Ethics and governance in the European Financial centers

The Justice Department and IRS yesterday announced that over 14,700 taxpayers have come forward to report previously-undisclosed foreign bank accounts under the voluntary disclosure program the IRS implemented following the settlement. This figure represents almost double the initial numbers the IRS announced in October and dwarfs the number of voluntary disclosures received in 2008.

However Senator Levin observed that the deal is not so good: the U.S.-Swiss Annex, designed to compel disclosure of the names of U.S persons with Swiss accounts at UBS, is very disappointing as it complicates and muddies what should have been a straightforward agreement by UBS and the Swiss Government to disclose Swiss accounts hidden from the United States by U.S. accountholders.

Read TJN Analysis

Le Temps has reported that Patrick Odier, Chairman Association suisse des banquiers (ASB), is in favour a a new business model.

In his opinion, Clients should sign a document to confirm the money is taxed.

There would be a convergence between the fight against money laundering and the fight against tax fraud.

 Know more

The Swiss Bankers Association, which is the leading professional organisation of the Swiss financial centre, did not communicate (yet ?) on the Tax Justice Network index that was released a couple of days ago.

Because of a bad behaviour of Swiss banks in the USA every banker in Switzerland is in the spotlight with suspicion.

But as I wrote last year, there are visible differences between both European jurisdictions that may explain the delta of their respective score:

Switzerland has a Financial Secrecy Index Value of 513.40.
Grand Duchy of Luxembourg has a Financial Secrecy Index Value of 1127.02.

Communication of big four firms on fraud, corruption and other criminal business behaviours

PwC et E&Y in Switzerland participated to « Global Economic Crime Survey » for PwC and « Corruption or compliance – weighing the costs » for E&Y.
They are free to talk about criminal business behaviours.

PwC et E&Y in Luxembourg did not participate to « Global Economic Crime Survey » for PwC and « Corruption or compliance – weighing the costs » for E&Y.

PwC Luxembourg, the audit leader, focuses on the growth in a way that does not comply with IFAC.

Communication of the regulatory body

FINMA largely and regularly communicates on its investigations, its sanctions and cases law especially in the Bulletins.

The CSSF communicates only once a year in its annual report with no details. The small number of sanctions is telling. The CRF, the Luxembourg FIU, does a pretty good job and does not hide issues. The CSSF and the CRF do not describe the same situations.

Communication of judiciary judgements in general

They are available on www.bger.ch in Switwerland.

They are not available in Luxembourg. What exists currently officially is a selection of jurisprudence considered as interesting (Cf. parliamentary question Nº2550 dated 21 May 2008 and Minister of Justice’s answer dated 2 July 2008).

Number of declarations of suspicion while the center is growing

It increased in 2007 in Switzerland (Cf. MROS report dated 2008).

It decreased in 2007 Luxembourg (Cf. Minister of Justice report 2007 pp. 136 to 140)
“Although Luxembourg has steadily enacted anti-money laundering and terrorist finance laws, policies, and procedures, the lack of prosecutions and convictions is telling, particularly for a country that boasts such a large financial sector”. (International Narcotics Control Strategy Report, US Departement of State, March 2007)
“The scarce number of financial crime cases is of concern, particularly for a country that has such a large financial sector.” (International Narcotics Control Strategy Report, US Departement of State, March 2008).

Freedom of media and NGOs as watchdog

Media and NGOs play the role of watchdog in Switzerland.

Because of a public financing the press does not act as a watchdog in Luxembourg all the more than because of conflicts of interest due to the small size there is a pressure. There is no culture of investigation.
This was stated by the GRECO in a report early 2001: “the press, which has strong political affiliations, does not seem to exercise its role of public watchdog with the same vigour as in other countries. ” (GRECO Report dated 15 June 2001).
This was stated as well by the OECD in a report in 2004 : “The “watchdog” role of the media is also very limited in Luxembourg, although in some cases they have played a part, when detailed information fell in to their hands, in bringing to light suspicious behaviour. (…) According to media representatives interviewed, the shortage of financial and human resources available to the Luxembourg media generally preclude investigative journalism and consequently prevent the revelation of bribery cases” (OECD Report dated 28 May 2004).

The censorship like what happened with Rainer Falk's study about Luxembourg would not be possible in Switzerland.

Liability of legal persons

GRECO took a particularly positive view of the seizure and confiscation system and of criminal liability on the part of legal persons (See GRECO Evaluation report dated 4 April 2008).

Luxembourg urgently needs to establish liability against legal persons for foreign bribery and put in place sanctions that are effective, proportionate and dissuasive, according to a report by the OECD's Working Group on Bribery (SEE OECD report dated 20 March 2008)
Nothing is enforced as their is no will.

Transparency International

There is a TI Chapter in Switzerland
1 % of respondents in Switzerland reported they paid a bribe to obtain a service (Cf. TI Global Corruption Barometer 2007)

There is no TI Chapter in Luxembourg

Euronews has reported that Switzerland suspends tax deal with Italy because of a series of raids by Italian police on Swiss banks across Italy last week.

"Switzerland wants to negotiate with other EU member states, but these countries must behave correctly towards Switzerland", Filipppo Lombardi said.

This is a very bad reaction. Who did not behave correctly towards other jurisdictions in the first place?

The Wall Street Journal has reported that while the spotlight has been on the aggressive drive by the U.S. government to flush tax dodgers out of Switzerland, bankers here are instead grappling with the loss of a much richer clientele: Europeans

Read article

FATF today published a report about Switzerland.

According to FATF, Switzerland made significant progress.

The “Financial market crisis and financial market supervision” that was published the day before yesterday by FINMA provides a comprehensive analysis of the financial market crisis and the ensuing decisions and actions taken by the Swiss Federal Banking Commission (SFBC). None of those involved recognised in time the origins of the crisis or the full extent of the dangers it posed. Furthermore, the analysis reveals certain weaknesses and a partial lack of effectiveness in banking supervision. The report concludes, however, that the SFBC responded rapidly and decisively, and that fundamental decisions for stabilising the financial centre were made in a targeted and timely manner. The SFBC quickly learned its lessons from the crisis and implemented remedial actions.

Know more

Read the report (French)

Read summary of the report (English)

France gets a list of 3000 French taxpayers with bank accounts in Switzerland, according to a report in the weekly Journal du Dimanche . Minister Woerth interviewed by the newspapers says the accounts contained some euro 3 billion , "some of which is very likely linked to tax evasion." (original text: Nous avons récupéré les noms de 3000 contribuables détenteurs de comptes dans les banques suisses dont une partie correspond très probablement à de l'évasion fiscale).

I think that Switzerland is alone in front of the USA and now France. Where are the allies of March to protect banking secrecy?

A couple of days ago Austrian political parties have just agreed to relax the country's banking secrecy regarding foreigners, paving the way for parliamentary approval. This agreement secures the two-thirds majority needed to pass legislation that would help remove Austria from the Organization for Economic Cooperation and Development's "gray list" of countries not complying with international tax information standard.

Luxembourg was the first "financial center" to quit the OECD "grey list". But the goal was to sign the required agreements as fast as possible knowing that it will be a long shot in practice for foreign tax administration to gather all information required to formulate the request all the more than the OECD tax model includes discretionary loopholes:

In no case shall the provisions be construed so as to impose on a Contracting State the obligation:
 a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;
 b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;
 c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy (ordre public). 

The culture has not changed in Luxembourg. Definitely not.

To comment the turn over of names of suspected U.S. tax dodgers who have held 4,450 secret accounts at banking giant UBS,  "It's like a dog that's tasted the blood of its first victim (...)It's clear that the concept of a perpetually safe tax haven is a fantasy that no longer exists" said Ron Geffner quoted by Washington Post. He is a former enforcement attorney at the Securities and Exchange Commission who now heads the financial services group at Sadis and Goldberg.

Let's read what said the Department of Justice to comment the agreement:

The Swiss Government has agreed to review and process additional requests for information from other banks regarding their account holders to the extent that such a request is based on a pattern of facts and circumstances equivalent to those of the UBS case.

Associated Press has reported that Swiss banking giant UBS AG agreed today to turn over to the IRS the details of 4,450 accounts suspected of holding undeclared assets by American customers, ending an intense trans-Atlantic legal fight. UBS had feared that it might be forced to hand over as many as 52,000 clients.

In return, US authorities are to abandon their lawsuit against UBS in the US.

Despite the agreement is for only 8.5% of the target, it is a turmoil for banking secrecy.

The deal will give the Internal Revenue Service thousands of long-sought account names, and is expected to provide even more UBS clients who voluntarily disclose their financial details. UBS's American customers have until September 23 to confess to the IRS about offshore bank accounts

"This issue is not going away, and people hiding assets and income offshore will find themselves increasingly at risk due to our efforts in this area," IRS Commissioner Doug Shulman said.