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Let’s play Grand Theft Bureaucrats
Luxembourg leaks, Issue 1418
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DUCHY ORIGINALS: Journalist Edouard Perrin and whistleblowers Raphael Halet and Antoine Deltour, whose public disclosures have landed them in the dock
IN THE main courtroom of Luxembourg’s grand Cité Judiciare last week, a remarkable picture emerged of the Grand Duchy’s multi-billion euro tax avoidance industry, the accountants who control it and the Ruritanian justice system that persecutes the whistleblowers and journalist who exposed it.

More than four years ago Luxembourg’s tax authority was revealed to be handing out favourable tax rulings like sweets to some of the world’s biggest companies, including Pepsi, Ikea, Vodafone and HSBC. The agreements allowed them to avoid often hundreds of millions of pounds in tax by sending profits to Luxembourg where, thanks to schemes designed by accountancy firm PwC, they would be taxed at less than 1 percent.

The deals were exposed in May 2012 in France by TV journalist Edouard Perrin, followed by Private Eye and the BBC’s Panorama in the UK. Two and a half years later, in November 2014, they were splashed around the world by the International Consortium of Investigative Journalists as “LuxLeaks”. Shortly afterwards, the main whistleblower, a senior auditor at PwC called Antoine Deltour, was charged with “theft, violation of professional secrecy, violation of business secrets, laundering and fraudulent access to a system of automatic data treatment”.

Deltour had resigned from PwC in late 2010, unhappy with its tax practices. But before leaving he had copied more than 500 “advance tax agreements” for 343 companies, which he eventually passed to Perrin. When Raphael Halet, a manager in a PwC processing unit, saw Perrin’s 2012 television film he got in touch offering copies of the tax returns of some of the major companies benefiting from the rulings, including Amazon.

Courtroom mirth
This led to journalist Perrin himself being charged as “co-author, if not an accomplice, in the infractions committed by a former employee of PwC”. But when Perrin took the stand (on World Press Freedom Day, as it happened) the most the prosecutor could accuse him of – to some courtroom mirth – was giving Halet “clear indications” that he was interested in the material, evidenced by having set up an email account via which to share documents.

The information in the leaks was of such public interest that on the strength of it tax authorities around the world have launched investigations. The European parliament has also done so, while the European Commission has found a number of the deals illegal. Even PwC Luxembourg’s tax boss, Wim Piot, recently admitted: “LuxLeaks has proved that the international tax framework is not any longer fit for purpose.” In the Grand Duchy, however, the whistleblowers and journalist behind all this have ended up in the dock. The prosecutor has demanded an 18-month jail sentence for both the former and a fine for the latter. Verdicts are due next month.

The duchy’s huge tax avoidance industry helps explain Luxembourg’s $99,000 per capita income (second only in the world to Qatar and double its nearest EU rival). Meanwhile, PwC’s managing partner Didier Mouget, making his own fortune from tax avoidance until he left last July in the wake of LuxLeaks, was for nine years a member of the Grand Duchy’s Haute Comité de la place financière, the advisory body to the finance ministry run at the time by current European Commission president Jean-Claude Juncker. Unsurprisingly, the PwC tax avoidance factory was allowed to flourish, though Juncker now claims not to have known about it.

Monsieur Ruling
When Raphael Halet took the stand it soon became clear how PwC and the Luxembourg tax authorities worked hand in glove.

Applications for the favourable rulings, Halet told the court, were sent every Wednesday at 1.30pm in batches of 30 to 40 and returned to PwC, stamped and approved, at 5pm. The applications, running to around 20 pages each, were passed on a USB memory stick to a senior official in the tax authority, Marius Kohl. But when the man nicknamed “Monsieur Ruling” in the tax world started losing these and forgetting passwords, he was given direct access to PwC’s system. The tax advisers at PwC, meanwhile, kept the letterhead for Kohl’s division so they could draft his acceptance notices themselves.

Since he had been privy to such sordid details, PwC did everything it could to silence Halet. First, it secured a court order for a bailiff and two gendarmes to enter his house in Metz, France, and seize equipment. Halet was being treated in hospital at the time, where the gendarmes rang him and lied that his house had been broken into and he needed to return.

Then at a meeting in the same town a few days later, in December 2014, PwC’s Mouget made Halet sign a confidentiality agreement claiming that his action had cost the firm €10m. This would be payable, with the help of a charge on his house, if he spilt any more beans. Oddly, however, PwC did not mention Halet to the Luxembourg police, who got on to him only after the first whistleblower, Deltour, pointed out that he had not leaked all the information now in the public domain.

When it suited the accountancy firm, PwC was working almost as closely with the police as it was with “Monsieur Ruling”. When the Grand Duchy’s Inspecteur Knacker arrived with a search warrant at PwC, it was by appointment. He was duly presented with a neat package of information. Even the trial judge was prompted to ask, without dissent: “PwC did most of your work for you?”

It seems unlikely to have been a coincidence, either, that although PwC’s initial criminal complaint was in June 2012, it was only after the scandal went global with LuxLeaks in November 2014 that, two weeks later, the whistleblower was charged. Justice followed in the wake of commercial interests.

Charing (very) Cross
This is not just a continental European scandal. PwC’s local partnerships, such as the Luxembourg one, use the PwC name as members of the English company PricewaterhouseCoopers International Ltd. It is based at the firm’s world headquarters next to Charing Cross station in central London.

Luxembourg boss Mouget sat on the same global PwC board as the UK and US bigwigs until he resigned in July last year. Yet in 2013, after the initial revelations, PwC’s UK head of tax Kevin Nicholson – whose team would have had substantial input to the schemes used by UK firms like HSBC, Vodafone, GlaxoSmithKline and, ahem, the Guardian Media Group – told the Commons public accounts committee that his firm was “not in the business of selling schemes”. In 2015, after LuxLeaks, he was called back and accused of lying, which he denied on the grounds that each arrangement was tailored to a company’s needs. The MPs weren’t impressed and judged that he had indeed misled them.

With verdicts expected in the coming weeks, the whistleblowers’ positions look precarious. A defiant Deltour told the court: “My duty as a citizen to inform the public was greater than my obligation of confidentiality.” His actions have already cost him and Halet, who remains unemployed, dear – even though the aftermath shows there could hardly have been a leak with greater public interest. Not that the public interest cuts much ice in the Grand Duchy next to that of the tax avoidance industry.

PwC’s lame response to the affair is to issue a new code of conduct, encouraging staff to consider of any decision “how would it look in the newspapers”. Perhaps not something it asked itself when it decided to pursue whistleblowers and journalists through the courts.

As for the Grand Duchy itself, Perrin’s counsel, Olivier Chappuis, summed it up. In condemning a journalist for doing his job, “Luxembourg will condemn itself.”

More top stories in the latest issue:

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Private Eye Issue 1417