Ethics and governance in the European Financial centers

Richard Murphy has quoted Reuters that reported that Luxembourg does not accept the EU executive’s plan for revising the bloc’s rules on savings tax and exchange of information between member states that go further than the OECD standards adopted last week by Luxembourg.

"We continue to believe Luxembourg is not a tax haven. I have written confirmation from the OECD that Luxembourg does not qualify as a tax haven," Minister Frieden, quoted by Reuters, said.

The key question is : are the OECD current criteria relevant to define what a tax haven is?

I don't think so.

The AFP has reported that Prime Minister Juncker told journalists that French President Nicolas Sarkozy and (German Chancellor) Angela Merkel let him be known that France and Germany would not agree to Luxembourg, Austria or Belgium being put on a tax haven list.

It will be interesting to follow up the evolution of the legislations relating to banking secrecy in the three jurisdictions.

Although the three countries recently said that they would ease their banking secrecy rules to avoid being put on the international blacklist, I cannot see any legislative action to adapt their national law, which should have been a minimum to prove the commitment to relax banking secrecy prior to the G 20.

Which is the utility to implement commitments? The promises engage only those which believe them.

Reuters has reported that according to Financial experts gathered at the annual Luxembourg fund industry association's annual conference insisted the fraud orchestrated by Bernard Madoff was an unfortunate isolated incident that would not dent the country's leadership.


I am afraid that Madoff was not an isolated incident in the Luxembourg fund industry.


The Luxembourg leaders who communicate that there is agility in the decision-making process in Luxembourg thanks to a Close working relationship between the business community, the Government and the Legislator, actually demonstrate inertias in the handling of the case, because:


1) The European directive was transposed in a “pragmatic” way, which facilitated the drifts with Madoff: the pragmatic wording did not transpose faithfully the directive of 2005, which is easy to compare with the Luxembourg law of 2002;

2) Everyone is a “potential Madoff” in Luxembourg insofar as the requirement of business standing, as strictly defined by the law of 1993, is not really enforced because the relationships and networks of persons are very important in Luxembourg society, which explains the small number of criminal case before the courts. As I wrote, most of the identified operational red flags identified by EDHEC are definitely met in Luxembourg:
- lack of segregation amongst service providers,
- obscure auditors,
- heavy family influence,
- lack of disclosure,
- insufficient staff.

Everyone meets in the same associations, same business clubs... because of the small size. And nothing is done to prevent conflicts of interest.

3) At the beginning of the Madoff case, Luxembourg should have compensated the investors and negotiated in discretion with UBS: I suggested this solution in January to definitely close the file.

It its interim report dated 13 Marc 2009, the ALFI states that For Luxembourg-based funds, the Luxembourg regulator CSSF has evaluated the direct impact at 1.7 billion euros.

There is a funny substential discrepancy : the CSSF figure is about undertakings for collective investment which were impacted directly or indirectly and the ALFI figure quoting the CSSF is about undertakings for collective investment which are directly exposed

Such misleading discrepancy is not professional.


By denying the relevant issues, by not listening to lucid supports of the business, they collectively harm the credibility and the sustainability of the Luxembourg investment funds industry.