An Interview with Luc Frieden, Finance Minister of Luxembourg
By Iddhis Bing, 99GetSmart
Of great wealth there is no real use, except in its distribution, the rest is just conceit. Francis Bacon
Tax havens and fiscal paradises, what they are and how they work, are the subject of the Invisible Money series. Some 67 trillion USD moves in and out of what is now called the “shadow banking system,” a staggering amount, enough to put EU or US budgets back in surplus if it were properly accounted for. (As if, you sigh.) The series has taken a close look at Luxembourg, a notorious tax haven, and how it manages to operate within the structure of European Union governance. Switzerland gets the bad press and deservedly so – but it is not a member of the EU. Luxembourg is, and so, beyond the dubious legality of its tax regime, questions concerning exchange of information and cooperation between EU states are unavoidable, as well as its membership in international bodies like the OECD. (Ireland and Liechtenstein also come to mind as a kind of Premiere League of EU tax havens.)
As noted elsewhere in the series, Luc Frieden is public point man for Luxembourg’s ingenious interpretation of European law. Frieden is the heir apparent in Luxembourg and he, not Vice-Premier and Foreign Minister Jean Asselborn, takes the lead in the tricky business of fending off attacks on Luxembourg’s status quo. He is on record as saying, “Our financial approach is totally European and applies all laws in the struggle against financial criminality.” But what goes on in Luxembourg, stays in Luxembourg.
Readers of Nicholas Shaxson’s Treasure Islands will remember more than one instance of the rebuffs inquiring reporters got when asking around about who’s who and how things work. Things can even get lethal in places like the Cayman Islands or at the very least, damn unpleasant if you ask too many questions on the isle of Jersey. Hence, getting the top dog to answer questions is a bit of a coup.
Although there is no “gotcha” moment in the interview, it is instructive to watch a member of what used to be called the permanent government bob and weave, fending off attacks and keeping the truth at a comfortable remove. Governors of fiscal paradises only rarely make a public defense of their actions. This short transcript serves as an open window into a closed house.
The interview with Luc Frieden is part of Edouard Perrin’s documentary. It can be seen in full here
Elise Lucet is the interviewer for the Cash Investigations series. Lucas Frieden is the Minister of Finance in Luxembourg’s Juncker/Asselborn government and is the man in charge of their extremely laissez faire fiscal regime, which, one is inclined to believe, he knows something about.
Cash Investigations: We’ve seen a lot of those documents. They cover Liechtenstein, the Caymen Islands and… Luxembourg. If we’re talking about tax havens, we find you, Luxembourg, in the middle of those schemes.
Lucas Frieden: We abide by European law, which is not the case with all the countries you just mentioned. We should be compared to the UK and the Netherlands.
CI: So you reject the term tax haven?
LF: Absolutely. It’s an insult to my country because Luxembourg abides by every single OECD convention and we work in close cooperation with every single EU state. You cannot prove that Luxembourg does not adhere to EU law.
CI: But we’ve seen all the [tax haven] schemes and you’re in league with those countries. You say it’s an insult to your country to be called a tax haven but you are always mentioned with those other countries. So, according to you, are Liechtenstein and the Caymens fiscal paradises?
LF: I’m not sufficiently versed in the tax laws of those countries or regions to be able to judge.
CI: You’re kicking off-side.
LF: No, I don’t want to judge in a superficial manner.
CI: If a large French company makes use of a subsidiary in Luxembourg, a non-active subsidiary, and succeeds in avoiding taxes in France, what happens?
LF: If it’s contrary to European law, and if the French mention it to us, I will take care to make sure it doesn’t happen.
CI: You won’t bring it up yourself?
LF: I would only be aware of it if the French tell me there’s a problem.
CI: You can guess that this presents a problem –
LF: You suppose that it’s always that way but you never raise a question about whether a contrary might exist. When laws are not the same in every single country, it is highly possible that a company in another country reduces their taxes somewhere else through a subsidiary. It’s not against the law. If there are abuses, I will make sure they are stopped because I don’t want to live off another country, to which we owe so much and with which we enjoy excellent relations.
CI: So you will stay with this approach?
CI: If you pledge that in the future there will be contact between your country and other countries and say, here we are, we are going to sign these agreements, would that not be to the detriment of the services you offer?
LF: I could imagine that that could be one way of doing things. Once again, with respect to European law, to enhance cooperation between European countries –
CI: So, according to you it’s a bit shocking –
LF: The way you present things, yes, because it suggests that people escape their own legislation.
CI: That’s the impression we got. Frankly, we looked at the activity of those companies, British and French, in your country, and they are not strikingly active here in Luxembourg. What is striking is the absence of real activity here in your country.
LF: I am not an expert regarding shell companies but one does not need to have many employees to be able to say it’s a real company. There are rules, European and OECD rules, regarding a stable company.
CI: When a French company has an office which it shares along with 31 other subsidiaries and where, quite blatantly, nothing goes on except for financial movement, for you as Finance Minister in Luxembourg, is this something you find shocking? I need to know your real position on this.
LF: Yes. If the description you made is accurate, I find it unacceptable.
CI: When the ATAs allow GlaxoSmithKline, for example, to avoid paying 40 million in taxes in their country, it’s a problem, isn’t it?
LF: Yes, I agree.
CI: By the way, it created problems with Revenue in the UK.
LF: Yes. I fully understand that but we have to know what the solution to such problems would be because creating subsidiaries is not illegal per se.
CI: If they are void of any real substance, it raises serious questions.
Apart from his sterling manners, Frieden’s defense essentially reduces to I have no way of knowing and when pushed, prove we’re breaking the rules – all of which beggars belief coming from the mouth of a government minister. It hardly seems enough – but it’s working. Interestingly, Frieden points his finger – correctly – at the UK, by which he means the City of London, certainly the greatest facilitator of illegal cash flows in the world today. (We’re just small fry around here.)
And as we shall surely see sooner rather than later, everyone is involved, from pop stars to budget ministers. Does that mean Luc Frieden again ? No, Jérôme Cahuzac in France. When Perrin’s documentary won the Louise Wiese Award, the French journalist Paul Moreira said in dismay, “Edouard Perrin’s stunning investigation wins the Louise Weiss Prize and the Budget Ministry completely fails to react… We’re not talking about peanuts but tens of billions of Euros. It could give the Budget Ministry a few ideas.” In early December the website Mediapart published an inadvertant phone recording of Budget Minister Cahuzac discussing his secret Swiss account. (Not enough to cost him his position, so the experts say. Even Copé has rushed to his defense.) Pardon the Minister if he doesn’t get too tough on Luxembourg. He understands the need for secrecy, for putting a little aside for a rainy day. And dammit, if he had just hung up the phone correctly, none of this would be public. The Cahuzac interlude is a portrait, in miniature, of the way the system survives and flourishes.
Interestingly, in November, Avinash Persaud, no small fry himself (Chairman of Intelligence Capital Limited, Senior Fellow with the Caribbean Policy Research Institute and Co-Chair of the OECD Emerging Market Network) speculated that when push comes to shove, countries like Luxembourg would go along with a reform that puts the places like the Cayman Islands out of business. “The large financial centres are going to try, and have been trying, to strangle the Caribbean banking sectors,” Persaud stated. A bit like a declaration of war.
Where does that leave us ? Is it nearly High Noon among the warring Secrecy and Acquisition Clans ? Every system has the limitations particular to it built in, and it’s no surprise to learn that capitalists despise each other and will, under pressure, turn other members of their class out. So, please, enough of the polite manners. For the next act, the crocadiles, under the increasingly watchful eyes of the crowd, will tear each other to pieces. Stand back, ladies and gentlemen. The show is just getting under way.
For the full text of Invisible Money 5, see elsewhere on this site or Ground Report/Iddhis Bing.
Invisible Money Series by Iddhis Bing:
– Invisible Money 1: How It Gets That Way: http://99getsmart.com/?p=4736
– Invisible Money 2: Voyage to Luxembourg: http://99getsmart.com/?p=4914
– Invisible Money 3: http://99getsmart.com/?p=5319
– Invisible Money 4: Of Luxembourg, London and Paris, and a Lady Named Merkiavelli: http://99getsmart.com/?p=5411
– Invisible Money 5: The cloud Factory Revisited Up The Ladder, Marius Kohl to Luc Frieden: http://99getsmart.com/invisible-money-5-the-cloud-factory-revisited-up-the-ladder-marius-kohl-to-luc-frieden/