L'Or茅al trial: heiress Bettencourt's tax shelters, gifts alienate belt-tightening French
| Paris
French celebrity scandals like the one now enveloping Liliane Bettencourt, heir of the L鈥橭r茅al fortune and the world鈥檚 third-richest woman 鈥� are typically arcane soap operas of power, family, politics, sex, and money. Even by the standards of France, though, the Bettencourt affair is maxing the genre.
Ms. Bettencourt is in a ferocious dispute with her daughter over her fortune and her relations with celebrity photographer Francois-Marie Banier, to whom she gave more than $1 billion in gifts. Mr. Banier went on trial today, accused by Bettencourt's daughter of trying to defraud her mother.
But Bettencourt now turns out to have been secretly taped by her butler for a year, information that caused the trial to be suspended indefinitely. Banier's lawyer argued that it would prevent a fair trial for his client, who could face up to three years in prison. The tapes included talks with a financial adviser to hide $97 million in undeclared Swiss accounts from taxes 鈥� prompting Bettencourt to say this week she will open her books.
In Paris, this narrative of glamour and intrigue is oxygenated by $28 billion in wealth and politically incestuous overtones, since a key Bettencourt manager is the wife of a French minister, 脡ric Woerth, who is now championing belt-tightening policies such as raising the retirement age. She鈥檚 now stepped down.
But one global aspect of the story is simple: an adviser and a billionaire discussing how to evade taxes that 鈥渙rdinary鈥� people have to pay. If true, analysts say, it highlights a crime that happens daily. And it plays into rising disaffection here with elite privileges.
Swiss accounts
In an Oct. 27, 2009 exchange, the adviser says, 鈥淲e must arrange things with your account in Switzerland, we must not get caught before Christmas.鈥� Three weeks later, he says of a $65 million account, 鈥淚 am in the process of organizing its transfer to another country, whether Hong Kong, Singapore or Uruguay.... Like that you will be safe.鈥�
Release of the tapes, in fact, took place on the same day the G20 in Toronto solemnly agreed to continue cracking down on overseas tax shelters. It comes as the US Congress is passing laws to report the identities and account information of Americans overseas.
In fact, the sheer scale of wealth in tax havens hasn鈥檛 fully sunk in, analysts say. Contrary to public perception, abuse may be worse, not better, than after the 2008 economic crisis 鈥� when busting tax shelters became a temporary cause c茅l猫bre.
Wealth protected offshore is now estimated at between $7 trillion and $15 trillion. The figure is based on 鈥渉igh net-worth鈥� individuals 鈥� not corporations. That鈥檚 equivalent to a fifth or a quarter of world GDP, varying analysts say.
A 2005 figure by the Tax Justice Network, an international group of lawyers, scholars, and accountants found $11.5 trillion. 鈥淲e think it is a low estimate,鈥� says John Christensen, director of TJN. 鈥淢ost of us would be surprised today if the figure is lower than 15 trillion. Wealth management firms believe the high-net wealth category has recovered [from 2008], often with spectacular gains.鈥�
Jeffrey Owens, director of the Center for Tax Policy and Administration at the Organization for Economic Cooperation and Development, says $7 trillion is 鈥渃onservative 鈥� but even $7 trillion is big,鈥� and says the higher estimates 鈥渃ould be possible.鈥�
He argues that international resolve to crack down means 鈥渢he days of tax havens are coming to an end.鈥� Since 2008 Ireland has recouped $1.2 billion, largely from Channel Island shelters; Italy has taken in $6.8 billion; the UK some $600 million to $800 million.
Slow enforcement
Yet such figures and bold hopes pale in comparison with abuse. Some 534 bilateral agreements between states and shelters have been signed under OECD auspices since 2008. But enforcement is slow; information is by request and often late. Meanwhile, fortunes are folded into series of unregistered trusts, where accounts are opened on the third or fourth iteration of the trust, and become untraceable.
鈥淭he main problem is an incredible lack of transparency and information sharing,鈥� Mr. Christensen offers, adding that 鈥渋ndividuals and corporations are using the same mechanisms鈥� to hide money as organized crime.
Mr. Owens agrees 鈥渢rusts are becoming more sophisticated, but we are catching up. The problem has been around a long time.鈥� The Swiss Parliament just agreed to give the IRS names of 4,400 American UBS bank account holders, a future model for coming clean.
But as havens like Switzerland, Luxembourg, Lichtenstein get tougher, new trusts are appearing in Singapore, Mauritius, Hong Kong, and Uruguay. Owens says new billionaires in China are looking to park money everywhere.
Nor, as he puts it, 鈥渋s this at all a rich country problem.鈥� Up to half the wealth in Latin America is not taxed and offshore according to a World Bank study; the African percentage of offshore wealth may be higher.
In France, Bettencourt is under investigation. It isn鈥檛 clear the L鈥橭r茅al heiress herself initiated criminal behavior.
鈥淭he Bettencourt story embodies the quintessential French paradox,鈥� argues Karim Emile Bitar, editor of the Paris journal ENA. 鈥淭he French are very resentful of inequalities and privileges. They refer fondly to the 鈥淣uit du 4 ao没t鈥� [in 1789, that ended the monarchy and abolished privileges]. At the same time, every French Tom, Dick and Harry tries to maximize and protect his own privileges. He wants to eradicate abusive tax shelter deals but would vehemently protest if the fiscal authorities investigate his own books too closely.鈥�
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