Ethics and governance in the European Financial centers

A couple of months after the withdrawal of Rainer Falk’s study, the Cercle de Cooperation has just advertised a roundtable with Lucien Thiel and Jean-Jacques Rommes.



The agenda sounds interesting. The last paragraph summarised the stake: “Plus fondamentalement, la dépendance de la Nation toute entière du commerce de l’argent nous oblige-t-elle, pour ne pas sombrer collectivement dans la dépression, de faire l’impasse sur toute réflexion critique sur les effets éventuellement pervers de ce qui constitue notre plus importante source de revenus ?" (free translation: More basically, does the dependence of the very whole Nation of the trade on the money oblige us, not to sink collectively into depression, to escape any critical reflection on the possibly perverse effects of what constitutes our most important source of revenue?)

Lucien Thiel is a member of parliament. He used to be general manager of ABBL (the Luxembourg Bankers’ Association) and advisor of its board after he left to become member of parliament.
He is the one who stated last year just after the beginning of the Liechtenstein scandal that “it is not our duty to control if the taxpayer was honest”

Jean-Jacques Rommes is Lucien Thiel’s successor as General Manager of the Luxembourg Bankers’ Association
He is the one who stated this year when commenting on an evidence of tax evasion, just prior to the G 20 meeting that took place in April and the release of the famous OECD list of tax havens and other financial centers, that “It is not the banker who started”.


At the same period (11 March 2009) Global Witness published a report the finding of which corroborates Rainer Falk’s findings: Undue Diligence: How banks do business with corrupt regimes.


A couple of paragraphs about Luxembourg are worth quoting:

Page 8: HSBC and Banco Santander hid behind bank secrecy laws in Luxembourg and Spain to avoid revealing the owners of accounts they held which received suspicious transfers of millions of dollars of Equatorial Guinea’s oil money.

Page 21: Other Abacha funds were located or had been transferred through banks in Switzerland, Luxembourg, Liechtenstein, Austria and the US. As a consequence, the anti-money laundering regulations now explicitly recognise private banking as a specific risk.

Page 30: According to US Senate investigators President Obiang, pictured here, may have owned companies whose bank accounts at HSBC in Luxembourg and Banco Santander in Spain received suspicious transfers of millions of dollars from the Equatorial Guinea oil accounts at Riggs.

Page 33: Another ten transfers worth $8.1 million to the accounts of a company called Apexside Trading Ltd, nine of them at Credit Commercial de France in Luxembourg, and one at HSBC in Luxembourg, between July 2000 and August 2001.

Page 34: Global Witness wrote to Luxembourg’s regulator, the Commission de Surveillance du Secteur Financier, to ask whether it had investigated this matter and if so what action was taken, and whether Credit Commercial de France or HSBC made any suspicious activity reports regarding these transfers. It replied to say that it could not respond !

Page 35: Global Witness has a number of concerns about the effectiveness of FATF (see Chapter 9 on page 105), but even by FATF’s current standards, Spain and Luxembourg’s regulatory regimes have failed to achieve compliance with FATF’s Recommendations (…) When Luxembourg’s anti-money laundering controls were evaluated by the IMF in 2004, the legal requirement to identify customers was found to be ‘generally in line with international standards,’ but that ‘given the variety of structures operated in and from Luxembourg to legally separate the apparent from the real ownership of bank accounts and other assets managed by financial professionals there, identification of the true beneficial owner in each case, as required by law, can present a difficult challenge… this is an important risk factor ... and a threat to the reputation of Luxembourg.’ There were also ongoing risks with customer due diligence on accounts opened by ‘lawyers, notaries, accountants, auditors and other such professionals… given the scale and importance in Luxembourg of business sourced through these professionals (…) So there are question marks hanging over the issue of customer due diligence standards in Spain and Luxembourg. But that is not the only problem. Even more disturbing is the impact of bank secrecy in these jurisdictions (…) Once the questioning from the Senate investigators started, Riggs wrote under Section 314 of the Patriot Act to Banco Santander and HSBC USA, asking them to share information about the beneficial owners of these accounts. But both banks said they could not provide this information, because the accounts were opened at their affiliates in Spain, for Banco Santander, and Luxembourg and Cyprus, for HSBC. Bank secrecy laws in these jurisdictions, they both said, barred disclosure of information not only to third parties, but to staff of the same bank who were outside that country.

Page 37: HSBC USA has accepted HSBC Luxembourg as a correspondent client. HSBC Luxembourg has a client, Apexside, over whom serious questions have been raised in the US regarding the source of its funds (ie a state’s oil revenue, potentially diverted by its president), and the identity of its beneficial owner (potentially the president of Equatorial Guinea) to the point where HSBC USA might not be able to accept this client. HSBC USA cannot, however, find out about this client, and who its ultimate owner is, from its own branch in Luxembourg. How, then, can HSBC US claim to know its correspondent bank HSBC Luxembourg – which is effectively a correspondent client because HSBC US holds accounts for it – if it has no means of finding out who HSBC Luxembourg’s clients are? And how can it assess how effective HSBC Luxembourg’s due diligence is when it cannot find out anything about the clients that it chooses to take? They’re playing the jurisdiction game with their own branch standards,’ one US banking expert told Global Witness. ‘When you have cases that indicate different sets of standards, how can you accept their standards, yet say you’re upholding the higher standards?’ Global Witness wrote to HSBC to ask on what basis HSBC USA can claim to know its correspondent customer HSBC Luxembourg, when, according to bank secrecy laws which prevent the sharing of information, it has no means of finding out who HSBC Luxembourg’s clients are.

Page 38: When Luxembourg was evaluated in 2004 (against the previous version of the FATF recommendations, which were updated in 2003), it was found to be ‘largely compliant’ with the equivalent recommendation, although it was noted that ‘further steps are needed to ensure that secrecy laws do not inhibit effective implementation of AML/CFT measures.’




I will quote what Fernand Grulms (Jean-Jacques Rommes and Lucien Thiel’s fellow leader in Luxembourg) said to criticize Rainer Falk’s study: Dass nun luxemburgische ONGs ebenfalls auf diesen Zug aufspringen, ist mehr als bedenklich. Dass sie sich dabei auf derart unseriöse “Studien” stützen, ist mehr als nur peinlich. Und dass sie dafür auch noch öffentliche Gelder ausgeben – denn besagte nicht-Regierungsorganisationen werden auch mit luxemburgischen Steuergeldern finanziert – kann man als skandalös bezeichnen (free translation: The fact that Luxembourg NGOs now also get onboard that train is more than questionable. The fact that they thereby use such un-serious “studies”, is more than embarrassing. And the fact that they spent taxpayers’ money on this – because these NGOs are also funded with tax payers’ money – is outright scandalous)




Jean-Jacques Rommes and Lucien Thiel will have the opportunity to demonstrate that Luxembourg is sincere to fight tax evasion and financial crime in general, by:
- Making amend and admitting tax evasion is not fair business for the growth of the center
- accepting to criminalise tax evasion like money laundering : as tax evasion is accepted banking secrecy cannot be defended,
- accepting to reinforce sanctions for those who do not abide by the rules as sanctions are not dissuasive enough,
- accepting to cut the influence of professionals on the regulator as professionals are not supposed to give their assent to regulations that are applicable to them.
- …

I guess they probably won’t.

And watchdogs and I will continue to put their blunders in the spotlight

The Tax Justice Network yesterday launched a major new project called Mapping the Faultlines. This is the biggest and most elaborate research effort ever undertaken to look at how secrecy operates through global financial markets.

As the project brief explains, the Faultlines Project is based on a central contention: that the mechanisms that facilitate illicit financial flows result from the synergistic relationship between tax havens, or as we prefer to call them, secrecy jurisdictions and its Offshore Financial Centres (OFCs). These were defined at the project outset as follows:

1.       Secrecy jurisdictions are the legislative and regulatory spaces provided by states and microstates that encourage the relocation of economic transactions to that domain;

2.       An OFC is the commercial response to the legislative and regulatory environment of a secrecy jurisdiction by those such as accountants, lawyers and bankers seeking to profit from the opportunities the secrecy jurisdiction provides.

This distinction between jurisdictions and services providers who exploit the regulation they create is important, and is a consistent theme of the project albeit that much of the terminology we have used has changed and developed as this project has progressed. The Mapping the Faultlines project has been undertaken by the Tax Justice Network with funding from the Ford Foundation.

A very interesting analysis of tax havens is available online. Unfortunately its author is not identified.

Read analysis

I like what is said about Luxembourg: Luxembourg is an attractive place for foreigners to stash excess wealth, as the entire country (said to be among the richest in the world - in per capita terms) seems to have a rather lax attitude toward tax collection. According to one website that profiles tax havens: “although they have taxes, nobody seems to work too hard on collecting them.”

The website is the one of PT Club.

PT Club is one of the oldest privacy providers on the world wide web. They've been around since 1998 helping thousands of satisfied customers obtain true sovereignty and to protect what's left of the privacy in a legitimate manner.

They have profiled Offshore Banking Havens in a very realistic way.

Examples

Luxembourg
The RTL media empire which developed out of Radio Luxembourg has made entertainment the second largest industry in this rather staid but extremely beautiful principality. Its other claim to fame is that statistically it is the richest country in the world. Although they have taxes, nobody seems to work too hard on collecting them. The largest industry, of course, is finance. Luxembourg's history as a tax haven goes back to its 1929 holding company legislation, but as a founder member of the European Union it is under great pressure on bank secrecy issues and is having to readjust its role to compete with the likes of London and Frankfurt rather than Nassau and Road Town. Nonetheless, for non-EU residents Luxembourg gets our highest recommendation. Everything is super efficient, less snobbish than Switzerland, and personal accounts with internet banking can be opened by ptCLUB through the mail for just $500. In this country banking secrecy is part of the national culture more than anywhere else we know. As a small, rich country it has avoided the socialist problems of Switzerland where some politicians want to abolish bank secrecy. And while the Swiss apply a 35% withholding tax, investments in Luxembourg are tax free for non residents. And where else but in our beloved Luxembourg can you find the biggest banks disguising their plastic cards as guides to global time zones, or providing paper shredders for client use in branches? We recommend you to order a Luxembourg account today by contacting ptCLUB.

Switzerland
The grandmother of all offshore banking havens, this Alpine country has been providing reliable banking services for generations, and is now entering the internet age. Our $99 Swiss Bank Account is excellent value and everybody should have one or two of these fun little accounts. But the services are somewhat restricted so you might like to open full accounts. Offshore company accounts (and indeed almost any other secret banking service you may desire) are still available in Switzerland, but it's all very hush hush and you and the bank have to get to know each other for a while before they make these services available. For this reason we only introduce personal accounts to Swiss banks and after that, it's up to you. Personal accounts can be opened by mail, but the bank (and the Swiss Tourist Office) will feel much happier if you visit them once in a while. Fee is $500. Contact the club to order

Austria
As Swiss bankers became more choosy in the early eighties, Austrian bankers took their place and opened secret numbered accounts without ID. They were noted for their discretion and efficiency, and the Austrian "Sparbuch" (bearer savings account) became a world-famous anonymous banking tool. Unfortunately since Austria joined the European Union its secrecy laws have been decimated, but there are still a couple of good banks which provide an excellent service to non-Europeans. We have an excellent contact who is manager of a small private bank there and we are pleased to effect introductions for $300. Opening deposits of around $50,000 are required.
Other Austrian areas of interest are enclaves surrounded by Germany such as Kleinwassertal, but with the introduction of the Euro and the Schengen treaty eliminating borders, they are now little more than romantic hideaways for those who remember movies from the sixties depicting what was then glamorous travel but is now called money laundering. German account holders are attracted to Bregenz, a picturesque border town famous for its opera festivals, and we can obtain securities trading accounts in Bregenz by mail with no ID for a fee of $500 - but you must give details of a German bank account in order to do this. Of course, German bank accounts can be fixed too….

Belgium
Belgium, the home of the European Union's administration, is a high tax socialist state rife which is the cause of much tax evasion and bureaucratic corruption. It's third city is known as "Sicily of the North". Nonetheless we like Belgium's gritty charm and cosmopolitan attitudes. Banks here are less efficient than in neighboring states but this can be an advantage. We can now offer online bank and/or securities trading in Belgium for $500. A passport copy is required but need not be notarized. Hold mail and debit cards are available.

It is amazing to see that France and Germany are also quoted in this list of "Offshore Banking Havens "