Ethics and governance in the European Financial centers

Angel Gurria, OECD Secretary-General, recently said in the framework of the Conference on the 50th Anniversary of the OECD Model Tax Convention that "Co-operation is required to ensure that taxes do not become the last barrier to expanding cross-border trade and investment, but also to ensure that taxpayers pay the right amount of tax, at the right time and in the right country. It is worrisome to see some countries that still try to attract tax evaders worldwide through secrecy and lack of transparency. It is also worrisome that some financial intermediaries still make a business out of that and promote the use of tax havens (...) it is time to stop these practices by increasing international co-operation to counter them."

I guess he did appreciate what Lucien Thiel, former chairperson of the Luxembourg Bankers Association said early 2008. This important leader from the banking sector admits that banks do not control the client’s honesty: He stated just after the beginning of the Liechtenstein affair that “It is not our duty to control if the taxpayer was honest” and "Banking secrecy remains : Luxembourg is not compelled to communicate its clients'data." (In L'Essentiel, 27.02.08).

Mr Lucien Thiel is a respected leader whose statements reflect and influence the business behaviours in Luxembourg. He clearly confirms that Luxembourg does not care of the taxpayer's honesty. This is true for tax fraud as well as for tax evasion. Hence the use of entities from the BVI and similar jurisdiction in the setting up of Luxembourg registered companies as traced in the Corporate Registration.

But anyway Luxembourg is a jurisdiction that may provide "generous grants" for which it is thanked...

I went through the "Mémorial C" in Luxembourg to see to what extend exotic jurisdictions are connected to Luxembourg-registered companies, with the view to determine whether situations met may be a scam involving a number of economic entities including legal persons located in risky far jurisdictions like the Seychelles, the BVI..., or simply are the creation of a company that optimise tax at an international level. One may criticize tax optimisation but that was not my concern in the assessment.

To determine dubious situations for the reputation of the Luxembourg jurisdiction, a couple of "red flags" should be taken into account :

I. ABOUT THE LUXEMBOURG-BASED COMPANY

Is it a sector of money laundering?
Is there a twin company: same or similar object, same individuals?
Does the object allow the company to act at an international level?
Is the managing director non compliant with the requirement of every guaranty of irreproachable conduct as stated by the legislation (especially an individual that was proved to have used without shame for private expanses the money of a previous company he worked for cannot be appointed managing director and/or administrator as he/she may start again what may be called "unauthorized use of corporate property")?
Is there a turnover of administrators?
Is there a turnover of statutory auditors?
Is the statutory auditor not a chartered auditor member of the IRE or or chartered accountant member of the OEC i.e. not controlled by these organisations?
Is the company only quoted in the corporate registration with no visible economic reality (an office mentioned in the yellow pages, a website, employees, brochures, Ads...)?

These items are not exhaustive. Each answer "yes" is a red flag.

II. ABOUT THE EXOTIC-BASED COMPANY

Is the company acting as the statutory auditor of the Luxembourg-based company?
Does the company appear recently in the Corporate Registration in Luxembourg?
Is the company only quoted in the corporate registration with no visible economic reality (an office mentioned in the yellow pages of its jurisdiction, a website, employees, brochures, Ads...)

These items are not exhaustive. Each answer "yes" is a red flag.


The more "yes" are observed, the more the fraudulent situation is built.

Many dubious situations are visible in the "Mémorial C" and are a risk for the reputation of Luxembourg because we are no longer in a question tax optimisation that may be defended. Dubious companies should not be accepted anymore. Time is up to separate the wheat from the chaff, and to not forget hearing before the US Senate a couple of weeks ago with the new state of mind that can be summarized in a couple of words: "Billions and billions of dollars worth of U.S. assets find their way into these secrecy tax havens, aided by banks, trust companies, accountants, lawyers, and others. (...) Tax havens are engaged in economic warfare against the United States ".

Philip Robinson, Financial Crime & Intelligence Division Director at the FSA, did a speech last 3 September.
He stated that "Where there’s evidence of fraud and dishonesty, regulators, professional bodies and law enforcement all have differing combinations of powers to take against offenders. And government agencies and trade bodies all have interests in the housing market being clean and efficient."
The FSA communicates any time there is an issue, which is a good thing and its fines are dissuasive enough.

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