Ethics and governance in the European Financial centers

Bloomberg has reported that Investments with Bernard Madoff have forced Luxembourg funds and sub funds to suspend redemptions.

List of Luxembourg-registered sub-funds and funds that have suspended their net asset valuations, the subscription and
redemptions of their shares since the Madoff fraud:

The funds are Source: Commission de Surveillance du Secteur Financier in an e-mail to Bloomberg News) :
*U.S. Absolute Return of Herald (Lux)
*U.S. Equity Plus of Luxembourg Investment Fund
*American Selection of Luxalpha Sicav
*Arbitrage of Norvest
*Balanced sub-fund, Growth sub-fund et Xtra Alternative
Investments Sub-fund of GLOBAL FUND SELECTION Sicav
*Global One of Carat (Lux) Sicav
*LRI Invest Alpha Stable EUR
*BG Global Classic, BG Global Dynamic, BG Global Challenge, BG
Global Balance, BG Global Discovery, BG Stable Value of BG
Umbrella Fund
*One (c) of the fund MARS
*Best Selection of Pareturn



I know that there may other funds that are not on the list like a typical Luxembourg-made situation :

X Bermuda as custodian and X Luxembourg as sub- custodian, X being the name of the Bank in the prospectus.
"X Bermuda" is quoted 11 times "X Luxembourg" is quoted 5 times despite they are only sub-custodians.
"Luxembourg" is quoted ...25 times and "Bermuda" 58 times.

The prospectus was changed early 2000 to add X Luxembourg and the word Luxembourg to seduce European investors and have a foot in Europe. X Luxembourg would have given the money to Madoff. A big four is the auditor.

The prospectus specifies that the FUND is a British Virgin Islands business company pursuant to the BVI Business Companies Act, 2004.

The Agefi in France has reported what Charles Muller, who is deputy managing director of the ALFI, said to reassure the investor. “There does not exist any difference between the French and Luxembourg legislations as regards responsibility for the agent”, he said .
In a document the ALFI states that article 1932 of the Luxembourg Civil code makes on request weigh on the depositary “an obligation of restitution of the assets of the client.”

What does article 1932 exactly states ?

Art. 1932. Le dépositaire doit rendre identiquement la chose même qu'il a reçue.
Ainsi, le dépôt des sommes monnayées doit être rendu dans les mêmes espèces qu'il a été fait, soit dans le cas d'augmentation, soit dans le cas de diminution de leur valeur

Free translation

Article 1932. The depositary must return identically the thing as it received.
Thus, the deposit of the monnayées cashed in on sums must be returned in the same species that it was made, either in the case of increase, or in the case of reduction in their value

Should the article be applicable to investments, this would mean that in Luxembourg the investor never loose the money even though the value of shares at the Stock Exchange is decreasing or the NAV of UCITS is decreasing.

In other words, according to the ALFI, if the investor invest EUR 1 billions in Luxembourg and because of the markets the value decrease to EUR 500 million he or she can ask the professionel to receive his EUR 1 billion backj.


In a market that is decreasing I can only encourage every investor in Luxembourg that lost money in the past months to ask the for the refund of the money invested.

The ABBL recently issued a press release.


A couple of sentences are worth commenting.

LFF recently decided to develop a tool that should allow all concerned stakeholders to counter common prejudices and misconceptions about the Luxembourg financial centre. In the form of an FAQ, the tool in question will not only provide a set of ready-to-use answers for less defensive questions concerning, for example, Luxembourg’s vision for the future of its financial centre, but also effective responses to ill-informed accusations, such as those relating to the country being a tax haven that favours tax evasion; accusations that are still all too frequently levelled against Luxembourg

“ill-informed accusations” they state.

They do not analyse the reason why Luxembourg is said to be a tax haven to correct the dysfunctions:

• Why in this tiny jurisdiction the penal liability of legal persons does not exist?
• Why in this tiny jurisdiction balance sheets are not made public in a database?
• Why in this tiny jurisdiction anybody can be a statutory auditor including exotic firms from the BVI, the Seychelles and so on, that are not controlled?
• Why in this tiny jurisdiction ethics is not part of CSR, which is limited to promotion actions?
• Why in this tiny jurisdiction those who dare question on the dysfunctions are repudiated?
• Why in this tiny jurisdiction the PSF status is used by some firms, and especially confidentiality, to prevent the manifestation of the truth before the justice by intimidating former employees with a complaint even though the testimony is fair?
• Why in this tiny jurisdiction, bogus professionals, that are neither regulatory auditors nor chartered accountants, go on creating firms that are actual scams?
• Why in this tiny jurisdiction professionals who demonstrate their poor ethics and governance while having financial resources remain reputable and competent for the fellow members of their business networks?
• Why in this tiny jurisdiction money from foreign taxpayers is accepted without control, which was admitted by the former chairperson of the ABBL?
• Why is this tiny jurisdiction parliamentary parties agree quickly to change the constitution against the Grand Duke while tergiversating to implement all the international recommendations (AML, fight against corruption)?
• Why is this tiny jurisdiction the fourth estate is the financial sector that influences the political decision-making process?
• Etc.

These are not “ill-informed accusations” as all sources are public or official.

These have been building Luxembourg as tax haven for many years.

By ignoring the lax business environment that is attractive for fraudsters, LFF is not credible.


As I already wrote, banking secrecy and low taxes are criteria of tax haven. But the determining criterion is permissiveness, which is definitively met in Luxembourg, a small jurisdiction of 2500 Km2 where dysfunctions are visible but denied.

Give them a couple of months to go on like that. And look them go bust.