Luxembourg: Peace Broke Out

It is hard to believe, that only days after the world held its breath, because Luxembourg was drumming the tam-tam with Swiss and Austrians, and shouting “Delaware, Delaware” dancing around the sleeping tiger that the tiger would just yawn and push a paper across the table, saying: “sign here!”

Teddy Roosevelt is quoted as saying:”Speak softly, but carry a big stick.” Some people have not learned the lesson correctly and went around yelling, but had no stick at all. As a consequence, the Luxembourg Minister of Finance had quite logically to go to Canossa, in this case to the US Embassy in Luxembourg and sign the paper that was shoved over to him across the table by the US Ambassador. After fierce “negotiations” probably about the color of the ink, black or blue, there was a sigh of relief on the US side, when it was finally done. After having been placed under the ban, the Luxembourg Minister of Finance, Luc Frieden, finally had performed the required penitential ritual. Peace has now broken out.

I’m not sure about the protocol in force here. Why would a member of a sovereign Government go to an Embassy to meet an Ambassador? I concluded that if Canossa doesn’t come to you, you have to go to Canossa.
But what are those gloating comments about avoiding a generalized information exchange? Each and every bank in Luxembourg has committed to the”Qualified Intermediary” exceptions already 8 years ago. So technically it is true that in 2009 generalized information exchange was avoided. The question wasn’t on the table anymore.

Usually promises only commit the believers. The good news is that Luxembourg has kept its promise to engage on a path to comply with OECD standards. But there remains the danger that Luxembourg’s chivalry in this case will not be sufficient.

1. Some agreements live the lifespan of a rose: only a moment in time. Proof is the European Union’s commitment to keep all its members off the OECD’s lists. Several member states were duped into believing that.

2. There is more to come. Under the push of various interest groups and mostly NGOs, other aspects of the haven nature will be brought to the forefront, such as judicial havens, corruption, international transfer pricing, money laundering, extortion, piracy. Each of those controversies carry the potential of international finger pointing, of redefining existing standards and agreements and promote new regulations and compliance requirements. It is now the time to do a thorough review of Luxembourg's future exposures. For sure there are some serious shortcomings that will be highlighted with ongoing examples and personal experiences on this blog.