Ethics and governance in the European Financial centers

When one analyses the laws and regulations relating to compliance that professionals must abide by, either from international sources (FATF, European Union…) or national sources (circulars from the body responsible for the prudential supervision), these are both costly and/or do not reach the expected goal: the result may be a Potemkine Village : apparent laws, regulations, training, compliance function… but a pragmatic effect i.e. a limited effect in practice. Compliance is much more a question of “touch” than a question of knowledge.

Anyway, it is not fair to impose strong requirements when professionals do not condone issues and are willing to tighten up the ship of dysfunctions in their company and their financial centre: when tolerated negligence has unfortunately replaced pragmatism and when professionals including auditors are upset when dysfunctions are stated or condone issues even from public and official sources, this means they do not have the Professional standing they claim they have.

Furthermore, as far as the SOX requirement relating to the institution of whistleblowing is concerned, how can the subsidiaries be reliable in their ethics when every professional in the centre deny or condone even public and official issues? In this perspective, the Luxembourg case in very interesting : a dishonest employee has more opportunities to he hired than an honest one, which can be traced in official sources in this small centre where everyone knows everyone else and what others are doing, which would allow a kind of self-policing in effect and where professionals and administrators are not clear with offences such as forgery, use of forgery, false balance sheets, use of false balance sheets or unauthorised use of corporate property. There are many "red flags" that demonstrate the observation of the GRECO in 2004 that everyone sheltering behind acomplicit silence rather than running the risk of being considered indelicate (Cf. GRECO, Evaluation report on Luxembourg, 14 May 2004).

Such behaviours and thoughts that are not repudiated are not acceptable in a business world where transparency and ethics are more and more required and where means of communication allow the dissemination of news worldwide in a fraction of second. How can such professionals be aware of what money laundering and corruption are if they are not clear enough with basic offences?

Compliance Recs should be probably adapted to financial centres and financial institutions taking into account the ethics and compliance awareness: the more credible is a centre/company the less pressure it should have.

But there should be no tolerance for professionals that have replaced pragmatism by negligence and who deny dysfunctions, which standardize bad management and bad governance with all potential risks. By excluding those who do not condone even public or official issues, professionals demonstrate that their ethical and compliance framework turn out to be charade, which weaken the credibility of financial centers and financial institutions worldwide.

On 14 December 2006, the UK Attorney General (AG), Lord Goldsmith, informed the House of Lords that the Director of the Serious Fraud Office (SFO), Robert Wardle, had decided to discontinue its investigation into the affairs of British Aerospace Systems plc (BAeS) as far as they relate to the Al Yamamah defence contract. The decision had been taken following representations made both to the Attorney General and the SFO Director concerning "the need to safeguard national and international security". The announcement unleashed widespread criticism, both in the UK and externally.

Know more from Transparency International

Press release TI UK

The Wolfsberg Group is an association of twelve global banks, which aims to develop financial services industry standards, and related products, for Know Your Customer, Anti-Money Laundering and Counter Terrorist Financing policies.

The Group came together in 2000, at the Château Wolfsberg in north-eastern Switzerland, in the company of representatives from Transparency International.

The Wolfsberg Anti-Money Laundering Principles for Private Banking were subsequently published in October
2000 (and revised in May 2002). The Group then published a Statement on the Financing of Terrorism in January 2002, and also released the Wolfsberg Anti-Money Laundering Principles for Correspondent Banking in November 2002 and the Wolfsberg Statement on Monitoring Screening and Searching in September 2003. In 2004, the Wolfsberg Group focused on the development of a due diligence model for financial institutions, in co-operation with Banker's Almanac, thereby fulfilling one of the recommendations made in the Correspondent Banking Principles. During 2005 and early 2006, the Wolfsberg Group of banks actively worked on four separate papers, all of which aim to provide guidance with regard to a number of areas of banking activity where standards had yet to be fully articulated by lawmakers or regulators. It was hoped that these papers would provide general assistance to industry participants and regulatory bodies when shaping their own policies and guidance, as well as making a valuable contribution to the fight against money laundering. The papers were all published in June 2006, and consisted of two sets of guidance: Guidance on a Risk Based Approach for Managing Money Laundering Risks and AML Guidance for Mutual Funds and Other Pooled Investment Vehicles.


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