AXA’s Bébéar, de Castries Under Formal Investigation in French Tax Probe

By | June 25, 2001

On June 12, French police detained and questioned AXA’s Management Board Chairman Henri de Castries and his predecessor, the company’s founder Claude Bébéar, who now presides over its Supervisory Board, about a massive tax evasion scheme involving former AXA subsidiary PanEuroLife. The two men were held overnight and finally released on June 13 after each posted a 2-million franc ($258,000) bond.

They have been placed under formal investigation after answering questions posed by juge d’instruction Dominique de Talancé. She has also questioned a number of other executives with ties to PanEuroLife, including the head of Crédit Lyonnais, Jean Peyrelevade, and Marc Vuillermet, the former head of Banque Worms.

A juge d’instruction’s powers combine those of a district attorney and a magistrate. As France has no equivalent to the U.S. Constitution’s 5th Amendment protection against self-incrimination, a juge can call anyone they suspect of having knowledge of a case, and require them to testify, then indict them if they feel sufficient evidence of wrongdoing exists. Failure to appear, or to give evidence, is itself a crime.

The probe centers on policies issued by the Luxembourg-based company, which was set up in 1990 as a subsidiary of French insurer UAP, headed at the time by Peyrelevade. With the closer integration of the common market it was given the role of marketing life products on a Europe-wide basis. AXA acquired UAP in 1997, along with its subsidiaries, PanEuroLife and Banque Worms.

As more details emerge, the two companies appear to be implicated in a scheme that allowed wealthy French individuals to pay cash for life insurance policies. The funds—less than Frs. 50,000 ($6,700) so that they could go unreported to the tax authorities—were then deposited in Banque Worms, transferred to its local postal accounts, and eventually to Luxembourg. The owners could then cash them in at face value, or turn them into investment vehicles outside of France, taking advantage of Luxembourg’s bank secrecy laws. Various reports now estimate the amount involved to be between 750 million and 1 billion francs ($110 to $135 million).

AXA sold PanEuroLife to the U.S. Group Nationwide Holdings in November 1998, explaining that its strategy was to build its business around individual country operations rather than a pan-European approach. It sold Banque Worms to Deutsche Bank earlier this year.

While no one in France seriously considers that the two top executives of the world’s largest insurance company actively participated in a money laundering scheme, they could be held responsible for the actions of their subordinates under both civil and criminal law.

The case is the latest in a series of high-profile investigations which les juges have launched, partly to show their newly won independence from government control, a feature of the French judicial system for as long as anyone can remember. A recent case saw the former Foreign Minister and head of the Constitutional Court, Roland Dumas, receive a two-year jail term with 18 months suspended for accepting favors from the government owned Oil Company Elf Acquitaine. Its former CEO was given a full three-year sentence in the same case. Dumas’ mistress, surprisingly, got 18 months.

AXA has stood behind the two men since the beginning of the investigation, maintaining that they have done nothing wrong and will continue to cooperate.

In an official statement, made after Bébéar and de Castries were placed under formal investigation, the Supervisory Board pointed out that the illegal activities in question took place before AXA acquired UAP. It also stressed that the complexity of the merger precluded AXA from learning what may have been going on for a substantial time.

Finally, the Board questioned the applicable law, stating: “The judicial process that has been set in motion implies that executive management of a group, which has no management control over the operations of downstream subsidiaries, may be held liable in a court of law for acts committed by the latter, which runs counter to the rules of law.” While true in general, it would be hard to prove that a company as tightly run as AXA had “no management control,” but that question won’t arise unless the two men are formally indicted.

Bébéar meanwhile continues to head the committee that is seeking to have Paris selected as the site for the 2008 Olympic Games. “If I was not absolutely certain that I bear no responsibility for the allegations against me, I would never accept to continue my mission on behalf of the candidacy,” he told the Associated Press. Other committee members did acknowledge, however, that the charges could pose a problem.

As de Talancé’s investigation continues, it should establish if there were in fact any direct links between AXA’s top executives and the alleged money laundering carried out by personnel at a minor corporate affiliate.

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Insurance Journal West June 25, 2001
June 25, 2001
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