Ethics and governance in the European Financial centers

A recent study from the Netherland shows the new rank order of attractiveness for all of the countries in the world. For the most part, these scores are logical and make sense.

The Tierce is :

Luxembourg 55,4
Switzerland 25.7
Liechtenstein 21-20

The higher the score, the greater attractiveness to money launderers.

The ABBL (The Luxembourg Bankers' Association ) issued a press release late March 2006 that was called "Dubious report on money laundering: the ABBL responds" to regret that the Dutch study entitled “The amounts and effects of money laundering” describes Luxembourg as the world champion on the “Attractiveness index for money laundering. This press release is no longer available on the press releases list.

ML_amount_and_effect.pdf
ML_amount_and_effect_2.pdf

Text from the ABBL :

Press release
29 March 2006
Dubious report on money laundering: the ABBL responds

The Dutch study entitled “The amounts and effects of money laundering” describes Luxembourg as the worldchampion on the “Attractiveness index for money laundering”.On 21 February 2006, the ABBL already registered a protest with the Finance Minister of the Netherlands,who had commissioned this report, against the gratuitous statements made in this document and its lack ofprofessionalism.

The ABBL deplores the fact that, behind a pseudo-scientific façade, this document calls into question thereputation and standards of the Luxembourg Financial Centre in general and of its members in particular.Luxembourg is a long-standing member of the Financial Action Task Force (FATF). Its efforts to preventmoney laundering have recently been highlighted by international organisations, such as the InternationalMonetary Fund (IMF). Luxembourg was one of the first countries to impose penalties for money launderingand currently applies particularly stringent laws and practices in this area.

The ABBL has serious doubts about the methods used to draw up the study. Although it has been written byan academic institution, the conclusions do not reflect a serious scientific approach.

The assessment is arrived at using a formula with several variables. One key multiplier is GDP per capita,often regarded as an indicator of the “wealth” of a country and of its inhabitants. On that assumption, thericher a country is, the more “laundering” takes place there. Moreover, for the comparison to be pertinent inthis particular context, allowance would at least have had to be made for non-resident cross-border labourwhich represents 40% of total employment in the Luxembourg economy.

In its letter to the Netherlands Finance Minister, the ABBL particularly regretted the fact that a study of lowscientific value, which is prejudicial to Luxembourg and to its Financial Centre, should have beencommissioned by a long-standing political partner.

Contact: Fernand Grulms
59 boulevard Royal • BP13 L-2010 Luxembourg
Tel.: (+352) 46 36 60-1 • Fax: (+352) 46 09 21
mail@abbl.lu • www.abbl.lu • www.lff.lu

In the report 2004, the CSSF wrote that "In 2004, the CSSF dealt with a total of 509 communications related to the fight against money laundering and terrorist financing.It is interesting to note that 91 of these reports were made following the request of potential clientsto enter into business relations, but to which the professional of the financial sector did not respond favourably due to a suspicion of money laundering or terrorist financing. In this context, it must be stressed that often, either the professional refused to establish business relations for lack of transparent and conclusive information, or even because the documents seemed to be fraudulent or forgeries, or the clients withdrew following the professional’s request for further documents and information. It is obvious that thorough screening measures right from the outset prevent the professional from having to deal with risk clients he had better refused from the beginning. Many reports (44) were also made within the context of combating terrorist financing. This category comprises the communications that have either been transmitted to the CSSF as copies following the circulars issued by the Luxembourg Financial Intelligence Unit (FIU), or following the CSSF circulars on financial restrictive measures (freeze of funds) decided at European level. It can be observed that 86 out of the 162 credit institutions registered on the official list as at 31 December 2004 made a communication in 2004. As far as the other professionals of the financial sector (PFS) are concerned, 18 out of the 166 PFS registered on the official list as at 31 December 2004 transmitted a communication to the CSSF. It is striking that the communications of the ten professionals of the financial sector that made more than ten communications each in 2004 – i.e. ten credit institutions – make up alone half of the communications received by the CSSF in 2004 (46%). The reason why some professionals of the financial sector make a large number of reports while
others only a few, even none, can be linked to the activity and the size of the professional, as well as to the number of clients. However, although reports should not be made rashly without the professional having observed a fact that might be an indication of money laundering or terrorist financing in accordance with article 5 paragraph (1) of the law, it is important that the professionals of the financial sector, including in particular PFS, that have not reported any suspicion, or very few, reflect on this situation."

Declarations_of_suspicion_LU.pdf

There is no improvement in 2005. It is said in the report that "in 2005, the CSSF dealt with a total of 487 communications relating to the fight against money laundering and terrorist financing, which is a slight decrease as compared to 2004 (514 communications) (...) It should be stressed that the professionals that have filed more that ten reports – i.e. twelve banks and one PFS – have become even more diligent as in 2004, as the communications of these professionals represent more than half of the total number of communications received by the CSSF (about 61% in 2005 against 46% in 2004)".

Declarations_of_suspicion_2_LU.pdf



These figures mean actually that only a few professionals are active in AML. Most of them do not care about it, which is probably due to the pragmatic approach to the existing clear law and regulation.

When looking at the governmental website, it is stated in a pages called " The fight against money-laundering " that the Principality is fully aware of the necessity of combating this. The following stats are given : the progression in the number of declarations of suspicion recorded by SICCFIN, have increased from 58 in 1999 to 34 for just the first 4 months of the year 2000, engendering numerous requests for investigation, in addition to the exchange of information with TRACFIN and other foreign organisations.

The increase took place at the time of the visit of the French MPs. No more recent stats are unfortunately provided on the website. Nevertheless the SICCFIN report 2004 is available with recent stats :
- 2000 : 210
- 2001 : 307
- 2002 : 275
- 2003 : 254
- 2004 : 341

Rapport_MC_fr.2.pdf