Friday, October 16, 2009

Taboos and blood sports in Luxembourg

Visiting Luxembourg this week our director, John Christensen, was asked what Tax Justice Network wished to achieve in the short term. Aware of the immense political barriers standing in the way of tackling secrecy jurisdictions and those that use them, he answered that the immediate task is to raise awareness, generate debate, engage with the media, and generally put the issues on the agenda.

We have no shortage of proposals, but first we must generate an awareness that the sytem's broke, before we can fix it. We are pleased to say that now, after some difficult moments earlier this year, the debate is back on the tracks in Luxembourg.

In today's French language Le Quotidien, Rainer Falk discusses reactions to his earlier paper on illicit financial flows and the public taboo that manifestly blocks open debate in Luxembourg.

The same edition carries a long interview with John Christensen in which, amongst other things he talks about how some people treat tax evasion as a sport (but one with very nasty consequences for people in the poorest countries).

And the title of another interview in one of the more high-brow publications in the Grand Duchy reveals the opacity score which will determine where Luxembourg ranks on the forthcoming Financial Secrecy Index.

Watch this space.


Blogger Henry said...

I also wonder what the aims of TJN are. It has done a good job in drawing attention to one of the defects of existing tax systems - that "incomes" and "profits" earned by people and companies are easily avoided and evaded.

Yet it says nothing about the way in which these taxes create what in the 1980s, economists referred to as the "Tax Wedge" - the difference between benefits and the gross labour cost required to leave marginal labour with the same amount as they would receive in benefits. This was the result of a combination of the benefits withdrawal rate and Income Tax/NI. It was flagged-up by, amongst others, the Institute of Fiscal Studies, as the principal component of the poverty trap which kept people in long-term welfare-dependency and poverty.

Nor has TJN ever noted the injustice and harm arising from the differential effect of a tax system which ignores the fact that a business in Paddington is going to be more profitable than one in Penzance due to the better trading conditions in London compared to Cornwall.

As for fundamental reforms to the tax system which would address both of these problems, TJN is silent. Why?

11:11 pm  
Anonymous TJN said...

You are presumably referring to Land Value Taxes. We are not silent on these; as we have said many times in the past, we generally think they are a good idea. We also think, for example, that financial transaction taxes and tobin taxes are broadly a good idea, but we haven't made them a core element in our work partly because others are ably doing so, and partly because we've got quite enough on our plate already.

2:29 am  
Anonymous prince ecivon said...

Mr Juncker, in response to Mr Christensen's appeal to put tax evasion and secrecy issues on the agenda, declared that Luxembourg would continue to support and protect bank secrecy. To a certain extent, I understand Mr Christen's concerns but I also understand Mr. Juncker's concerns.
I am completely in agreement with Mr. Christensen when he says that it is only the lower and middle classes which primarily pay the taxes to the State whilst the rest of them have enough means (money and /ot privileges) to buy expertise to keep them from paying taxes to the State... in other words, they prefer to pay a given sum to another commercial organisation rather than paying a little more to the State.

If a State supports people to evade taxes, sooner or later, it will end up paying for that decision. If it doesn't then there most definitely is a benefit to be made, and if all other organisations make a profit, and can live with it, why should a government shun it?... after all, if they make profit, they'll reinvest it in State-owned infrastructure - be it reducing the State deficit to a certain extent.

As such, we could paraphrase what the Bible says as follows: "The State giveth, and the State taketh away." as is the case with any banking and/or insurance and/or any financial organisation in the commercial sector."

I wonder if awareness will ever come about amongst the rich when you refer them to the poor. Because "the poor" are never amongst "us" - they're like the accident prone, the old, the lower gentry - "we" are "us" whereas "they" are "them"; historically speaking, the West and the North has never gone to the East and/or the South but to plunder and loot in the past, and I don't see why that should change today!

Lets look at the European continent... and it is quite apparent that the demographics aim towards importing manpower from other continents... but can the economy sustain such growth? That is the question! Like most economies and governments of the world, Luxembourg is caught between the devil and the deep blue sea. Mr. Juncker had to make a choice and so he has... lets just wait and see where that leads Luxembourg, the EU and the rest of the world if it comes to that.

5:28 am  
Anonymous Anonymous said...

A trial is currently taking place before the French court. It involves a Luxembourg-based Company that is called Clearstream. Clearstream is a clearing house like its competitor Euroclear. It is amazing to observe that both clearing houses are located in secrecy jurisdictions: according to TJN, Luxembourg is scored 87% secrecy and Belgium is scored 73% secrecy.
Clearing is an activity of general interest for the international financial sector.
As Clearstream explains on its website, the world's entire financial system is built on trust. When assets are traded, both parties must be sure they will receive their part of the transaction. Given the complexity, speed and quantity of assets involved, a fast, secure and trusted third-party is absolutely essential for settling transactions. The business of a clearing house is therefore to ensure that cash and securities are promptly and effectively delivered between trading parties. It also manages, safekeeps and administers the securities that it holds on behalf of its customers.

It results that every financial flow uses such services including pure criminal flows, evasion flows...

The question is: should such services be born by the private sector?

I would say definitely no, especially if there is a weak regulation in the jurisdiction where the clearing house is located.

As far as Luxembourg is concerned, professional of the financial sector (of which Clearstream) admit they have a very CLOSE AND DIRECT SAY on the evolution of the Luxembourg prudential regulatory environment and that this INFLUENCE has been exerted directly and indirectly by the LOBBYING initiatives taken on the level of the different professional associations, be it ALFI or ABBL , but also and more importantly, trough a DIRECT ASSOCIATION with the Luxembourg Supervisory Authorities by means of a number of standing committees (Cf. Rafik Fischer, « Shaping the regulatory environment ». Fundlook, July 2005, page 6.)
The regulator (CSSF) states internal committees assist the CSSF in the analysis of the development of the different financial sector segments, give their advice on any question relating to their activities and participate in the DRAWING-UP and the INTERPRETATION of regulations relating to their specific field."(Website)

I do not think this is the regulated entities’ role to have a very CLOSE AND DIRECT SAY on the evolution of the Luxembourg prudential regulatory environment that is opposable to them, and to exert directly and indirectly LOBBYING initiatives. Such “close and direct say” and “influence” and “direct association “apply not only for the regulator bus as well for the parliament (many members of parliament are business lawyers).

The direct consequence is the delay to transpose Recs or regulations despite international commitments.

A very good current example is the difficulty to enforce the criminal liability of legal persons whereas it was possible to change the constitution in a couple of weeks.

The result is that in case of trial (money laundering, fraud…) courts in Luxembourg cannot use legal provisions that are delayed. In other words, the crime does not exist because of the CLOSE AND DIRECT SAY and LOBBYING and DIRECT ASSOCIATION.

Jérôme Turquey

8:45 pm  
Blogger herzfeld said...

I wonder how long it will last:

11:05 am  

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