May 032013
 

By Iddhis Bing, 99GetSmart

Jerome Cahuzac, May 2012. Photo: Lionel Bonaventure

Jerome Cahuzac, May 2012. Photo: Lionel Bonaventure

“What bothers me is that I still have an account open with UBS… The only way to close it is to go there? With an account open there I’m fucked, since UBS is not necessarily the most hidden of banks. It stinks. Is any sort of proxy possible?…Above all, so that the holdings somehow stay at UBS and can be managed from here. It’s a word game pure and simple.”

Jerome Cahuzac was, until March 19, Budget Minister in François Hollande’s socialist government, in charge of the enforcement of tax laws during a time of fiscal crisis and high unemployment.

Regarded as one of the more effective ministers in the new government, Cahuzac lost little time before lowering the boom. He grilled members of the new administration about their finances, pointedly asking Marylise Lebranchu if there wasn’t a zero missing from her husband’s tax declaration, and in September 2012, announced a 19.6% levy on plastic surgery, an industry with powerful clients which may have felt untouchable, not least because Cahuzac is a plastic surgeon.

On December 5, 2012, the Mediapart website published the recording transcribed above, claiming it was Cahuzac’s voice speaking to a third party about a secret Swiss bank account.1

Despite his ardent denials over the next three months – first that the voice was not his, and later that the account had been closed in 2010 – Cahuzac’s position became untenable. He resigned his post and made a public apology.

Such are the twists and turns of fate that, in November, 2012, Cahuzac announced a crackdown on tax fraud and on April 2 of this year appeared before anti-corruption judges Renaud Van Ruymbeke and Roger Le Loire to face charges of concealing his UBS account (« blanchiment de fraude fiscale »).

Undeclared income transferred to a second country – in this case, Switzerland – in order to avoid taxes in the person’s home country – in this case, France – was and is a crime. As such, the actions Cahuzac confessed to on the phone tape are but a miniscule yet revealing part of the worldwide tax avoidance game which was detailed in the Invisible Money series on this site. The scandal in France is still in its initial stages. Deniability has now been exhausted. More bankers will come under pressure from prosecutors and more information about other tax evaders will leak out.

Cahuzac was able to hold on for more than three months because of support from within the Hollande regime. Pierre Moscovici, Minister of the Economy, cleared Cahuzac of wrong doing on February 5 and publicly embraced him in the Assembly, while Prime Minister Jean-Marc Ayrault stated he had “total confidence” in his Budget Secretary. The position taken by the Socialist government raises many questions about both the veracity of their public statements as well as their competence. People in France, from different parts of the political spectrum, find the assertion that they didn’t know about Cahuzac’s hidden holdings after early December to be stretching credulity past the breaking point.

Part of President François Hollande’s response was the swift passage of the bill requiring his ministers to register their holdings in the public record. They are now available on-line; the entire country can see how much each minister is worth. While not exactly a millionaire’s club, it comes close. Hollande has spent a good deal of his time since Cahuzac’s resignation on trade trips, to Morocco and last week, China.

On April 2, Cahuzac made a public statement to the effect that he had been “trapped in a spiral of lies and went astray,” and that his UBS account, some 600,000 Euros, had not been added to in a dozen years, was closed in 2010 and the monies would be returned to France. With his rugged good looks and forthright manner it was a splendid “modified, limited hang-out,” to steal a phrase from Richard Nixon.

Reality has continued to spiral out of control since then, with more information becoming public. There remain many problems with Cahuzac’s account.

This article, although it breaks no new ground, attempts to review important aspects of the story for English-speaking readers. L’Affaire Cahuzac is much more than the story of a fallen minister: it’s an x-ray of the French class system in which one can observe how one gets ahead these days. Cahuzac’s contacts and alliances among politicians and Important People are legion as are his friendships with those behind the scene.

Tax evasion has become a way of life for those in the upper strata of society, in France as in other countries. People do what they think they can get away with, and Cahuzac’s case provides but one example of how it’s done. French newspapers speak of the “scandals doubtless to come.”

“Shit, Jerome, you’ve got a few contradictions!”

Jerome Cahuzac, 60 years old, has used the rural department of Lot et Garonne as his political base for years. Until March of this year he represented it in the National Assembly. (French law allows politicians to hold multiple positions at the same time; for a few days after he resigned his ministry he publicly toyed with the idea of keeping his elected post.)

Trained as a surgeon, he began his medical career as a cardiologist before changing, in the early ’90s, to the lucrative profession of plastic surgery, where he specialized in hair transplants.

From 1988 to 1991, he worked for the government under Minister of Social Affairs Claude Evin, on policy relating to cigarettes and alcohol as well as pharmacology and medicines. In 1993, while maintaining his plastic surgery practice, he set up Conseil Cahuzac, where he acted as a “purely technical advisor” to the pharmaceutical laboratories. At the Conseil, he worked closely with Daniel Vial, the lobbyist’s lobbyist, the man who knows everyone in the “Paris that counts.”

A member of the Socialist Party since 1977, he first ran for the National Assembly in the Lot et Garonne in 1997, picking up other offices such as regional Counsellor General and Mayor of Villeneuve-sur-Lot along the way. A rebarbative critic of the Sarkozy government’s handling of finances and debt, he was also known as the “hairsplitter” in his position as the president of the Assembly’s Commission of Finances. (In short, make a lot of noise but do little, as Edouard Perrin learned when he tried to interest the Assembly in his findings on tax evasion.) He has, at various times, either worked for or taken Michel Rocard, Lionel Jospin, Dominique Strauss Kahn and François Hollande as his mentors.

He is known to frequent the Cercle de l’Union interalliée, and is a member of the Grand Orient de France, whose ruling counsel has now asked for his suspension.

In 2000, he made the now-fatal phone recording. In June of 2008, Remy Garnier, a pol from the Lot et Garonne, tried to interest Eric Woerth of the UMP (Sarkozy’s party) in allegations that Cahuzac had a Swiss bank account. No takers. Likewise, the far-right National Front has been suspiciously quiet throughout a debacle that should play to their benefit, saying only that they believe in the presumption of innocence. In 2007, Cahuzac was found guilty of paying a Filipina maid 250 Euros a month for 40 hours work off the books. He paid a fine and later helped the woman become legal in France.

So much for the Official Story, which raises a few questions of its own.2 Let’s look at a little more closely at Jerome Cahuzac’s other life.

Although he joined the Socialist Party in 1977, he has maintained long-standing connections to the right and far right through personal relationships. Jean-Pierre Emié is a close friend of thirty four years. Emié has ties to GUD, a far-right student union and was, until 2004, counsellor to the National Front for Paris and its suburbs. It was Emié who introduced Cahuzac to Philippe Peninque, the lawyer who opened Cahuzac’s UBS account. (Peninque and Emié share an office on Rue Marbeuf.) Peninque, a militant ideologue in GUD during his student days, is one of Marine le Pen’s “shadow advisors.”

Gilles August, Cahuzac’s lawyer until earlier this month (April, 2013), is a former member of UNI, a conservative student union. Manuel Valls, Minister of Security in the Hollande government, celebrated his 50th birthday at August’s house last summer, in company with Cahuzac and numerous stars from the firmament: singers Patrick Bruel and Nolwenn Leroy, the Marseille real estate mogul Marc Pietri, TV producer Michel Drucker… Cahuzac is a militant sportif, and one of his bike partners is (or was) Patrick Sayer of Eurazeo Investment Bank, a member of the CAC40, the upper crust of the French Bourse.

Among the many clients at Cahuzac’s plastic surgery practice were former GUD militants, Philippe Peninque, Stephane Fouks of Havas Worldwide Marketing, Socialist Party leader François Patriat, as well as, by Cahuzac’s admission, one Hervé Dreyfus.

Jerome Cahuzac’s younger brother, Antoine, worked at CCF (Crédit Commercial de France) from 1985 to 1988, and again from 1994 to 2000 in a variety of different capacities before taking a senior position at HSBC Bank France.

None of this is grist for the conspiracy mill but it does establish just how deep and wide ranging Cahuzac’s contacts are within French society. When Jean-Pierre Emié complained to Cahuzac that, “Shit, Jerome, you’ve got a lot of contradictions, you’ve got robbery and delinquence in Villeneuve and you support Socialist immigration and security policy!” Cahuzac did not seize on the particulars but replied, like the song says, on a whole other level: “Who doesn’t have contradictions? You, Jean-Pierre, you don’t have any contradictions?” Cahuzac once characterised himself as a “maquisard,” a resistance fighter; a man capable of many disguises and identities. In his case, the war being fought is entirely on behalf of the career of one Jerome Cahuzac.

Reyl & Co.

If Jerome Cahuzac is the fuse that lit the scandal, the dynamite – at least the first stick of dynamite to explode – is definitely the private investment bank Reyl & Co. Or as one of Mediapart’s sources put it, “If there’s one den of thieves that has as its clients French show biz personalities, captains of industry and politicians, it’s Reyl.” 3

The history of Reyl closely parallels what we might call The Golden Age of Tax Evasion, with an explosive growth of revenue in the first decade of this century when cheating on taxes reached the level of a national sport.

Reyl & Co. was founded by Dominique Reyl in 1978 as a private management company in Geneva. For twenty years or so it was indistinguishable from dozens of other financial “boutiques.” With increased pressure from the European Union on big banks like UBS, the unregulated, extremely discreet Reyl & Co. came into its own, converting into a full-fledged bank in 2010. Its modus operandi is to advise clients how they might conceal their money behind unnamed accounts or fictive organizations, giving them the ability to disavow holdings at one of the large banks.

A massive sum of money left Switzerland in 2010, the year Jerome Cahuzac “closed” his account. New regulations had come into effect: the Swiss had agreed to furnish information about certain kinds of accounts to the EU. His money did not come back to France; it moved to Singapore, where along with Hong Kong, Reyl had established subsidiaries. From Singapore it moved “off-shore,” to fiscal paradises with names like Wind Charm Corporation, Fame Eagle Corporation, Oceania City International Inc., Sunny Ridge Group Limited, Jade Green Investments Limited, Moonlite Overseas LTD. in the Seychelles – all Reyl subsidiaries. To add yet another layer of secrecy, these transaction are carried out by middlemen like Swiss-Asia Holding Ltd., so that nothing can be traced back to Reyl or its clients.4

Further questions regarding Cahuzac’s accounts are raised by my sources in the banking industry. In his confession the ex-Budget Minister employed the figure of 600,000 Euros to describe his holdings in Switzerland. This is obviously a very strict definition. 600,000 – barely enough, as one joker commented, to buy a modest apartment in Paris – is the kind of figure held in a individual’s name, while a significantly larger amount is hidden behind the bank’s firewall. Is Jerome Cahuzac the beneficiary, either directly or indirectly, of other non-declared accounts in Switzerland? Did he only confess to the one account that could be traced back to him?

Second, Singapore law makes it impossible for non-residents to transfer money into their banks in amounts less than 1,000,000 Euros. If Cahuzac’s Swiss account was closed in 2010, and the money transferred to Singapore, as he has confessed, exactly how much was transferred? This second line of inquiry obviously casts doubt on the veracity of Cahuzac’s “confession” as to just how much money he had in Switzerland in the first place.

Who is the man on the other end of the phone line in that call from 2000? Who was Cahuzac speaking to? Obviously an intimate, at least financially. We may never know for certain but one thing we do know: undeclared money traveling from France to Switzerland does not travel by check or wire or any other traceable route. It crosses the border by suitcase or van. And for that the services of a porter are required. A discreet porter who knows how to keep quiet.

Enter Hervé Dreyfus, according to Le Temps Dominque Reyl’s half-brother, a man who is a senior partner at both Reyl & Co. and Raymond James Asset Management International (“managers for private clientele”) in Paris – an off-shore specialist. A man with a myriad of contacts, who knows how to lay low: there are few photos of him in circulation. A man Jerome Cahuzac claims he met only once – in his office, for a “transplant consultation.” They must have had a lot to talk about: Dreyfus is, or was, as bald as an egg.

If what Cahuzac says is true, Dreyfus, who has advised Nicholas Sarkozy’s ex-wife Cecilia among many others, is one of the few important people in France he doesn’t know.

Dreyfus and Cahuzac’s younger brother Antoine both worked at Credit Commercial de France in the 1990s, where Dreyfus was responsible for “portfolio management for non-resident private citizens” (according to his biography on the Raymond James site) and both men worked in European markets. It’s hard to imagine the two men not knowing each other.

Mediapart and Antoine Peillon, author of The 600 Billion Missing in France, have named Dreyfus as Reyl’s “delivery man for French affairs.” Mediapart went further: on December 10, 2012 the site flatly stated that Dreyfus is Cahuzac’s money manager. Neither Dreyfus nor the younger Cahuzac have spoken publicly since the scandal broke.

This is just the beginning. More names with secret accounts in Switzerland and elsewhere are sure to follow. The French are incensed: Gerard Depardieu at least had the grace to leave the country rather than pay. The other rich stay home, complain endlessly about taxes and hide the loot elsewhere. Cahuzac’s slow motion striptease, a little bit of truth at a time, gave them three extra months to move the money around. It will be interesting to see who flees across the border or to the prosecutor first, Jerome Cahuzac or Hervé Dreyfus. Or, to use a homely metaphor, who serves whom on a platter.

Iddhis Bing

Paris

April 30, 2013

Footnotes

1 The phone conversation was inadvertantly recorded in 2000 by Michel Gonelle, Cahuzac’s rival in the 2001 municipal elections in Villeneuve-sur-Lot (Lot-et-Garonne), on his phone machine. Cahuzac, having spoken to Gonelle, believed he had terminated the call when he began a second conversation about his private finances. Gonelle, for whom the tape was a “heavy weight” he carried for 12 years, furnished the recording to Mediapart in 2012.

2 Questions are now being asked about his privileged relationship with the pharmaceutical companies and whether it affected his work for the government in 1988-1991 and, given his access to health officials, afterward; what exactly was the nature of the “purely technical advice” he gave to Big Pharma at his consulting agency – did it amount to government access?; whether it’s true that many of his hair transplants were done off the books. Finally, what is the real extent of his wealth, and how was it acquired?

3 « S’il y a bien une officine qui avait comme clients français des personnalités du show-biz, des grands capitaines d’industrie, et des hommes politiques, c’est Reyl. » Unnamed sources can say whatever they like. Unlike the average rumor mongers, Mediapart’s sources in L’Affaire Cahuzac have been proven right. Believe what you like.

4 Swiss-Asia is a “booking platform” operating between banks and financial management companies in different countries. Its on-line prospectus says, “Swiss-Asia Holding Pte. Ltd. operates from the core of its investment universe, where proximity and access to investment opportunities make it possible to produce superior returns with a pro-active and efficient risk monitoring. While Swiss-Asia’s mission is to build a sustainable “East meets West” style of Asset Management out of Singapore and Hong Kong, its dedicated team strives itself to provide High Net Worth Individuals, Financial Institutions and Corporate clients with the best-in-class asset-management, advisory and execution services.” Which reads like it was written on Ecstasy on the sundeck of a yacht passing through the Straits of Malacca.

Plenty more Bing here: 

 

Dec 292012
 

 An Interview with Luc Frieden, Finance Minister of Luxembourg

By Iddhis Bing, 99GetSmart

Luxembourg Finance Minister Luc Frieden

Luxembourg Finance Minister Luc Frieden

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?

LF: Absolutely.

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.

LF: Yes.

*

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.

 

Iddhis Bing

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/