Tax Research UK

The following comes from the blog of Jerome Turquey, with permission.

Luxembourg is a “secrecy jurisdiction” of bad faith: response to the ABBL response to Tax Justice Network jurisdiction report on Luxembourg

As I expected, ABBL issued a press release to state that Luxembourg is not a “secrecy jurisdiction”:and respond to the Tax Justice Network jurisdiction index that ranks Luxembourg the as second secrecy jurisdiction.

As I said they are not asking the right question that is "What is to be done to solve issues that harm the reputation" : they are trying to fool (once more) the audience with a very bad faith that I can demonstrate.

A couple of paragraphs wants commenting.

ABBL states "the report argues that because there is apparently no data available on the number of lawyers and accountants that “Luxembourg may exhibit a significant number of lawyers and accountants when compared to other secrecy jurisdictions”. Not only is the reasoning itself undertaken in bad faith, but a simple web search would have revealed that the data on lawyers and accountants is very much publicly available, since anyone exercising any of these professions in Luxembourg is required to register with the Luxembourg Bar or the Order of Accountants, respectively (lawyers are listed on www.barreau.lu, while accountants are listed onwww.oec.lu).

TJN is based in England. As far as I know, in England and Wales, "lawyer" is used loosely to refer to a broad variety of law-trained persons. It includes practitioners such as barristers, solicitors, legal executives and licensed conveyancers; and people who are involved with the law but do not practise it on behalf of individual clients, such as judges, court clerks, and drafters of legislation.
TJN defines a lawyer as a person providing advice on the law, who prepares legal agreements or who pursues disputes through the legal system of a jurisdiction. The use of the term and the entitlement to practice as a lawyer is regulated in many jurisdictions
The word lawyer is used with this meaning in the Luxembourg corporate registration and ABBL cannot ignores that.
Examples:

In 2008
English text: "The Meeting elects Ms. Charou Anandappane, lawyer, residing professionally in Luxembourg as Scrutineer"
French text: "L’Assemblée désigne Mlle Charou Anandappane, lawyer, juriste, de résidence à Luxembourg en qualité de scrutateur"
Ms. Charou Anandappane is not a lawyer listed on www.barreau.lu

In 2009

English text: "here represented by Claire Benedetti, Lawyer, with professional address in Luxembourg"

French text: "représentée par Claire Benedetti, Juriste, avec adresse professionnelle à Luxembourg"

Claire Benedetti is not a lawyer listed on www.barreau.lu

As far as accountants are concerned an accountant is a practitioner of accountancy, which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and other decision makers make resource allocation decisions.

TJN defines an accountant as a person, usually but not always qualified by examination, who prepares accounts, offers taxation and commercial advice and who may audit the accounts of companies and other limited liability entities when that is required by law
As anyone can be a statutory auditor in Luxembourg, of which accountants, one cannot knows the number.

Minister Krecke raised the issue of accounting jobs 10 years ago. The problem remains.

ABBL states "The report fails to point out, however, that there are no trusts in Luxembourg. And while it is true that trusts can be managed out of Luxembourg, this is also the case in many non-reviewed jurisdictions (like Germany or France, for instance, which has its own trust law). Moreover, banks in Luxembourg keep track of beneficial owners"

There are many Luxembourg-registered companies where the shareholder(s) is(are) from secrecy jurisdictions and only exist in Luxembourg. So there are many statutory auditors from secrecy jurisdictions and that only exist in Luxembourg.

Controls are very weak.

ABBL states "we strongly oppose is the accusation that Luxembourg does not participate in the European Savings Directive. Just because TJN believes that only those countries that apply an automatic exchange of information participate in the European Savings Directive, does not make it so. Not only does Luxembourg apply one of the systems foreseen by the European Savings Directive, namely a withholding tax, the jurisdiction also offers clients the possibility to opt for tax declarations"
Automatic exchange of information is only part of the problem.What about the procedure initiated by the European Commission?

What does LIGFI think of the above regarding the principles of fairness, transparency, responsibility and accountability?

Richard Murphy Financial Secrecy Index

LIGFI : the genesis : Ethics and governance in the European Financial centers.

Jerome Turquey notes some interesting facts on the Luxembourg Institute that is claimning to promote financial integrity, including the fact that it has apparently been promoted by a group of former intelligence and international security experts. 

Nothing wrong with that I guess.

But not people usually associated with transparency, you have to admit.

Richard Murphy Ethics, Luxembourg

I blogged on the implausibility of the above new Institute last week. As a consequence I received the following mail from its Chief Executive:

Dear Mr. Murphy,

My name is Gibb McNeill. I am the Executive Director (also board member and president of the executive committee) of the newly established Luxembourg Institute for Global Financial Integrity.

I just read your blog on the nonprofit organization we have just set up. And I understand your skepticism.

The institute is a private, independent and impartial body that wants to address and promote ethical conduct from within the global financial sector. The institute has no hidden, or otherwise, agenda. It is not there to promote an organization, an interest group, or for that matter a country. What the institute wants is to see social responsibility and integrity become part of the business fabric of the financial sector worldwide and see the basic principles of integrity, namely fairness,transparency, responsibility and accountability commonly applied.

It so happens that a band of private citizens in Luxembourg came together just prior to the financial crisis and decided it was time to encourage ethical change in the global financial sector. The roots of the financial crisis, in our opinion, are the failure of ethical standards and practices noteworthy in some banks and other financial bodies.

We want this institute to be a global undertaking with members coming from all parts of the world and representing all bodies related to the financial sector, from banks, professional associations and service providers in the financial sector to nonprofit organizations engaged in the combat against corruption, like Global Witness and Transparency International, in passing through think tanks and policy centers.  Everyone is welcome to contribute to the effort of addressing the plethora of issues and promoting ethical conduct in the global financial sector. (I would very much appreciate if you could give me a name in Global Financial Integrity in Washington as I would like to approach the policy center about becoming involved.)

We would welcome you to join our endeavors. Your initial membership fee will be 1.250 € and your annual membership fee 250 €.  But then, as for all members, you could replace that by providing administrative support to the activities of the institute. You will find all that in the Statutes that you can consult on our website www.ligfi.org.

Finally, we would be very pleased if you agree to present a paper and make a presentation at the 10^th and 11^th December 2009 Conference on “Ethics, bank secrecy and fiscal paradise”. We want to have as many participants as we can with as many opinions as possible. That is what fairness and transparency is all about. What we want to see come out of the conference is a practical and impartial understanding of what the issues are and constructive proposals on practical and realistic solutions to them.

Please feel free to post my email on your Blog. And don’t hesitate to contact me, either by my email address or by phone at (+352) 621.644.388.

With best regards,

Gibb

Full marks for responding.

I was happy to respond, which I did, as follows:

Dear Gibb

Thanks for this mail

Forgive me if I sound suspicious; experience has taught me it is appropriate.

I note all you say and remain a little concerned. For a start I note the extraordinary fees you propose charging which are way beyond my means (and much more in the first instance than I pay a year to practice as a chartered accountant in the UK) and are, I have no doubt way beyond the means of most NGOs, let alone academics or others who might have interest. If you intended your organisation to be inclusive then this appears to be a strange way of fulfilling that objective. I would be surprised if Global Witness or TI (both organisations I know, and have worked with) have such budgets either.

Second, and forgive me for saying so, but I cannot find out from your web site (which appears very incomplete) what you are really seeking to achieve and how you define the terms you use. If I can be candid, those of us in civil society are not used to associating the word transparency with Luxembourg, for example, and recent comment from some of its politicians has not encouraged us to do so. In that case might you elaborate just exactly what you do mean by the terms you use and what practical actions your organisation might promote to further these aims so that we might have illustration of your intent?

I will, of course, be pleased to discuss these issues with you. I will also be pleased to offer a paper for your December conference. I am co-author of a forthcoming book for Cornell University Press on these issues.  Might you provide a little more indication of what you are looking for?

In the meantime I am copying this email to Tom Cardamone, managing director of Global Financial Integrity in Washington DC.

Regards

Richard Murphy

So it’s only fair to post Gibb’s reply in the interest of transparency:

Dear Richard,

Many thanks for your response. I much appreciate it.

You know suspicion is a good thing. And you have every reason to be skeptical. Actually, your comments on the press release in your blog are a reflection on how most will react to our setting up such a nonprofit organization. It is a legitimate and normal reaction.

Regarding the fees in general and those in particular for academe (the ones indicated in my email to you), we recognize that quite a few organizations do not have the means to come up with the funding. In our logic, either we have to come up with funds to cover ourselves certain expenses pertaining to the operation of the institute, or a member provides a service through its own activity that avoids us in having someone in the institute to assume it. For instance, an accounting founding member will handle the accounts for us. Another will do the press releases.

In the case of the Academe group of members we hope to have, I have no expectations that anyone will be able to come up with the fees, be it Harvard University, Transparency International or yourself. That is why in the Statutes it is indicated that a member can substitute the monetary contributions for membership fees by services provided. And the services provided by a member are essentially what it feels it can do to help. In practical terms, we all just try to work it out amongst ourselves on how the one or the other member can be helpful in making the institute work and supporting the institute in minimizing the expenses it would otherwise incur. So do think about how you could help as a member…..

Regarding the website, we just got it up and I am on a steep learning curve on how to prepare content for it. As you noted it is full of “holes”. And to be frank, what I have put up is difficult to read. I have attached the two charts on complex world and organization structure on the website that are frankly difficult to see. In working with a couple of volunteers I hope to change all that over the coming week or so.

You bring up a critical question here of words and definitions. As an old prof,  I have always been adamant with students (be them undergraduate to postgraduate) that, if they don’t  define the terms, there is no way they can talk about them. I feel that the lack of commonly accepted definitions on all terms pertaining to the financial sector, from the notion of fiscal paradise to those of corruption or tax evasion ( a crime), makes it impossible to have any viable dialogue and debate. You end up talking at people, but not with people. That is something I want to address and involve as many as possible so as to reach a consensus.

The other point taken to heart is what the institute is going to do in practical terms. In other words, what is its substance? Or, as you put it, what is its intent? I have to finalize a note on that. If agreeable, I will pass that by you and others for feedback. What is certain is that it has to do with addressing, in practical terms, issues and solutions within the framework of an open dialogue within and outside the financial sector worldwide.

We are pleased here that you are willing to present a paper at the December conference. Again, back to the website, I have not so far provided direction on the Conference. I hope to do so over the weekend. But, it essentially boils down to what you think you should contribute on that or those issues that you feel are foremost. What I would like to do here is to have a discussion amongst contributors so as to address the full range of issues without undue redundancy in papers. For the moment, I have tentative proposals from Howard Gardner at Harvard and Transparency International that need to be firmed up. I would much appreciate if you could let me know what you feel strongly about addressing, as well as any suggestions about areas other you feel need to be purposely addressed. That would be extremely helpful. We could then set up a “loop” amongst contributors to share thoughts and ideas.

I would very appreciate getting a copy of your book when available. Do you have a précis or any other materials you could share at this point in time?

Finally, I appreciate your taking the time to contact Tom Cardamone at Global Financial Integrity. I would very much like to see them come onboard in what is a “good cause”.

Very much looking forward to hearing from you,

Take care,

Gibb

The emphasis added is mine: but I simply ask this? Can you see any hint in there of a reply to the questions I raised? Is it really the case that this ‘Institute’ got as far as launching its web site and appealing for membership without resolving what it meant by ‘financial integrity’? I find it astonishing that apparently it did.

So I have sent the following reply, seeking clarification. I’ll keep you posted regarding the reply.

Dear Gibb

Thanks for your mail.

I note what you have to say about membership fees. I regret I remain quite sure you will attract very few academics or NGOs. Let me offer you example of the fees academics are used to paying for membership of research bodies. I offer example of the British Accounting Association – easily the most important research umbrella body for UK accounting academics, for which the annual membership fee is £25 per annum. Despite this it offers a very full programme. I would hope your organisation might match such rates if it is to be truly representative of opinion on the important issue of global financial integrity. Without seeking the inclusiveness that such rates would allow I cannot see how there is any prospect of you being able to claim anything bar narrow sectoral support for the opinions you have to offer.

And please forgive me for saying so, but I am disappointed that you do not seem to have answered the reasonable questions I raised. I asked “might you elaborate just exactly what you do mean by the terms you use and what practical actions your organisation might promote to further these aims so that we might have illustration of your intent?” Your response is that you have yet to draft a statement on these issues, and yet you appear confident despite that to be asking for subscriptions of up to E40,000. How is that? What do those making this payment know that I do not?

I wish to pursue these issues with you if you’ll excuse me doing so, as they seem important. First, why is it that in your mission statement you define financial integrity as relating to:

(1) regulation, oversight and enforcement of such regulation,

(2) compliance, governance and social responsibility,

(3) money laundering, and

(4) funding of terrorism and organized crime.

Why, might I explicitly ask then do you completely ignore the absolutely fundamental question of tax evasion when addressing the issue of financial integrity when Global Financial Integrity (who partner TI in some of their work) have shown that this is by far the most important issue when considering the issue of illicit financial flows?

Second, why when dealing with the issue of integrity have you so clearly avoided the issue of secrecy when it is very obvious that without the secrecy some jurisdictions provide the opportunity for abuse would be largely eliminated?

Thirdly, might I ask what the terms  fairness,transparency, responsibility and accountability, to which you refer with enthusiasm, can mean in an environment where the responsibility to pay tax in the right place, in the right amount and at the right time is ignored and when the duty to demonstrate that these qualities exist is absent because of an officially endorsed environment of secrecy, whether provided by bank secrecy, the operation of trusts or as a result of an absence of duty to place the accounts of limited liability entities on public record?

Next might I explicitly ask whether the Institute will subscribe to those standards of conduct which are now being internationally recognised: namely that tax havens cause harm, that secrecy is always undesirable, that full cooperation between governments to ensure that the payment of tax arises wherever it is due is a basic requirement of the state, and that a commitment to full information exchange to ever rising standards is a requirement of all members of the international community who wish to avoid sanction from those states committed to such processes?

Finally, might I ask that if you cannot  provide positive answer to my questions that you provide reason for not doing so?

Best regards

Richard

I look forward to the answers. This debate might run, and run.

Richard Murphy Ethics, Luxembourg, Tax Havens, Tax avoidance