The courtroom may be almost entirely devoid of the media but it is a trial that reveals a great deal about the era we live in. Since September 26th, six people and two financial institutions have been on trial at the 32nd criminal court in Paris in what is known as the Wildenstein affair, probably one of the biggest cases of alleged tax fraud of the decade. The trial, which is expected to last until October 20th, involves the well-known Franco-American art dealing and art collecting dynasty, the Wildensteins.
Guy Wildenstein, aged 70, along with two other members of his family and three of their advisors, are accused of hiding from the French tax authorities vast assets they inherited from the estate of Daniel Wildenstein, who died in 2001. Two financial institutions are also on trial. The French tax authorities are also asking for 566 million euros they claim they are owed in unpaid taxes.
The daily proceedings at the trial, which is taking place in the former auction hall at the old Palais de Justice in Paris, themselves demonstrate the peculiar nature of the case. Upper class figures and worthies sit with studied indifference on the chairs reserved for the accused, flanked by attentive lawyers, while the trial hears of a litany of offshore shell companies registered in tax havens (the Bahamas, Panama, the British Virgin Islands and Guernsey) and the complexity of tax and legal regulations, while oral evidence is translated into several languages (in English, German and Russian). This all tends to lend the proceedings a very technical air. But at the same time the hearing is illuminating for what it reveals about the intricacies of tax avoidance among the super rich.
One can also see the relative poverty of France's own judicial system when set against the power of such money. An example came when one of the institutional defendants, the Royal Bank of Canada Trust Company Limited, brought its own interpretor to the bar of the court, a barrister by profession, to help the court better appreciate the subtleties of trust legislation in Anglo-Saxon countries. It was tough luck on the official translator who was somewhat sidelined and who had, indeed, struggled to render the jargon of global finance.
Enlargement : Illustration 1
The Wildenstein trusts, which are at the heart of the proceedings, have been used by the family for all kinds of purpose. For three generations they have sheltered all or nearly all of the family's assets; the New York gallery, property in the United States, a property in the British Virgin Islands, a ranch in Kenya (where the film Out of Africa was shot and where Alec Wildenstein junior, who is Daniel's grandson and whose father was also called Alec, still lives), an aeroplane, since sold, and above all their works of art, most of them paintings.
The Wildenstein fortune is worth three or four billion euros. According to one estimate that has featured in the case, in 2001 the family's Delta Trust alone owned 2,483 works of art, and was given an overall value of 750 million dollars. The court's president, Olivier Géron, was astonished to hear that 1,749 of the works have not even been valued. The Royal Bank of Canada Trust Company Limited, which – like the Northern Trust Fiduciary Services (NTFS) – manages several of the Wildenstein trusts currently values the works at 875 million dollars.
The vast collection, which was started by Nathan Wildenstein (1851-1934), continued by his son Georges (1892-1963), then managed by his grandson Daniel (1917-2001) and his great-grandson Guy (born in 1945) was kept in New York for a long time. Today it is split between secure locations in the United Sates, Singapore and Switzerland. Officially the works have been relocated “to be closer to buyers, to avoid them having to travel to New York”, an impassive Guy Wildenstein told the court on Friday, September 30th.
The court president Olivier Géron nonetheless noted that this massive transfer of the works to other destinations was decided upon just before Daniel Wildenstein's death in 2001. “Switzerland...was that for tax reasons?” he asked Guy Wildenstein.
“That's not an issue I know very well,” replied Guy Wildenstein politely, careful to portray himself solely as a specialist in art dealing. Earlier in the trial the billionaire had told the trial that he was “not very good with figures”.
Judge Géron then noted that the entire family seemed to live off the sale of paintings in their collection. “You sell but never buy. Where is the protection of the estate that you must guarantee in your capacity as a manager of the trust?” he asked the Royal Bank of Canada's representative, without getting an illuminating response in reply.
“Managing also involves valuing the works of art, the expert research, exhibitions, catalogues,” said Guy Wildenstein in defence of the trusts' operations. “The price of a work varies. To increase the value means giving them an exhibition, recognition, and then selling them at the right time.”
“There are no purchases yet the gallery does have the option of buying works,” noted the judge Olivier Géron with surprise. Guy Wildenstein did not react, clearly unwilling to say too much about how the prestigious New York gallery works. He restricted himself to saying that “the market has changed” and that he does not want to get rid of “jewels” from the 18th and 19th centuries to buy “contemporary” works which have become expensive and which in any case he does not really appreciate.
Guy Wildenstein's gallery certainly seems to be flourishing, earning a 25% commission on the direct sales of family paintings and 12.5% of those sold at auction.
'I reacted as an American'
From the court proceedings it appears that the trusts agree to all requests made of them. To the point where administrators and trustees seem almost to be mere figureheads. Some appointed beneficiaries can be removed, others added, as marriages, deaths and births occur inside the clan. Transfers of major sums of money - several million dollars - are sometimes made. No request for the sale of a painting is ever refused. The Wildensteins value the painting, sell it and the trust gives its blessing.
Inside the family clan only those who are not involved in the business itself or who have entered into conflict with the patriarch have seen their requests for money rejected. This was the case with Alec junior (son of Guy's brother Alec who died in 2008), Liouba (Alec's young Russian widow) and Sylvia, Daniel's widow who herself died at the end of 2010. “I received some payouts from the trusts but currently I don't have much left, less than a million dollars,” said Alec junior, nonchalantly. As for Liouba Stoupakova, who says she has gone through a “nightmare” since the death of her husband, she has ultimately received around ten million euros over several years after taking legal action.
Enlargement : Illustration 2
But for other members of the Wildenstein clan, the exotic companies, financial institutions and appointed advisors all help to provide a limitless lifestyle. When Daniel Wildenstein was alive a Panamanian company carried out transfers to a French bank account “to take charge of the expenditure of the family in rue de la Boétie”, referring to a street in the 8th arrondissement of Paris. Another company, also registered in a tax haven, currently pays for the expenditure of the Kenyan ranch. The Royal Bank of Canada alone estimates that it has paid out “250 million dollars” over several years on expenses and the family's lifestyle. A total of 675 works of art were sold to enable this. All of this was done through the trusts.
Questioned in court about the purpose of these trusts, Guy Wildenstein had an answer for everything and maintained an impenetrable air. It is true that the family trusts pre-dated him and that, while he benefits from them, he has created none of his own.
“So why had your father, Daniel, created several trusts?” asked the judge, Olivier Géron.
“He didn't tell me. It was doubtless the advice that he must have received,” replied Guy Wildenstein.
“This increased complexity of the assets, trusts created for wives, for grandchildren, that didn't worry you?”
“No, because the trusts were entrusted to large, responsible banks,” replied the billionaire.
“All the same, it was an inheritance that had been passed down to you and which was becoming more distant. That didn't cause you a problem?” asked the judge.
“As an American, a trust isn't something surprising. The trust protects the collection. I am neither surprised nor dispossessed,” replied Wildenstein.
“But on your father's death, why didn't you consider declaring the property held in trust among the assets in the estate?” the judge queried.
“I reacted as an American. In 2001 I only declared the property that personally belonged to my father, but not the trusts because they had been divested,” said Guy Wildenstein.
“Your father resided in Paris, he had tax residency in France.”
“As far as I was concerned, he considered himself to be tax resident in Switzerland. He spent the last months of his life in Paris because he was ill,” replied Guy Wildenstein.
It was the circumstances of this declaration of Daniel Wildenstein's estate, estimated at just 40.9 million dollars, that later led to the legal challenge by his widow Sylvia.
The Wildenstein business is in fact a man's world. Daniel's death in 2001, like Alec senior's in 2008, led to changes in status inside the trusts, aimed essentially at excluding second wives from a potential share in the family art collection and property. This was despite the fact that during their lifetime the husbands had created a trust each to protect their wives. Both had ultimately been dispossessed and later took legal action. The judge took an interest in this patriarchal dimension of the way the family worked.
“In your father' eyes, had you been a child right up until he died?” judge Olivier Géron asked Guy Wildenstein.
“Yes, as he was for his father, and his father with his grandfather. That's how it is in the family. Pater familias,” replied Wildenstein.
“But are men and women really treated in the same way in the family?” asked the judge.
Apparently sensing that he was on dangerous ground, Guy Wildenstein replied: “When my great-grandfather Nathan created what would become the house of Wildenstein, it was with my great-grandmother. They were real partners.” As for the dividing up of the trusts, said Wildenstein, there is “no difference between male and female grandchildren.”
Guy Wildenstein in on trial for “tax evasion on the estate of his father” and for “money laundering”. The late Alec Wildenstein's son Alec junior is charged with tax fraud. Liouba Wildenstein, Alec’s widow from his second marriage, is charged with complicity in money laundering. Robert Panhard, a member of the family that founded the Panhard vehicle maker, who is currently chairman of the Automobile Club de France and the Wildenstein family lawyer, is charged with complicity in tax fraud. Another French lawyer, Olivier Riffaud, is charged with aggravated money laundering in a tax fraud, and a Swiss lawyer, Peter Altorfer, trustee of the Sons, David and Delta trusts, is charged with both complicity in tax fraud and aggravated money laundering in a tax fraud.
Northern Trust Fiduciary Services (NTFS), a Guernsey-based offshore subsidiary of the American group Northern Trust, headquartered in Chicago, is charged with complicity in tax fraud. Royal Bank of Canada Trust Company Limited is also charged with having been party to tax fraud.
The defendants all deny any wrongdoing.
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- The French version of this article can be found here.
English version by Michael Streeter