Monday, July 13, 2009

The OECD thinks Luxembourg is clean. Pull the other one

Luxembourg, it seems from news reports, has graduated from the OECD's grey list, onto its white list. So the OECD has, in effect, declared Luxembourg to be clean. If this is the OECD's idea of a joke, it is in exceedingly poor taste. (If you are still wondering why we disagree with the OECD, you might start here and read our recipe for a better way forward here.) But first,

"Luxembourg has revised its double tax convention with Norway to include provisions for the exchange of information in tax matters. The agreement brings the number of OECD model agreements it has concluded to twelve, ranking Luxembourg as a jurisdiction that has 'substantially implemented' the internationally agreed standard in this area.

As a consequence, the Progress Report initially published by the OECD Secretariat on April 2, 2009, in conjunction with the G20 has been updated, to move Luxembourg into the category of ‘Jurisdictions that have substantially implemented the internationally agreed tax standard’."

Now let's point to something more realistic, from a truth-telling Luxembourg expert, Jérôme Turquey. He runs an excellent blog (though unfortunately his English isn't perfect; we've occasionally tinkered with his words below to aid comprehension; check the original for what he actually sent). He's written an open letter to Pascal Saint-Amans who's been a big player behind the scenes at the OECD. Turquey notes that Luxembourg won't allow "fishing expeditions" - the classic stance of a secrecy jurisdiction (which means, Yossarian-style, that you already have to know what you are looking for before you request the information) and adds a few more details. For instance, Luxembourg:

"doesn’t allow for internal criticism of the abuses because of the fear of exclusion (the auditee is the auditor’ client and can change the auditor; the internal auditor or compliance officer have a subordinate link because of their employment contract) and professionals have no ethical awareness."

This is mentioned as an aside in his blog, but we can confirm from our extensive experience of secrecy jurisdictions (tax havens, if you must) that this problem - in short, a pervasive culture of fear -- is central to the perpetuation of the abuse, the world over.

Turquey describes another pervasive problem, through an example:

"an influential member of the new parliamentary majority as a former president of the ABBL (Association Banques et Banquiers Luxembourg) stated a doctrine, that was not repudiated, according to which it is not the duty of bankers to control if the taxpayer was honest"

This is utterly crucial to the future of transparency in global finance. Will bankers simply wash their hands of the dirty money that flows through them? It is time - high time - that things changed in this respect. (Read more on an interesting TJN initiative on this here.) What we are pushing for here, among other things, is long-term cultural change.

Now how about this for an interesting statistic on Luxembourg?

"according to the CRF, the Luxembourg Financial Intelligence Unit, most banks (60%) never report any declaration of suspicion."

And this:

"criminal liability for legal persons does not exist despite an injunction from the OECD last year (Press release dated 27 March 2008)"

And you might take a look at our earlier blog for more Luxembourg mischief.

Turquey goes on to argue, just as we have done, that the OECD criterion of 12 tax information exchange agreements (TIEAs) as a condition for graduating onto its white list (which contains many a notorious secrecy jurisdictions) - is:

"a joke: it is neither fair, nor coherent"

Quite so. He proposes a different kind of index, moving away from Transparency International's hopelessly flawed but famous Corruption Perceptions Index.

Indeed. And in this context, he might want to take a look at this.


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