Overseas Chambers of Peter Harris

Maison de la Boucterie
Rue de la Boucterie
Saint Saviour
Jersey, JE2 7ZW

Abus de droit, the new French convention judiciaire d'intérêt public and offshore finance. The Wendel affaire in France

October 4th 2021

P Morgan was included in a conspiracy to commit tax fraud in France in the Wendel case, pour complicité de fraude fiscale par fourniture de moyens, simply for having served as a financial intermediary and providing finance, not providing any active legal or tax advice.

The Wendel case involved the French concept of abus de droit, and may need some attention from everyone from trust companies, private fund managers and banks in the Channel Islands with French connected operations involving Luxembourg and other offshore entities.

What JP Morgan had done was to ask for an amendment to Wendel's proposed corporate structure to enable it to take voting rights over certain of the companes involved, a standard form of security enhancement for the loan requested by Wendel. The golden share voting right was never exercised by the Bank. It was simply aware that a tax benefit was being sought.

The Bank had managed to have its comparution order quashed, and appeared to have won the first stages in the procedural battle that these procedures involve. However the Procureur obtained an order that a juge d'instruction be appointed to further investigate the Bank's supposed involvement.

Hence the convention judiciaire d'intérêt public.

What is interesting is that it was established the structures use of offshore structures was not to dissimulate. The issue was setting up a structure which artificially enabled Wendell to claim a more favourable French tax régime than that to which it would have been otherwise entitled. The Bank's tax adviser gave the go-ahead to the Bank when consulted on the risk of abus de droit, but was not possessed of all the documentation and information.

This is not simply a reputation enhancer for the Procureur, but rather a French implementation of the OECD's "policies" on financial intermediaries.

Again, the OECD is now "softly" influencing criminal proceedings which is technically outside its Treaty mandate and powers enabling civil servants in jurisdictions such as France to give greater domestic weight to the policies that they have introduced and worked out at the OECD level.

The Bank went for a convention judiciaire d'intérêt public (CJIP), negotiated with the Parquet National Financier which is a form of public order settlement to avoid criminal proceedings by agreement coupled with a hefty fine. It thus avoided a criminal trial, which would have cost it reputational damage, as its holding company is quoted.

The links to the CJIP and the implementing ordonnance can be found here, courtesy of Patrick Michaud:

https://lnkd.in/erhXVPAB

#legal #tax #bank #trustcompanies #privatefundmanagers