Ethics and governance in the European Financial centers

Liz Moyer and Tatyana Shumsky from Forbes have recenttly published an article relating to the World's Top Tax Havens
They observe that traditional venues like Switzerland, the duchies of Lichtenstein and Luxembourg and Caribbean paradises like the British Virgin Islands are finding competition from the U.S., where lawyers in seven states, such as Nevada and Alaska, are muscling in, looking to grab business from the world's wealthy

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The FATF recently revised its Methodology for Assessing Compliance with the FATF 40 + 9 Recommendations. It is the methodology followed in the mutual evaluation program to assess countries’ anti-money laundering and counter terrorism financing (AML/CFT) systems.

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According to the last OECD report that was approved and adopted by the Working Group on Bribery
in International Business Transactions on 20 March 2008, Luxembourg urgently needs to establish liability against legal persons for foreign bribery and put in place sanctions that are effective, proportionate and dissuasive, according to a report by the OECD's Working Group on Bribery. The bill currently before Parliament, designed to introduce this responsibility in Luxembourg law, should be amended to ensure that it meets the requirements of the OECD Anti-bribery Convention.

Despite a couple of improvements, 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.
The Working Group is particularly concerned about the continuing absence of liability for legal persons that engage in bribery. While a bill has been placed before Parliament dealing with the criminal liability of legal persons, the report highlights gaps in the bill which, if adopted in its current state, would fall short of the requirements of the Convention. Luxembourg should establish a rule for attributing acts of bribery to legal persons that is sufficiently broad to give full effectiveness to the liability of legal persons: the criterion of an act committed "by one of the legal bodies or by one or more members of its legal bodies", as included in the bill before Parliament, seems too restrictive, as it excludes most operational organs or structures. It is also essential that the liability of legal persons be subject to effective sanctions: the fine imposed must be severe enough to be dissuasive. Furthermore, the bill should expressly recognise the jurisdiction of the Luxembourg courts over offences committed outside the national territory by legal persons of the Grand Duchy.
It is also important for Luxembourg to take a more proactive approach in encouraging SMEs to comply with stricter ethical standards when they are looking for business abroad. A system for protecting whistleblowers should also be introduced. Furthermore, the report asks Luxembourg to take whatever steps are needed to facilitate the work of the judicial authorities in obtaining information from Luxembourg financial institutions.

The same 20 March PwC Luxembourg, the audit leader that does not like to tell about economic crime in Luxembourg, published a report called "Opportunities and Competitive Re-positioning of Luxembourg Private Banking by 2012 and 2015 " with the view of providing a sense of purpose shared by all the Luxembourgish stakeholders of the private banking sector and guidance for the development of coherent capacities to sustain the cluster in the long-term.

The publication at the same time of both reports wants commenting: on the one hand the OECD points out persistent dysfunctions, on the other hand PwC Luxembourg and actors do not care of international recommendations or requirements, and go on in their headlong flight. It is telling that PwC Luxembourg report do not points out the risks because of the lax environment. It is only stated
page 9, the « high commitment to regulatory compliance », which is by the way not compatible with the OECD report ,
page 37, the contact person for compliance assignments,
page 27-28, tax fraud and tax evasion but in the limited framework of the Double Tax Treaties.

The delay to implement the OECD recs in a country where the small size should facilitate the legal and regulatory reactivity is telling. Financial stakes are so important that everyone including local big four firms do not take their actual responsibilities, and are delighting with conflicts of interests not to say corruption that they do not repudiate.

Time is up for head offices, either bank head offices or audit head offices, so smell the coffee and realise the risks for their brand in a center where both politicians and professionals definitely do not do their duty.