“micro-states” should reinforce this common value
The rule of law is one of the “principles which form the basis of all true democracies”, according to the Council of Europe. Therefore, it is important that European countries and the European Union (EU) protect this fundamental value throughout the continent. All shortcomings and deficiencies, whether constitutional, financial or related to individual liberties, must be identified and corrected.
Therefore, the financial and tax aspect is only one aspect of the problem, but it has been particularly visible in recent years. We can actually briefly review the financial and tax files that have appeared in recent years in Andorra, Liechtenstein and Monaco.
The characteristics of the three Principalities
These cases revealed both the internal shortcomings of these three Principalities and the regulatory gaps between them and the European Union. Because of their banking and finance sectors, they have a certain influence on European markets, although they are not members of the EU. Their lightly taxed and regulated markets have been the setting for several banking lawsuits, with political implications.
But they should not be considered pariahs. They carry one common characteristic, their size. This structural aspect is far from being small, because it is “systemic” which brings a consequence: the natural proximity (or even the compatibility of functions) of those responsible for the three political, judicial and economic pillars . If we know the formula “small is beautiful” we should add “smaller is closer”. The very small size creates a structure and permanent proximity.
The magnitude of this effect, inherent in their existence, reduces both the possibilities of competition, and increases the probabilities of consanguinity, between the institutions of political power, justice, and economy. We are approaching here the notion of secrecy, more easily cultivated and kept within the framework of closed institutions.
Therefore, there is a dual need to have rules and practices adopted that develop systematic countermeasures in situations of close and compatible functions.
The following examples illustrate the difficulties encountered, and the gaps to be filled. Much has been done, but much remains to be done.
Andorra and BPA Bank
In 2015, the US Treasury, through its judicial arm (FinCEN), issued an advisory designating BPA as a foreign financial institution of primary money laundering concern. The Andorran authorities reacted immediately, confiscating the Bank’s assets, despite the elements provided by the shareholders. The latter lost the company, and the director was imprisoned. No legal action has been formally taken.
Four years later, the US Treasury withdrew its notification, and Spanish courts cleared BPA of any wrongdoing…
From this situation, we can see the inability of Andorra to implement, from the beginning, the rule of law vis-à-vis its fellow citizens, and, on the other hand, the ability of an American institution to intervene in a euro country. zone, with no European institution already, prior or parallel, involved.
Liechtenstein and LGT Bank
In 2008, German authorities revealed that the Liechtenstein Global Trust Bank had helped more than 1,300 tax evaders by smuggling €4 billion from Germany to foundations and trusts set up by the Bank. This affair threatened the stability of the Principality and affected the image of the royal family. The file was closed after Liechtenstein agreed to pay Germany a record 50 million euros.
This is illustrated by the addition of lax financial regulation and weak governance, which are also exploited by those outside the jurisdiction.
Monaco and the “Monacogate”
More recently, in 2017, French newspapers revealed that a Russian oligarch had influenced senior Monegasque officials to intervene in a personal dispute. This influential operation made it possible to mount, in Monaco, the arrest of one of its business partners. This oligarch and nine other people were charged with a series of offenses related to this arrest.
In this case, we see how jurisdictions without transparency and control bodies risk breaking down. Individuals, rich and influential thus undermine the rule of law for the benefit of their own interests.
Beyond the corrections made to the internal regulations of these three Principalities and to the banking and legal procedures in the main EU States related to them, however, there are a certain number of improvements to be implemented .
Necessary improvements to be made
At the international level, there is a “Convention on the fight against corruption” established by the OECD. The three Principalities are not part of the organization’s 38 Member States, but Russia and Argentina, which are also not members, still signed this convention.
Apart from these international provisions, it is important to consider strengthening the administration and cooperation of the Principalities with the EU.
Monaco and Andorra have been in talks with the European Union since 2015 about further integration. There is an opportunity here for Spain, which will take over the Presidency of the Council of the EU from next July, to formalize major progress, or even new formal agreements for rapprochement or reconciliation with these 2 principalities, fiscal, fiscal and judicial. Blanks.
Besides this existing framework, France proposed a “Political community in Europe” which can also be a framework for reflection vis-à-vis these three European Principalities.
Still in the context of Europe, it is also necessary to mention the strengthening of cross-agreements between each Principality and the closest European countries, France and Austria in this case.
Another area of development and improvement concerns the status and protection of whistleblowers. Their role was very important, as the Banque LGT file, mentioned above, was revealed by one of them. It is worth recalling the more recent Pandora Papers dossier, which was updated by teams of investigative journalists.
Whistleblowers play a dissuasive role, which goes in the direction of respect for the law. Therefore, it is in the EU’s interest to define a protection framework, at the institutional level.
Behind these files lies the thorny conflict between secrecy and transparency. Data exchanges, which are larger and larger, can only drive more and clearer strategies.
Beyond the borders of Europe
Finally, and with the aim of strengthening European institutions, it seems necessary to reflect on the way the American Treasury operates. It has formidable power, as it is an issuing agent for government bonds, guardian of the law, and tax collection agency. We do not have a comparable structure, on a European scale, because the EU is not federal. But isn’t it time to propose methods of coordination of the United States with a European institution, within the framework of the actions that the American Treasury has decided to carry out in Europe?
The rule of law is unified among the members of the European Union. It creates political unity and forms a backbone for all its members. It constitutes an important force at a time when the authoritarian states, China, Russia, Iran, are withering. The rule of law appears more than ever to be the great strength of democracies.
The three European Principalities may not have thought of the role they could finally and positively play in the importance of the confirmation of the rule of law in Europe, at a time of global geopolitical clashes, therefore fundamental …
Gérard Vespierre, graduate of ISC Paris, Masters in Management, DEA in Finance, Dauphine PSL, founder of the web magazine: www.le-monde-decrypte.com