the FATF list. There are links between corruption, harmful tax practices and money laundering. There should be one list taking into account all these parameters.

Build an International Tax Court, where would be filed the claims of the jurisdictions that are victims of jurisdictions that do not comply with international commitments regarding taxes.