Are French Wineries Being Used for Money Laundering?

Watchdogs warn that a few Chinese and Russian investors are hiding bad cash in vineyard sales


 France’s anti-money laundering authority has gone public with suspicions that foreigners are using investments in French vineyards to clean dirty money. The 2012 annual report form the Traitement du renseignement et action contre les circuits financiers clandestins (Tracfin), part of the Finance Ministry, published earlier this month, calls for increased vigilance in selling vineyards to foreign investors, singling out Chinese, Russian and Ukrainian buyers. But the report cautions that most foreign investors are legitimate.

“Most of the time there is no problem. But after an analysis—and we have access to customs, the police and we cooperate with other services around the world—if after an investigation, there is a problem, we give the case to the procureur of the republic [a prosecutor] in the region concerned,” a Tracfin spokesperson told Wine Spectator.

Tracfin would not reveal how many cases have been passed to prosecutors, but confirmed that money laundering through the wine trade was a definite problem. “Wine is a very attractive sector,” said the spokesperson.

Heather Lowe, legal counsel and director of government affairs at Global Financial Integrity (GFI), a Washington, D.C.-based non-governmental organization that monitors money laundering, said she wasn’t surprised. “What a great investment. It has a certain patina, the kind of thing wealthy people invest in, and an air of intellectualism and high society. And the price [for the wine] is not fixed. For trade-based money laundering, you can overvalue or undervalue the wine.” Money launderers often use false invoices to move cash illicitly.

According to a recent GFI report, there is a torrent of cash leaving China illegally—$3.79 trillion between 2000 and 2011. According to the report, wealthy Chinese are sending money abroad largely to evade taxes, but in some cases to hide money gained illicitly. Trade misinvoicing accounted for $3.20 trillion of that amount. The Chinese are not alone. GFI estimates that Russia suffered illicit financial outflows of $211.5 billion between 1994 and 2011.

Russians are major investors in French vineyards, but it’s the Chinese who have made headlines with their rapid acquisition of Bordeaux châteaus over the past three years. Bordeaux’s Chamber of Commerce and Industry (CCIB) has a desk devoted to helping Chinese investors in the region, but denied any firsthand knowledge of money laundering. “We are just intermediaries. There are intelligence services that follow these transactions very closely,” said Emmanuelle Fragnaud, project manager for the Chinese market at the CCIB. “There are many vineyard investment projects that don’t finalize and it’s likely for this reason.”

French law requires a whole bevy of professionals—bankers, accountants, lawyers, notaries, real-estate agents—to alert Tracfin if they suspect money laundering. Real-estate professionals confirm that they’ve been contacted by Russians who offer to pay for vineyard transactions in cash. “I say, 'no.' They say other agents do it. Well, I don’t,” said Karin Maxwell, partner in real-estate agency Maxwell Storrie Baynes. “I tell them the rules, explain how to make the payments. We never hear from them again.”

As the exclusive partner for Christie’s vineyard real-estate division for Chinese investors in the southwest of France, Maxwell has plenty of contact with prospective Chinese owners. She’s never had a Chinese investor arrive with a suitcase of cash, but admits their clients have been carefully vetted. “Of course we don’t know how they earned their money.”
Tracfin’s investigation reveals that foreign investors are devising ways to invest in wineries through complex legal structures based on multiple holding companies in tax havens and friendly countries. A foreign company based outside France, with other foreign companies as shareholders, creates a perfectly legal French company to invest in vineyards. The nesting companies, one shell company within another, make it nearly impossible to determine the identity of the owner or the origin of the money.

“That’s the nature of money laundering investigation. It’s very hard,” said Lowe. “You have to follow the money.” French financial bloodhounds are doing just that, with a handful of cases having been assigned to prosecutors in the wine regions, according to local media reports.
Nevertheless, Tracfin warned against profiling. Only a tiny portion of the 27,000 complaints they receive each year concern wine, and most foreigners don't pay in unmarked bills. “For a French person, if a Russian comes and invests 10 million euros in a vineyard, he’s suspicious because the person is Russian," said the Tracfin spokesperson. "He wouldn’t have the same reaction if it was another French person.”

Source: www.winespectator.com