The role of the French Banks as enablers and promoters of tax evasion, tax avoidance and money laundering

Photo @Mohamed Yahya

The PANA Inquiry Committee held a hearing in March 6 on the role of the French Banks as enablers and promoters of tax evasion, tax avoidance and money laundering; hosting Patrick Suet (Chairman of Société Générale Bank & Trust, Luxembourg); Anne Michel (Le Monde, France); Sylvie David-Chino (Global Head of IFS Compliance, BNP Paribas); Albert Allo (Deputy Director of the French Financial Intelligence Service TracFin); Olivier Boutellis-Taft (CEO of Accountancy Europe); and Paul Gisby, (Manager for Taxation and Transparency)

Why did the PANA Inquiry Committee host this meeting?

The Panama Papers revealed that Société Générale created 1005 offshore entities via Mossack Fonseca between 1977 and 2015; while BNP-Paribas created 468 after the 1980s.

The Panama papers have revelaed that many French people have used shell companies to hold accounts abroad. This has led to a gigantic investigation being opened by the French National Financial Office (Parquet National Fianncier-PNF). The Ministry of Finance is also carrying out 560 investigations on tax Fraud.

BNP externalized the activity of offshore domiciliation to specialized affiliates. This allows it to state that they are not promoting their clients the domiciliation in tax havens, even when they continue managing the bank accounts which are behind such structures.

Mossack Fonsaca is only one legal advisor, and bureaus do share a significant part of the responsibilities. However, Panama Papers’ revelations show that banks have been requesting such offshore structures for their clients.

According to Tracfin these structures are often from affiliated entities abroad that are organized by line of business, like the private banking in Luxembourg. Therefore, these are specialized affiliates with an excellent knowledge of their clients.

Tracfin observed two problems: 1) the amount of professions (accountants, lawyers) that do not have the same reporting requirements as banks; 2) the movement of the offshore landscape from the Caribbean towards Panama, Hong-Kong, Dubai, first; but that with the attention given to Panama it is expected to move to Bahrein, Nauru and Vanuatu.

A study from the ”Plateforme Paradis fiscaux et judiciaires” on the French Bank made from the banking information that was made public in 2014 observed that one third of the foreign profits of BNP (35.3%) and Société Générale (33.1%) are realized in secrecy jurisdictions, i.e 2.4 billion for BNP and 1,3 for Société Générale.

With more than € 1.7 billion in registered profits, Luxembourg is the preferred destination of French banks among the 34 secrecy jurisdictions in which they are located. Luxembourg is the third country in which French banks account for the most profits, i.e 6% of their total profits and 11% of their foreign profits.

An employee in a tax haven makes, on average, double the turnover of an employee in other subsidiaries (and in the case of Société Générale, three times as much).

Société Générale

Société Générale has 139 branches / subsidiaries (18%) in tax havens out of a total of 787 and 11% of its income is generated in tax havens in 2014 according to TJN. [1]

Société Générale replied to the PANA Inquiry Committee in March 2017:

  • In relation to its accounts in Panama: it is only managing accounts already existing for its clients (what it calls a “commitment on geography of its establishments and not of its customers”).
  • Concerning the number of accounts it would have asked to create in tax havens (as in Panama via Mossack Fonseca) it hides behind the fact that there is still no clear definition of tax havens.
  • In 2015, the private banking business line carried out 70 reports of suspicions transactions related to companies having offshore assets, i.e. almost 40% of the total of Private Banking’s declarations outside France.

BNP Paribas

In an “investment in London brochure of 2016” (p.33) BNP Paribas promotes a business structure to buy property in London without paying taxes, by being purchased by a Jersey company with loans from a Singaporean PLC and a bank. This means that in the future the Jersey company owning the building can be sold instead of the building itself, avoiding stamp duty land tax on the transaction. A substantial saving. In addition, if the Singaporean owner loans the money to the Jersey company to buy the offices, then rental income can be offset against interest payments, resulting in further savings. Further tax can be avoided if rental income is taken out of the country as management fees. As Kirsten Pritchard Jones of Nabarro, a law firm explaining the structure in a BNP Paribas brochure, says, “The net effect is that J Co should be subject to a very low effective rate of UK tax.”

BNP Paribas has 170 branches / subsidiaries (26%) in tax havens out of a total of 656 and 21% of its income is generated in tax havens in 2014 according to TJN.[2]

In Argentina, BNP Paribas operated outside the regulated financial system, without the legally required authorization of the Central Bank, advising clients on the administration and investment possibilities of their non-declared funds which were mainly transferred to tax havens. The bank worked regularly as any other but when a client required “special” services, it was sent to non-declared offices of the bank in another floor. It was estimated that 1 billion dollars were traded through these offices between 2000 and 2008.

In its replies to the questions of the PANA Inquiry Committee, BNP Paribas declares to have ceased its activities linked to the administration of offshore societies, and for this reason it has closed 5 entities, 3 of them in 2010 in Panama, Bahamas and Geneva.

In addition to several other measures taken in their fight against money laundering, they say they have taken the decision of not entering into relationships with offshore structures in which a resident of the EU or the OECD is the economic beneficiary (with the exception of the residents of the UK in the specific case of trusts, which are recognized by British Common Law).

 

Given all this information, GUE/NGL MEP Patrick Le Hyaric (PCF) asked during the hearing: “… were it not for the Panama Papers, were it not for the press, were it not for justice, these practices would still be going on… thus, nothing tells us that the new mechanisms aren’t going to be used.”

Even when both BNP Paribas and Société Générale representatives alleged that they had started tackling offshore activities in 2009 long before the Panama Papers, that does not mean they did it before they had been judged or been the object of other leaks.

And regarding Société Générale in particular, Patrick Le Hyaric questioned the fact that an employee of Société Générale in Luxembourg generates 39 times more profit for the bank than the group’s other employees. A question that was left un-answered by Patrick Suet from Société Générale.

 

 

[1] The UK is not included in the Tax Haven list considered for these estimations.

[2] The UK is not included in the Tax Haven list considered for these estimations.