Ethics and governance in the European Financial centers

The UK's decision not to pursue an investigation into arms sales to Saudi Arabia is a black mark against economic transparency and judicial freedom in the country, according to Kathrin Betz from ISN Security Watch in an article titled "Britain yields to bribery and corruption".

This case was raised by Transparency International.

She observed that since 1998, the UK has been party to the OECD Anti-Bribery Convention, a binding multilateral treaty to fight corruption. The July ruling to halt an investigation into alleged corruption for reasons of public safety shows that the UK failed to fully incorporate the OECD Anti-Bribery Convention into domestic law. Read in context with recent legislative developments, this raises doubts about the UK's efficiency in fighting corruption and raises questions as to what extent national security considerations should be taken into account during corruption investigations.

And she concludes that with every new fact that comes to light in the BAE-Saudi case, the allegations will continue and the UK will have missed its chance to take a strong stance against corruption. It will also become entangled in its own anti-corruption hypocrisy.

Deputy Attorney General Mark R. Filip announced recently that the US Department of Justice is revising its corporate charging guidelines for federal prosecutors throughout the country.
The new guidance revises the Department’s Principles of Federal Prosecution of Business Organizations, which govern how all federal prosecutors investigate, charge, and prosecute corporate crimes. The new guidelines address issues that have been of great interest to prosecutors and corporations alike, particularly in the area of cooperation credit.

The approach is worth reading, especially page 18 of the Guidelines :
In determining whether or not to prosecute a corporation, the government may consider whether the corporation has taken meaningful remedial measures. A corporation's response to misconduct says much about its willingness to ensure that such misconduct does not recur. Thus, corporations that fully recognize the seriousness of their misconduct and accept responsibility for it should be taking steps to implement the personnel, operational, and organizational changes necessary to establish an awareness among employees that criminal conduct will not be tolerated.
Among the factors prosecutors should consider and weigh are whether the corporation appropriately disciplined wrongdoers, once those employees are identified by the corporation as culpable for the misconduct. Employee discipline is a difficult task for many corporations because of the human element involved and sometimes because of the seniority of the employees concerned. Although corporations need to be fair to their employees, they must also be committed, at all levels of the corporation, to the highest standards of legal and ethical behavior.
Effective internal discipline can be a powerful deterrent against improper behavior by a corporation's employees. Prosecutors should be satisfied that the corporation's focus is on the integrity and credibility of its remedial and disciplinary measures rather than on the protection of the wrongdoers.

How long can the USA go on relying on jurisdictions that do not share the same approach by notably protecting knowingly wrongdoers whatever level despite official and public evidence?



Press release

Guidelines

The Council of Europe’s Group of States against Corruption (GRECO) has published recentyly its Third Round Evaluation Report on Luxembourg. The report, which was adopted on 13 June 2008, has been made public following the agreement of the authorities. It focuses on two distinct themes: criminalisation of corruption and transparency of party funding.

In practice, the number of convictions for corruption remains very low.

The first report is the most interesting. A footnote is very relevant to explain the reason why the number of cases coming before the courts appears to be very small: Limited police access in law and/or practice to administrative and financial information at the preliminary inquiries stage, tax data base scattered over several local authorities, lack of staff in the investigating authorities, who concentrate on important and priority cases, no "whistle blowing" arrangements and in some cases reporting hindered by professional confidentiality, excessively strict rules on the burden of proof in criminal law, room for improvement in relations between the prosecution service and investigating judges, and so on (...) A prosecutor has stated that even though banking confidentiality has been relaxed in recent years, the non-banking financial sector and financial institutions such as trust funds were still very reluctant to impart information. Certain lawyers stressed the importance of relationships and networks of persons in Luxembourg society, the difficulties faced by the police in dealing with complex economic and financial crime, particularly because of lack of legal and other resources, and the ease with which companies can be established in Luxembourg. (Cf. page 18 of the report "Criminalisation of corruption" [theme I]).

This is exactly what I keep saying :
- " the importance of relationships and networks of persons in Luxembourg society" is what I called the Luxembourg system and can be demonstrated in official and public sources that are the visible part of the iceberg,
- "the ease with which companies can be established in Luxembourg" is an example what I called the fraud catalyst with for example companies with the statutory auditor located in the BVI and therefore that is controlled neither by the Luxembourg registered accountants nor the Luxembourg registered auditors : notaries should not accept that especially when the shareholder and/or the managing director does not comply with the requirement of professional standing,
- "lack of staff in the investigating authorities" and " lack of legal and other resources" : this is one of the reasons why I said that the "generous grant" to the FATF is a problem because the jurisdiction lacks means to fight economic and financial crime all the more than such grants are not a normal funding of the FATF. Additionaly, the problem is that in its report the FATF actually provided Luxembourg with recognition while the financial center does not care of GRECO and OECD working group on bribery Recs : the sentence "Thanks to a generous grant from Luxembourg, the FATF has been working to improve its information technology systems" actually demonstrates the recognition with positive words like "thanks" and "generous". The wording should have been at least more neutral like "A grant from Luxembourg allowed the FATF to improve its information technology systems". FATF statement that promotes and congratulates Luxembourg definitely weakens the credibility of the international fight againt corruption.

By the way, the ADDENDA to Compliance Report relating to the 2nd evaluation round still remains confidential.

Read press release
Read Third Round Evaluation Report Theme I
Read Third Round Evaluation Report Theme II