Ethics and governance in the European Financial centers

 

Two leaders, one in in Switzerland and one Luxembourg expressed the same idea, but they used to different words that make the difference.

 

Last year, Lucien Thiel, who is the former chairman of the ABBL and founder of the LIGFI, stated that “Ce n'est pas notre devoir de contrôler si le contribuable a été honnête” (free translation : it is not our duty to control if the taxpayer was honest)

  

Today Eric Sarasin, from Banque Sarasin in Switzerland is quoted in Le Temps. He stated that “Nos gérants n’ont pas pour mission de demander à leurs clients s’ils ont payé leurs impôt” (free translation: Our managers do not have the mission to ask their clients if they paid their taxes)

  

That the same idea but they use a different word that makes the difference: the word “Duty” for Lucien Thiel and the “Mission” for Eric Sarasin.

 

"Mission means" “4 a :  a specific task with which a person or a group is charged”  (See Merriam Webster)

 

"Duty means" “3 a: a moral or legal obligation b: the force of moral obligation (See Merriam Webster)

 

 

To avoid troubles with foreign tax administrations, why not introduce in the legislation a control of the client and refuse the money of tax evasion with a criminal liability for the banker that would help tax evasion provided that there is no loophole like the word “knowingly” in the Luxembourg AML legislation. This may be a new mission for bankers in Switzerland.

As far as Luxembourg is concerned, the word “duty” definitely raises a problem of a moral nature all the more than Luxembourg is member of the European Union.

 

 

As far as the implementation of financial regulations and the fight against tax evasion are concerned, it seems that there is another Member State that is not a fair European player: The United Kingdom.

But there is a huge difference with Luxembourg: in the United Kingdom, there are critics, either professionals or from the university, of the abuses.

In Luxembourg where there is the quasi-continuous presence of the Christian-social party (PCS/CVS), with the power since 1945, neither professionals nor the university, call into question the dysfunctions. Only the Cercle de Cooperation raised relevant questions.

 

 

 

 

 

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Switzerland is alone before the US tax admin and the US courts.

A pact existed between the jurisdictions with bank secrecy. They simultaneously accepted the OECD criteria but an unbalance was created in favor of Luxembourg because the signature of the agreements was not coordinated to leave the gray list together. Switzerland, which had affirmed the importance to coordinate points of common interest of the financial centres was fooled.

Switzerland is all the more losing vis-à-vis Luxembourg than one of its banks is blamed in the Madoff fraud. This bank acted in the framework of Luxembourg laws and regulations and of Luxembourg business practices with very high conflicts of interest.

 

Switzerland is all the more losing vis-à-vis Luxembourg than Luxembourg launched the LIGFI to improve its image without Switzerland: two Swiss (Gilbert McNeill and Rene Brülhart) are in this project but not as representative of Switzerland.

 

Switzerland is all the more losing vis-à-vis Luxembourg than its ethics is more credible than the one of Luxembourg beyond the banking secrecy: thus it was remarkably ranked by TI for the implementation of the OECD anti bribery convention whereas Luxembourg, where the criminal liabiliy legal person does not exist despite an injunction from the OECD late March 2008, was unable to provide data.

 

Know more about the differences

 

 Should Luxembourg has been proactive by a handing-over in question the last years, it would have avoided the current risks that harms the sustainability of the country.

One cannot deny the will of Luxembourg to sign agreements, but one can be only septic on the effectivity. The interpretation given by Luxembourg of Article 26 of the OECD Model Tax Convention on Income and on Capital is not the one of OECD recalled by Pascal Saint Amans, Head of division for the co-operation and tax competition: as recalled by Luc Frieden and as stated in the press releases, Luxembourg will requires evidence to provide with information v. for Saint Amans the name of a person suspected of fraud will be sufficient. That promises interesting litigations. When OECD and the States that are victims of evasion realize that the exchange is a charade, they might be angry to have been fooled..

 

The European Commission has just referredLuxembourg to the European Court of Justice over its incorrect application of the Savings Tax Directive

 

Nothing was done to correct the legal and regulatory framework  but also the business environmenet which allowed the Madoff fraud in Luxembourg. One can defend discretion on the dysfunctions (I do), in so far as the corrective actions follow: however in Luxembourg no corrective action is taken in the event of  ethical dysfunctions whatever matter. There are undoubtedly other situations of nonconformance with Directive UCITS with a related risk for the investors, who discover a country risk for the client.

 

Nothing was done to eliminate scams despite many "red flags".

 

What I am saying is not against Luxembourg but against a way of doing business that harms the ethical credibility and therefore the sustainability of the jurisdiction that deserves to be a respectable jurisdiction in the European Union.

But for that the governance wants brushing up and a cultural change is required. A small jurisdiction cannot afford a poor governance as dysfunctions are empasized in a world of communication and transparency.

 

I am afraid the communication the day before yesterday demonstrates that nothing has changed. The leader that stated that "it is not ou duty to control if the taxpayer was honest" and that is a founder of the LIGFI, showed the true colours. Luxembourg does not care of the European Union as it does not want to implement the Savings Directive that envisages the automatic exchange of information : what counts is that Luxembourg is not disadvantaged and no matter if other Member States are.