Monday, September 23, 2013

Protinvest scandal exposes state capture and finance curse in tax haven Luxembourg

We've just written a fair-sized blog identifying Luxembourg's latest secrecy facility, and we have long noted the rash of ongoing scandals that continue to expose the rottenness and conflicts of interest at the heart of the Eurozone's biggest and most aggressive secrecy jurisdiction.

Now, from the Financial Times:
The head of ProtInvest, an investor-protection group, has sent a letter to Michel Barnier, an EU commissioner, in which he criticised Mr Frieden’s move to appoint his senior adviser Sarah Khabirpour to the board of the CSSF, the country’s financial regulator. The letter pointed out Ms Khabirpour also sits on the board of Banque International a Luxembourg, one of the country’s biggest banks, and is a director of the Luxembourg Stock Exchange – both institutions the CSSF regulates.
If you were looking for a case of the fox guarding the henhouse, you would be hard pressed to find a clearer case. This is a very clear case of state 'capture' - one of the central elements of offshore tax havens that we have identified in a range of publications, most recently in our short Finance Curse e-book. Today's FT spells out state capture in Luxembourg:
"Ms Khabirpour’s multiple jobs showcase the cosy relationships that tie Luxembourg’s business community, which centres largely on fund management, to its regulators and political leaders, suggests Fred Reinertz, ProtInvest’s president."
Our narrative report for Luxembourg published for the 2011 Financial Secrecy Index, which will be updated in a few weeks with plenty of new and juicy details, cites this email to TJN from a former Luxembourg businessman:
“One very important aspect of the Luxembourg financial centre is the absolutely scandalous discrepancy between the texts of the law, and their application in everyday judicial life. . . . while international pressure managed to force Luxembourg to adapt stricter legal constraints to the financial activities under its jurisdiction, looking into the lack of judicial application of said constraints becomes even more important.
. . .
Unlike in larger countries, there is no such thing as an independent representation of any civil interests in a tiny country like Luxembourg. You just don’t make it in this country unless you’ve proven your absolute loyalty to the system in place, including being ok (if not more) with all of its malpractices.”
This is just the latest in a long line of Luxembourg offshore scandals, which date back to the days of the fraudster Bernie Cornfeld, the tale of BCCI, arguably the most corrupt bank in world history, and running through to more recent episodes such as the Bernie Madoff scandal (originals here, here and here, and the European bond scandal last year, which was summarised:
"Both the investors in the Petercam bond fund and the Madoff fund investors are scathing in their criticism of the CSSF. They argue that the regulator rubber-stamped the funds and turned a blind eye to subsequent problems.
And that's just a taster of the rottenness. There is plenty more, such as this long series of complaints, containing the following:
"To all of you out there who consider depositing money in a Luxembourg based bank, who consider working in Luxembourg, who consider establishing a company in Luxembourg or who consider dealing with Luxembourg in any way, and to all of you who feel its in violation with your inner compass entering into anything that involves deception, cheating or stealing from other human beings; STAY AWAY from this country."  
We don't know the facts of this case, nor do we have a good grasp of the case outlined by our email correspondent outlined above. But it does seem that wherever you turn in Luxembourg, scandal is not far away.

Update: for more on the Finance Curse, see here.


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