Ethics and governance in the European Financial centers

The European Commission has the day before yesterday adopted a Communication inviting Member States to carry out a general review of their anti-abuse rules in the direct tax area, in light of the principles flowing from relevant ECJ case law, – and to explore possible coordinated solutions in this field. In order to prevent tax abuse, Member States have implemented anti-abuse rules with the aim of preventing economic operators from eroding the tax base in their territory by diverting their income to other countries. Member States' existing anti-abuse rules often do not properly take into consideration the freedoms of the Treaty and are therefore increasingly challenged. In the framework of an EU-coordinated approach in direct taxation (IP/06/1827), the Commission is willing to assist Member States in bringing their anti-abuse rules in line with EC law requirements and to explore the scope for constructive and coordinated responses to the challenges faced by Member States.


Read press release

The ALFI reported that Luxembourg-domiciled funds continued to attract positive inflows in the third quarter While eleven European countries recorded net outflows.

I hope professionals in Luxembourg are aware that the risk (money laundering and fraud) is growing as well in parallel.

The worst attitude would be to be self-satisfied of the grow of the center.

I am afraid this is the case. Most professionals can’t accept the evidence of failures in the system as presented to them. So they seek to shoot the messenger instead. Those who work in the sector want to deny the truth and issues although the evidence is beyond question. To protect the reputation in the short term everyone including the media agrees to hush up issues if any.

And therefore guys who do not behave well have no reasons to change because of the support, because of a complicit silence, because of what is called "pragmatism".

So there is a difference between the legal and regulatory framework and what is actually enforced. And where there are sanctions these are so little compared to other jurisdiction that there is no dissuasive effect at all.

As I already said when there are gaps between what is said and what is seen publicly, on knows when the lie starts but one ignores where it stops. The credibility collapses.

That's why the risk is definitely growing in parallel.

And I am sad of that for this center.

Fortis, which is a major bank in Luxembourg, has this week published a press release relating to a Cheque for EUR 2,500 presented to “Les Amis de Gambie”, a charity.
The presentation was made following an in-house campaign at the bank to raise awareness of environmental protection issues. Called “Eco Vert”, the campaign was organised by the Facility Management Department and consisted of a series of actions aimed at the entire staff.
Employees had the possibility to purchase hand-made chocolates crafted in the shape of the campaign's mascot, Eco, the green owl. Some 10,000 chocolates have been sold in the space of four months, and the money will be used to finance the installation of solar panels at an orphanage under construction in Sinchu, a project conducted by “Les Amis de Gambie” in the North of Gambia.
As explained these efforts are part of Fortis's initiatives to promote sustainable development and position itself as a socially and environmentally responsible organisation.
But when looking the bottom of the press release it is explained that with a market capitalisation of EUR 40.3 billion (30/11/2007), Fortis ranks among the fifteen largest financial institutions in Europe.
Therefore the society is given 0,000000057736720554272500000000 % of the market capitalisation, which is very considerable effort for a Corporate Body that communicates on it (the society is given 0,00000371913121094912000 % of the 672.2 million euros of Net profit attributable to shareholders according to Annual Report 2006.

To be fair one must take into account every press release relating to money given in 2007 :
6 February 2007 : Cheques for a total of € 5,000 to Fondation Luxembourgeoise contre le Cancer and Info-Handicap
25 July 2007 : 4.000 euro cheque for Ligue HMC
October 2007 : EUR 2,000 cheque to ‘Réimecher Heem’
12 October : cheque for EUR 1,500 to “Haus vun der Natur”
14 November 2007 : EUR 2,000 cheque to the ‘Frënn vun de Staatléche Kannerheemer’ association
5 December 2007 : Cheque for EUR 2,500 presented to “Les Amis de Gambie”

The total is : EUR 17,000 : 0,000025290092234454000000000000 % of the net profit of EUR 672.2 million reported as well in a press release.

Additionaly the Fortis Foundation Luxembourg was launched on 15 mars 2006 with a budget of EUR 500,000 (0,000743826 % of the net profit of EUR 672.2 million) to provide financial and other support for projects promoting social progress and well-being in a broad sense (see page 46 of the CSR Report 2006)

Even though any money that is given to non profit making societies is good, this is perfect example of the wrong approach to CSR in Luxembourg as explained in a previous post. Expressed Business ethics and/or deontology is unfortunately missing despite it is the critical criteria for CSR and sustainable development for the financial organisations. A google search on the word ethics, éthique, déontologie or deontology on site:fortisbanque.lu is empty. Nevertheless to be fair, for these words but deontology there are references for a search for site:fortis.com.

The www.fortis.com has an area about CSR. Business ethics is not quoted in the Mission and vision page. But the first page of policies and guidelines is relating to integrity. How integrity can be trusted by stakeholders when firms in Luxembourg communicate on this word while publicly not complying with it?
Fortis communicates as well on its Principles of Business Conduct. But what is the value of such code for stakeholders when companies including auditors behave publicly in a way that do not comply with their own code if any?

Why Fortis commitment would be reliable?

Anyway by not repudiating publicly those who behave publicly in a way that do not comply with their own ethical statements (either fellow bankers or suppliers), Fortis Luxembourg unfortunately weakens the credibility of its own policies and guidelines in a small center like Luxembourg where there must be no gap between what is said and what is seen, implemented and enforced publicly. One knows where the falsehood starts. One ignores when it ends.

I am sad about that for the brand.