Ethics and governance in the European Financial centers

The OECD is funded by the member countries. National contributions to the annual budget are based on a formula related to the size of each member's economy.
Funding for the FATF is provided by its members on an annual basis and in accordance with the scale of contribution to the OECD. The cost of the secretariat and other services is met by the FATF budget, using the OECD as the channel for these operations. This scale is based on a formula related to the size of the country’s economy. Non-OECD members’ contributions are calculated using the same scale of OECD members. The two member organisations also make contributions to the FATF budget. Member grants like the one from Luxembourg are not quoted as a funding.


The contribution to the OECD and the FATF is not logical.

Luxembourg, the richest country among OECD members contributes with ... 0.216%

E.g. The OECD budget 2008 of 342,900,000.00 € is feed with the royal amount of 740,664.00 € by the richest country.

The following tables are telling :

Rank by Contribution share to the OECD in percentage

Rank by GDP




Switzerland, Austria and Luxembourg had a meeting yesterday in Luxembourg. Reuters has reported what said Luc Frieden, Luxembourg's Treasury and Budget Minister : "We think it is unacceptable that among our European and American friends, we have not had the possibility to have a debate together (...) We demand to be part of the discussions where the criteria for the list of so-called uncooperative countries will be fixed". Switzerland, Austria and Luxembourg want to be "integrated" into the debate on tax havens "to find ways to maintain banking secrecy while at the same time we are open to a dialogue on how to find ways to improve collaboration on tax offenses"

Luc Frieden :
demands be part of the Discussio.
says he is open to a dialogue.

It is not serious from the jurisdiction that does not care of international recs and has a lax business environment.

He wants to save time.

One year ago the OECD urged Luxembourg to introduce liability of legal persons for foreign bribery

The PR late March 2008 stated that "While the Working Group notes that Luxembourg has recently engaged in efforts to implement the Convention, it is seriously concerned that Luxembourg has not responded to some key recommendations issued by the Working Group since 2001. The Working Group has exceptionally decided to conduct a review of measures taken by Luxembourg to fulfill the recommendations of the Group again one year from now and reserves the right to take further steps in the event of continued failure to implement the Convention.

The report dated 20 March 2008 says page 4 that the Group is seriously concerned that Luxembourg has still not responded to key Phases 1 and 2 recommendations; these recommendations relate to the establishment of a clear, effective and dissuasive system of liability of legal persons and efforts to raise awareness of the foreign bribery offence among the private sector. Considering the seriousness of the situation, the Working Group has decided that, within one year, Luxembourg will report, in writing, on measures taken to fulfil the recommendations of the Group, and reserves the right, in the event of continued failure to implement the Convention, to take further steps.

Amendments to a draft law N°5718 were communicated in September 2008 at the Chambre des Députés : but the legislative procedure is frozen.


Liability of legal persons does not exist in the Luxembourg law and they will not be able to respect the OECD deadline at the end of the month.

It is actually easier in Luxembourg to change the constitution than to implement ethical international Recs as ethics does not exist in the jurisdiction that is money-driven with the fourth estate that is the financial institutions..



The OECD warned Luxembourg : the Working Group reserves the right, in the event of continued failure to implement the Convention, to take further steps.

Why not excluding Luxembourg from the OECD for the example?

The USA, Germany, France and the United Kingdom could make a pressure (threat of cutting their contribution) provided that they do themselves cleaning in the jurisdictions which depend on them, if not it would be neither fair with respect to the Mohicans of banking secrecy, nor credible.

But the critical question is the relevance of both the FATF and the OECD, that failed in their duty and have a responsibility because of their lax criteria to assess financial centers and lack of action.

They did not check if law and regulation were actually enforced and they did not sanction jurisdiction that did not implement their Recs.


Time is up to build a new international institution that will assess financial centers on pragmatic ethical criteria like those I had defined already two years ago.

The Wort had reported that some Luxembourg MPs went in Paris to meet their colleagues in order to clarify what they think is a misunderstanding of the financial center of Luxembourg.

The Wort has reported that French MPs were dissatisfied with the willingness to cooperate of Luxembourg, which concerns the determination of possible tax dodgers.

Laurent Mosar, a Luxembourg delegate who is a lawyer, told that banking secrecy does not exist to protect criminals or tax dodgers.

But the problem is that his colleague Lucien Thiel, who is the former chairperson of the Luxembourg Bankers’ Association, stated last year that it is not Luxembourg duty do control if the taxpayer was honest and that Luxembourg is not compelled to communicate clients’ data.

Additionally, despite the debate on tax evasion, Luxembourg bankers go on helping foreign citizens in tax evasion as TV demonstrated.

The Luxembourg MPs take the others for idiots. Just like on a general level Luxembourg takes the other countries for idiots while not being able to reach the ethical level of credibility of other countries with banking secrecy as this jurisdiction is money-driven with the rule "Business over ethics".

Luxembourg, Switzerland and Austria are to meet this week end in Luxembourg.

The meeting will take place in Luxembourg and will serve primarily to coordinate points of common interest of the financial centres in the international environment. The talks will cover a range of issues including the debate surrounding a possible blacklist of so-called `tax havens'

Even though Luxembourg, Switzerland and Austria share banking secrecy, by comming in Luxembourg Switzerland and Austria are unfortunately supporting a jurisdiction that does not have the same level of business ethics than them, which weakens the legitimacy of their arguments.

By acting like this they encourage Luxembourg to refuse the brushing up of the country toward ethics and good governance.

Let's compare the three jurisdictions on a couple of items :


Size

Luxembourg : 2.586 Km²
Switzerland : 41 285 km2
Austria : 83 858 km2

Luxembourg is the smallest jurisdiction of the three, which means a jurisdiction where everybody knows everyone with a high level of conflicts of interests.

GNP per capita in international$ (Source : World's Richest Countries in Gross National Product - Daniel Workman)

GNP per capita based on global purchasing power parity (PPP). GNP per capita based on PPP represents the statistic converted to international dollars using purchasing power parity rates.

Luxembourg : $61,610 (based on 2004 PPP GNP per capita in international$)
Switzerland : $35,660 (based on 2004 PPP GNP per capita in international$)
$31,800 (based on 2004 PPP GNP per capita in international$)

Luxembourg is the richest jurisdiction of the three.


GDP (Source : CIA World Factbook)

Luxembourg : GDP - per capita (PPP): $85,100 (2008 est.)
Switzerland : GDP - per capita (PPP): $40,900 (2008 est.)
Austria: GDP - per capita (PPP): $39,600 (2008 est.)

Luxembourg is the richest jurisdiction of the three.


Transparency International Chapter (Source : TI Website)

Luxembourg: no chapter
Switzerland: TI Switzerland, located Schanzeneckstrasse 25, P.O. Box 8509, CH-3001 Bern. Contact Person(s): Ms Anne Schwöbel
Austria: TI Austria, located Operngasse 20B/9, 1040 Wien. Contact Person(s): Dr. Eva Geiblinger

Luxembourg that is the richest jurisdiction of the three, which means that has more opportunities for corruption and fraud because of conflicts of interests, does not have a TI Chapter.


Transparency International Global Corruption Barometer 2007 (Source : Report)

Luxembourg: 6% of respondents reported they paid a bribe to obtain Service
Switzerland: 1% of respondents reported they paid a bribe to obtain Service
Austria: 1% of respondents reported they paid a bribe to obtain Service

Luxembourg that is the richest jurisdiction of the three that does not have a TI Chapter is the one where more respondents reported they paid a bribe to obtain Service.


Liability of legal persons (Source : OECD and GRECO reports on corruption)

Luxembourg: "“Luxembourg has still not responded to key Phases 1 and 2 recommendations; these recommendations relate to the establishment of a clear, effective and dissuasive system of liability of legal persons and efforts to raise awareness of the foreign bribery offence among the private sector. Considering the seriousness of the situation, the Working Group has decided that, within one year, Luxembourg will report,in writing, on measures taken to fulfil the recommendations of the Group, and reserves the right, in the event of continued failure to implement the Convention, to take further steps.” (Source: OCDE Working Group on Bribery, Phase 2 bis, 20 March 2008, p. 4)
Switzerland: “Article 100quater of the Criminal Code institutes two systems of criminal liability for enterprises. Both establish defective organisation as a condition for corporate criminal liability.” (Source: OCDE Working Group on Bribery, Phase 2, 20 December 2004, p. 36)
Austria: “In October 2005, shortly after the Phase 2 on-site visit, the Austrian Parliament adopted legislation establishing general criminal liability of legal persons, including for bribery offences.” (Source: OCDE Working Group on Bribery, Phase 2: Report on Implementation of the OECD Anti-Bribery Convention, 16 February 2006, p. 4)

Luxembourg that is the richest jurisdiction of the three, which means that has more opportunities for corruption and fraud because of conflicts of interests, does not have a liability for legal persons.


PwC Global Economic Crime Survey 2007 (Source : Survey 2007, p. 40)

Luxembourg: PwC Luxembourg did not participate to the survey.
Switzerland: PwC Switzerland participated to the survey
Austria: PwC Austria participated to the survey

PwC Luxembourg that is located in the richest jurisdiction of the three, which means that has more opportunities for corruption and fraud, did not participate to the survey

Luxembourg: No press release on the Surveys but a commercial webpage quoting the Survey 2007 to sell PwC services
Switzerland: Issued a press release on the Survey 2007 in French and German
Austria: Issued a press release on the Survey 2007 in German.

Luxembourg:

Switzerland:

Austria:


PwC Luxembourg that is located in the richest jurisdiction of the three, which means that has more opportunities for corruption and fraud because everybody knows everyone, did not communicate either on previous Economic Crime Surveys contrary to the colleagues in Switzerland and Austria. They communicated on the Survey in a commercial web page to sell their services the first time for the Global Economic Crime Survey 2007.


E&Y Corruption or compliance – weighing the costs 10th survey (Source: Survey page 23)

Luxembourg: E&Y Luxembourg did not participate to the survey.
Switzerland: E&Y Switzerland participated to the survey
Austria: E&Y Austria participated to the survey

E&Y Luxembourg that is located in the richest jurisdiction of the three, which means that has more opportunities for corruption and fraud, did not participate to the survey




There are more criteria but the above may be summarised on a synoptic table :



Large picture



This comparison demonstrates that there is a scale of permissiveness in the jurisdictions. This is the reason why the Narcotic Control Strategy Reports 2008 observes “the scarce number of financial crime cases is of concern, particularly for a country that has such a large financial sector” or the the GRECO report Round III observes that “the number of cases coming before the courts appears to be very small”


This permissiveness increases more or less the negative effect of secrecy. There are recurrent scandals through Luxembourg: scams, tax evasion… Luxembourg clear and pragmatic framework is actually used to commit various frauds and ML cases.

E.g.

Fraud vis-à-vis the USA

Cipriani
Fraud with Liechtenstein

Fraud vis-à-vis France

Eurolux Gestion
AOL

Fraud vis-à-vis Italy

Consorte
Parmalat

Fraud vis-à-vis Spain

Esperito Santo with a sumary in English




Did professionals in the jurisdiction of 2500 Km2 where everybody knows everyone and what the others are doing realise the paradigm shift after the Liechtenstein scandal? As far as tax evasion is concerned I am afraid not as their behaviour demonstrates that in Luxembourg, secrecy is first a tool for fraud and obstruction to justice and tax administrations.