REPUTATION: Stains on Luxembourg’s clean white shirt

LaundryAs competition is stepping up among fund domiciles to attract asset managers, reputation is crucial. Stefanie Eschenbacher reports. There are stains that never come out. Red wine, blood and grease are some of them. In the case of financial domiciles, being labelled a tax haven is one such stain. Appearing on a list of non-tax transparent countries is another. Though some of these lists may have little to do with asset management, organisations like the Association of Luxembourg Investment Funds (Alfi) will still have to defend themselves. Among those that produced such lists in recent years, were the Financial Action Task Force (FATF) and the Organisation for Economic Co-Operation and Development (OECD). FATF is an inter-governmental body established by the ministers of its member jurisdictions. Its stated aim is to promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and what it calls “other related threats to the integrity of the international financial system”. In the last FATF peer review from 2010, Luxembourg was singled out as one of the countries with the poorest record on tax transparency and combating financial crime. “Luxembourg has taken a number of steps intended to remedy these deficiencies, including the passage of a comprehensive set of legislative regulatory reforms,” says FATF, after a follow-up call from Funds Europe. Anouk Agnes, director for communications and business development at Alfi, says the FATF report was “a wake-up call for Luxembourg”. CRITICISM
Agnes says that although Luxembourg was not fully compliant at that time, it was partially compliant on many of the standards, while some of the criticism was purely formal and could be clarified easily with FATF. “Their recommendations in this regard have, in the meantime, mostly been taken on board,” she says. “Indeed, since 2010, the government has issued several laws in reply to FATF criticism.” Agnes says Luxembourg was only partially compliant because its financial intelligence unit was not sufficiently staffed. Today, the staff has roughly doubled. She says the regulator was criticised for not conducting enough onsite visits to financial institutions, which the Commission du Surveillance du Secteur Financier (CSSF) has increased. Monetary sanctions for financial institutions were considered not high enough by FATF, but Agnes says since two years ago, the CSSF has “very significantly increased the amounts of monetary sanctions”. Another point of criticism by FATF was that legal persons could not be incriminated, but Agnes says that a law introducing criminal sanctions for legal persons was adopted last year. Luxembourg was also put on the grey list of countries regarded as lacking financial transparency by the OECD in 2009. Agnes says damage to Luxembourg’s image has been a problem and is still raised in conversations, athough it “has nothing to do with asset management”. Luxembourg acted swiftly and Agnes says within a few weeks it had signed more than 12 agreements in line with the new requirements. Geoffrey Scardoni, partner at SJ Berwin Luxembourg, says the response from the Luxembourg government shows just how responsible it is on regulation. “The reputation of Luxembourg and a lot of other countries is not that good, in public opnion,” he says. “This type of event does not help, especially in a crisis, where there is a lot of finger-pointing.” ©2013 funds europe

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