Is Luxembourg a Judicial Haven?

My Orchids. Phalaneopsis. Not yet Branded. Photo ET

Is Luxembourg a Judicial Haven?

Memorandum to the Minister of Justice

Everyone knows that the Luxembourg Justice is unacceptably slow to the point of not really delivering justice. "Justice delayed is justice denied," says the proverb. It has been criticized also for its softness in general, and its ways and its gentleness towards Finance. The aggrieved investor (especially from abroad) learns it the hard way: you cannot win against the Bank in Luxembourg! And criminal penalties are so moderate that financial crime may be worth the try, and is a good investment. But the Luxembourg public tends to look away, as the general thinking is, that the justice system will never be one of their concerns. Court cases only happen to someone else. Yet this serious failing of the Luxembourg judicial system affects all of us, by the perverse effects it will simply have on the standard of living of all Luxembourgers.

When the financial center does well, everybody does well

Today Luxembourg is a gift of Finance, as Egypt is a gift of the Nile, to paraphrase a wise old man. The financial sector is critical to the living standards of Luxembourg. It represents about 38% of GDP, 25% of state revenue (our commission if I may), and occupies 63,000 people directly and indirectly. It owes its growth since the '70s largely to its reputation to accommodate tax evasion. Fortunately financial services have diversified beyond aid to organized tax evasion, which is nearing its end due to policy changes. Already the center barely pays for our standard of living. New financial services are not sufficient yet to compensate for the shortfall from the loss and extinction of the tax haven scheduled for 1 January 2015. But Luxembourg's international acceptability is back, thanks to the implementation of the automatic exchange of tax information, imposed on us from abroad. This new found respectability comes with an important price, the loss of the golden tax niche, hence income for the State. Most revealing of those shortcomings is the sudden increase of the public debt of € 12.5 billion.

Looking at this from the angle of the loss of tax revenue, it will be a serious mistake not to address the threat represented by the judicial (and regulatory) haven, the twin brother of the tax haven. This brother however is a self-inflicted wound, causing much damage without providing a single benefit to Luxembourg. It will chase away the honest customer and it already attracts the fraudster. Soon it will also be in the cross fire of the international community. Many initiatives bearing down on judicial or regulatory excesses and shortcomings internationally are originating from the  U.S. Congress, and for sure it has all ready to go texts about "judicial havens" in its  drawers. The impunity of criminal activity, the arrogance and immunity of financial institutions by word of mouth will scare the investors and embolden criminals. The way zero taxation once attracted investors worldwide, the negative connotation of the judicial haven makes them flee, ruins a reputation, and thereby inevitably revenues. But scammers take note of this new country of opportunity.

Madoff, Landsbanki, BCCI and 1,500 others

At the automn 2011 reception for the return of the judicial corps, after yet another endless 2 months summer vacation, the Attorney General Robert Biever confirmed what all criminals and their victims know: Luxembourg is a judicial haven, because Justice does not have the resources to accomplish its mission. (Nor the time left between 2 vacations). According to the Attorney General, particularly when it comes to financial crimes and money laundering, 1,500 cases have been classified and shelved due to the lack of resources from 1990-2011! Worse, the Luxembourg government is regularly sentenced as a recidivist by the European Court of Human Rights for failing to provide  justice within a reasonable time.

What conclusions can you draw from these facts, you, the thousands of victims of the Luxembourg fortress and its fraudsters such as Madoff, Landsbanki, BCCI also called "Bank of Crooks and Criminals"? Well, you're not out of the woods yet. For the first victims, whose story only started 5-6 years ago, be prepared to wait a few more years. Yes, years. I have a case that has lasted 10 years already and no end is in sight. Maybe 13 years is a realistic expectation? You now know that your rights are violated by a recidivist government. At the end maybe you will also learn that the Bank or Madoff's underlings and purveyors, will get reduced sentences due to the slowness of the Luxembourg courts, or worse, the cases might just get shelved for lack of resources. In any case, I do not wish you the BCCI treatment. Because that case has been going on for over 20 years. It affects 250,000 former customers in over 70 countries. Those, if they still live, no longer will invest a single penny in Luxembourg.

Luckily for you the victims, you are organized, such as the group of victims of Landsbanki, victims of BCCI, or at the Luxembourg watchdog Protinvest. You have allies such as Judge van Ruymbeke in France or celebrities like Enrico Macias, the famous French singer who lost a fortune in a shaky investment structure. For the time being you have know that in Luxembourg justice is delayed, thus denied, or worse, your case might be shelved for lack of resources and political will. For a financial center, that is a disastrous reputation.

The new government is working on a project of "nation branding". Priority should be to produce a pretty picture of its financial center. The over-used "best kept secret" slogan for Luxembourg no longer can mask the shortcomings and is even counter-intuitive in a world that claims transparency. Nation branding, not a cover-up of ugly circumstances, but rooted in deep reality requires deep reforms in the legal and regulatory system.  

Based on a long career in public service, I would like to see the branding around the concepts of stability, reliability, honesty, transparency and outstanding organization and infrastructure. If we add truthfulness, then we cannot only say those things, but do those things. A Luxembourg member of Parliament, Justin Turpel, just to made a start in addressing this one cancer in Luxembourg politics, the proliferation of directorships among officials and civil servants on the Boards of private companies. I know, for our Anglo-Saxon friends, this is outright corruption. And it is, a system where those officials appear to be the guardians, not of public interest, but the guarantors of general immunity during conflicts of interest, in a system where supervised supervise the supervisors.

As for you, my dear Minister, you're in a lot of luck! You have the unique opportunity to clean the stables, and you get a reputation of a demigod in doing so. And at the same time you save the main industry of the country, the financial center from mafia threats and decline, and you save Luxembourg from the disastrous disappearance of the main source of their living standards: the financial center.

Meanwhile, back to the question in the headline. The answer is a Yes!