Ethics and governance in the European Financial centers

The FATF carried out two studies. The first one on New Payment Methods and the second one one the Misuse of Corporate Vehicles.
Both were published early November 2006.

New Payment Methods

The FATF has examined the way in which money can be laundered through the exploitation of new payment technologies (prepaid cards, Internet payment systems, mobile payments, and digital precious metals). The report found that, while there is a legitimate market demand for these payment methods, money laundering and terrorist financing vulnerabilities exist. Specifically, cross-border providers of new payment methods may pose more risk than providers operating within a particular country. The report recommends continued vigilance to further assess the impact of evolving technologies on cross-border and domestic regulatory frameworks.

This report is one in a series of thematic studies carried out by the FATF to provide an in-depth look at money laundering and terrorist financing typologies. A full text of the report is available on the FATF website

See report

Misuse of corporate vehicles

The FATF has conducted an examination of the ways in which Corporate Vehicles (legal entities, including corporations, trusts, foundations and partnerships with limited liability) can be exploited for money laundering or terrorist financing purposes. The study of corporate vehicles found evidence of their misuse for money laundering / terrorist financing. The report identifies a number of risk factors and concludes that this misuse could be significantly reduced if governments have access to information about the beneficial owner, the source of assets, and the business objective of the company or trust.

This report is one in a series of thematic studies carried out by the FATF to provide an in-depth look at money laundering and terrorist financing typologies. A full text of the report is available on the FATF website. Click here to download a copy]

See report



For further information, journalists are invited to contact Helen Fisher, OECD Media Relations (tel.: +33 1 45 24 80 97 or helen.fisher@oecd.org or Spencer.Wilson@oecd.org) or the FATF Secretariat, 2, rue André-Pascal, 75775 Paris Cedex 16 (tel: +33 1 45 24 79 45, fax: +33 1 44 30 61 37 or email: contact@fatf-gafi.org).

The FMA published in a document all important cases that provide us with an overview of the legal basics and its practice in regulating the financial market of the Principality of Liechtenstein.

FMA praxis (in German)

A judgement from the Court of Appeal of Luxembourg last October 12th allows to state that a big four in Luxembourg has poor governance, which may be traced in official sources.

I. Overview of the official and public facts:

• In 1999, Mr N was appointed financial director the same day as the current Managing Partner (Source: Luxembourg Corporate Registration Memorial C # N°677 dated 9 September 1999, action dated 30 June 1999). Mr N stayed at least a couple of years as financial director (Source: Luxembourg Corporate Registration Memorial C # 1146 dated 12 December 2001, action dated 12 June 2001).
• Late 2001, Mr N quitted the big four to join a new company of the financial sector as CFO (Source: Tribunal of Luxembourg, public judgment dated 26 May 2004).
• In January 2002, in an interview the Managing Partner, stated that “firms like ours are a fish-tank of experienced staff”. (Source: Paperjam, 14 January 2002)
• Later in 2002, Mr N usurped the protected title of Chartered Accountant in the Corporate Registration, but was not dismissed despite a red flag of poor competence (Sources: Luxembourg Corporate Registration Memorial C # 918 dated 17 June 2002 and # 104 dated 3 February 2003, and Luxembourg Law on Charered-Accountants article 4 and 5): how a former financial director all the more from a firm of chartered accountants may ignore the protection of the title and the penal risk in case of usurpation?
• In April 2003, Mr N was dismissed. He worked part time till October 2003 when he joined another company of the financial sector as controller. (Source: Tribunal of Luxembourg, public judgment dated 26 May 2004)
• In 2003 Mr N decided to sue the company: to justify the dismissal the company raised competence and behaviour issues. The company wanted the CEO to be a witness: it said that the CEO is not a shareholder, but the tribunal demonstrated he is actually the major shareholder and has decision-making power (Source: Tribunal of Luxembourg, public judgment dated 26 May 2004)
• In 2005, the tribunal stated the dismissal was abusive, but the company decided to go to the court of appeal (Source: Tribunal of Luxembourg, public judgment dated 25 April 2005).
• In February 2006, the Managing Partner was invited at a roundtable chaired by the CEO who stated that the former Financial director was neither competence nor honest and did not give up after the judgment dated 25 April 2005 (Source: Codex, #2, February-March 2006, p. 89)
• In October 2006 the court of appeal stated the dismissal was justified because of the behaviour that was not the one expected from a CFO responsible for finance: he took the company car to go on vacation with his family, abused of the signature power for expanses, and used the company business card for private expanses. The court demonstrated a contradiction in his wording. (Source: Court of Appeal of Luxembourg, public judgment dated 12 October 2006 )


II. Current Situation for the big four:

We are talking about a big four senior management position in a small country where everybody knows everyone and what others are doing: this is the official motto stated by the local authorities (Source: GRECO, Evaluation Report on Luxembourg, 11-15 June 2001 p. 3 and 12, GRECO, Evaluation Report on Luxembourg, 14 May 2004, p. 13 and OECD, Report on the application of the convention on combating bribery, 28 May 2004, p. 5). It is now official that the professional who was acting as the big four financial director in 1999-2001 was neither competent nor honest:
• Who hired him, who evaluated him, what was his career in the audit firm?
• Why did he stay so long? Why was he supported despite a proved lack of competence and integrity?
• Who recommended him?
• What can be the credibility of the big four in Luxembourg when one sees the gap between what was stated (firms like ours are a fish-tank of experienced staff) and the reality at the time of the statement? Why ethical statements today would be trusted?
• Are there other “experienced professional” like that, whatever level in the organisation?

Anyway, the case of this financial director unfortunately illustrates without any doubt what Jean Nicolas Schaus, who is Managing director of the CSSF (body responsible for the prudential supervision), stated in 2004: “in too many cases, the persons responsible for reprehensible acts do not suffer the consequences with regard to the continuation of their occupation. The person responsible for such an act is often simply removed from management while being granted compensations, which largely exceed normal expectations. Sometimes, the impression could arise that crime pays, which soils the reputation of a financial centre. Moreover, it can be observed on too many occasions that when such professionals seek new employment, the new employers tend to somewhat close their eyes to the problem, while knowingly taking the risk that the persons concerned could again perform reprehensible acts” (Source: CSSF, Annual report 2004, p. 5).

Furthermore, as far as business ethics is concerned, Luxembourg is definitely a risk for head offices, including the big four’s, because of the mentality of professionals in the small place where everybody knows everyone, that was stated officially in the framework of the debate about the last AML/CFT law as specified in the Luxembourg Bankers Association’s annual report. According to the professionals, “offences such as forgery, use of forgery, false balance sheets, use of false balance sheets or unauthorised use of corporate property should not be included. These are offences with financial connotations which are confused with laundering for the sole purpose of applying exceptional powers to these vague offences” (Source: ABBL, Annual Report 2003, p. 21). In another document it is said “ambiguous” offences. Nobody repudiated this statement except the Prosecuting authorities. Besides, it is interesting to notice Jean-Nicolas Schaus’s wording above: the expression “too many” means an excess: in other word there is an accepted number of employees that are not honest.
• How auditors that have a commercial relationship with sometimes a strong financial stake may deal with such spirit of mind in their assignments?
• How auditors that “standardises” poor governance and poor management in their own business may be trusted in their assignments?


The big four ethics and governance statements turned out to be charade in Luxembourg (so turned out to be charade the motto of the small place where everybody knows everyone allowing a self-policing in effect): all members for the local board at the time when he was financial director are responsible for the case and are not reliable enough because they did support a non compliant financial director at least by their silence and inaction. All those who hired, evaluated and recommended him are not reliable enough as well.

Luxembourg is definitely a weak link for the reputation of the audit firm worldwide, which is a shame because of its strong involvement in internal control matters. The case that took place in a country where everybody knows everyone weakens the credibility of the dispute analysis & investigations services and HR services and more generally of the majority of the employees that are both competent and honest whatever department.

Luxembourg is as well a weak link for the IFAC, the FATF, the OECD, the IMF, the World Bank…, the big four Luxembourg being the visible part of the iceberg of generalised bad management and bad governance that weaken the international programs on ethics and governance.



Judgement of the Court of Appeal (abstracts in French)

"(...) L’appelante reste en défaut d’établir qu’elle a adressé des critiques et observations à l’intimé depuis juin 2002 pour redresser les carences constatées au niveau de la réalisation des objectifs à atteindre et du management des ressources humaines (...)" "n’a pas établi les différents manquements adressés à l’intimé relatifs à la mise en place des nouvelles règles comptables dictées par les normes IAS, la réduction de la ‘balance âgée client’, la négociation du contrat de bail et le déménagement dans les nouveaux locaux de la société ainsi que le désintérêt manifeste de l’intimé aux relations avec les auditeurs externes""(...) L’inexécution, voire l’exécution fautive, de ses taches de Chief Financial Officer en relation avec la tenue de l’assemblée générale de mars 2003 et les em>remarques désobligeantes prononcées (…) ne suffisent certes pas à justifier à eux seuls le congédiement intervenu" .
"La juridiction du travail saisie doit juger l’ensemble des faits établis reprochés au salarié pour conclure au caractère régulier ou abusif du licenciement".
"La Cour considère contrairement à l'opinion de la juridiction de premier degré que le dépassement considérable du pouvoir de signature limité à EUR 50 000 (…), l’utilisation qualifié d’abusive par l’appelante sans autorisation du président du conseil d’administration de la voiture de la société pour se rendre aux sports d’hiver avec sa famille ainsi que l’utilisation courante de sa carte de crédit pour ses dépenses privées, établis en cause". "(...) La Cour ne peut accorder aucun crédit aux arguments de l’intimé qui dans un premier temps affirme que l’employeur lui a fait don de ses dépenses personnelles en guise de remerciement des services rendus pour ensuite conclure à une utilisation tolérée de la part de l’employeur avec compensation des primes de fin d’années (...)".
"Les irrégularités établies et retenues à charge de l’intimé, responsable du département chargé de gérer les finances de l’employeur, sont, telles que retenues ci-dessus, de nature à rompre définitivement les relations de confiance indispensables entre employeur et un employé chargé de gérer les finances d’une société, poste à haute responsabilité"
"Le licenciement est à déclarer par réformation du jugement déféré régulier (...) l'intimé est à débouter de ses prétentions indemnitaires".