Invisible Money 5
The Cloud Factory Revisited
Up The Ladder, Marius Kohl To Luc Frieden
With the equivalent of 67 trillion dollars floating in and around what is known as the off-shore “shadow banking system” – in tax havens and fiscal paradises from Delaware to Mauritius, the isle of Jersey to Hong Kong – we return, via Ed Perrin’s documentary, to Luxembourg to take a close look at how things work in one capital of guarded finance.1
Readers may recall that in 1998 the OECD – the thirty-four member, European-based Organization for Economic Development and Cooperation – agreed that “All members’ tax thorities must communicate about Advance Tax Agreements,” which effectively meant that if Starbucks wanted to camouflage its UK earnings by moving the money somewhere else, that somewhere else (if a member of the OECD) would have to notify Her Majesty’s Revenue Collection, and the HRMC could object. OECD rules are, however, enacted “by consensus.” Two member countries, Switzerland and Luxembourg, abstained, and thus, in the case of Starbucks, the money slipped away to Luxembourg, Starbucks cried poor, Her Majesty and subjects being none the wiser at least until hearings were held in November of this year. Luxembourg and Switzerland can therefore argue that they abide by OECD regulations, which are, as far as they’re concerned, toothless.2
(Switzerland, grandaddy of the fiscal havens, is a bit more complex: unlike Luxembourg, there is movement inside the country to change its status as tax pariah numero uno.)3
Marius Kohl spends his days in a brick and glass pile in Luxembourg’s capital. It’s one of those mysterious post-modern sandwiches which perfectly merge form and function: it’s impossible have even the slightest idea what goes on inside, which must be the point. 18, rue du Fort Wedell is where Kohl and his coworkers quietly wreek havoc withother countries’ incomes, churning out tax schemes for companies like Pearson and GlaxoSmithKline that are the only real reason any is aware that Luxembourg exists.
Kohl is the head of Sociétés 6. The other five Sociétés divide their labors as follows:
Sociétés 1: ArcelorMittal, RTL Group, SES, Postes &Telecommunications Enterprises Luxembourg, Guardian group, Cactus, Match, Auchan and Monopol stores.
Sociétés 2: religious associations, the Friob group, and global corporations located in unlikely towns and hamlets from Bertrange to Winseler. It is precisely in places like that the 1,000s of sociétés anonymes listed in Perrin’s documents have established their world headquarters, at least on paper. The pharmaceutical giant GlaxoSmithKline, under Kohl’s purview in Sociétés 6, makes its home in the suburban hamlet of Mamer, just off the roadway to Belgium.
Sociétés 3: partnerships, limited partnerships, real estate companies, economic interest groups and European economic interest groups.
Sociétés 4: Commercial, industrial and craft groups covered by public law, associations and other communities; limited liability companies.
Sociétés 5: Farming cooperatives, resident commercial groups, insurance companies, the ASSEP savings and pension group, the CEPAL group.
Publicly available information all of the above, and no warrant to indict anyone. But one’s curiosity is piqued reading a list such as that in Sociétés 1: what exactly is the present relationship between ArcelorMittal – a steel and mining transnational operating in over 60 countries worldwide, with revenue of USD 93.97 billion as of March 21, 2012 – and Luxembourg? We know that its owner, Lakshmi Mittal, exploits his resident status to pay no taxes in the UK where he lives. So we are entitled to a few suspicions.4
Perrin went to no. 18, with camera and crew, on an official visit, hoping to find Marius Kohl and importune him with a few questions. Perrin had ample evidence that Kohl’s office was the most important of the bureaus, approving tax agreements for thousands of companies.
It was a weekday but, surprisingly, Marius Kohl wasn’t around. He had taken a day off, or so the pesky crew was told.
“In fact he was there. Later that afternoon, after we had left the building, I saw him quickly peer out his office window, but we didn’t have time to get a picture before he hurried back to his desk.”
“Luxembourg is not a big country,” Perrin continued. “There are only two men above Kohl, Pascale Toussing, Assistant Director, and Guy Heintz, Director of the International section at Contributions Directes; after that, one meets the Finance Minister, Luc Frieden. That’s the beauty of the place. Luxembourg is too small to ever produce an anomaly in its tax regime, and if you are seeking a safe haven for your money, it’s fast and easy.”
But not so fast and easy for some. The team from Cash Investigations, accompanied by Richard Brooks of Private Eye, slipped in the door to see if they could find Kohl, only to confront the haughty regard of the Luxembourgeois, who looked at them like losers.
“I learned how condescending the Luxembourgeois could be towards the bloody French,” Perrin told me. “We were the lazy sods, the 35-hour a week gang, a bunch of inefficient Latin peasants. In a way, it’s not so very different from the way the Flemish regard the Wallons in Belgium, who lost their dominance to the new rich on the block, those who wisely chose a new and more productive way. Luxembourg lost its industry and settled on finance. They feel proud of it, and they should.”
From Luxembourg’s point of view, France’s loss is their gain. If the French had made other arrangements, companies like Arcelor and stars like Gerard Depardieu, who handed in his passport and fled to Belgium, would never have slipped across the border. Such is the attitude in all tax paradises towards troublesome outsiders: here they are, the peasants, with mud on their shoes, looking for dirt.
If the Cash Investigations group had no luck cornering Kohl, they fared better with Luc Frieden, who serves as public point man for Luxembourg’s ingenious interpretation of European law and thus consented to letting himself be interviewed later on screen. Frieden is the heir apparent in Luxembourg and he takes his role seriously. Perhaps he saw the interview as one more skirmish in the war of the tax havens, to lift a phrase from Nicholas Shaxson. Frieden did not, in any case, count on Elise Lucet, who conducted the interview.
“If the description you made is accurate, I find it unacceptable”
Luc Frieden is a member of the Christian Social People’s Party, and currently serves as Finance Minister. He, and not Vice-Premier and Foreign Minister Jean Asselborn, takes the lead in the tricky business of fending off attacks on Luxembourg’s status quo. He is on record as saying, “Our financial approach is totally European and applies all laws in the struggle against financial criminality.” He is very careful in his choice of words.5
It’s very rare for a senior official in a tax haven to speak publicly and on the record. Readers of Shaxson’s invaluable Treasure Islands know the many tactics, from coöptation to contempt to outright threats, that are employed to avoid doing exactly that. So it’s worthwhile to watch Frieden closely while he dances around the issues. It exposes the logic tax havens use to keep a respectable face on what they do.
For the sake of brevity, the interview is excerpted here.6
Cash Investigations: We’ve seen a lot of those docs. They cover Liechtenstein, the Caymen Islands and… Luxembourg. If we’re talking about tax havens, we find you, Luxembourg, in the middle of those schemes.
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