Jan 29, 2023
‘Keep No Traces:’ Guidebook to Secret Billions Exposed in Ruling
(Bloomberg) -- To leave “no traces” as they hid billions in Canadian trusts for rich French families, a group of asset managers and lawyers referred to clients as “the old lady” or “the painter.” They periodically destroyed office computers. But relationships soured and spilled into court, and now their methods have been exposed in a ruling that reads as a guidebook to tax avoidance tricks.
The case revolves around a dispute over the control of trusts between a Montreal-based wealth management company, Blue Bridge Wealth Management Inc., and a law firm, owned by two Paris-based lawyers. While neither side prevailed in the litigation, Quebec Superior Court Judge Bernard Synnott took great care in detailing the dueling allegations of dubious management strategies, conflicts of interest and dishonesty.
Overall, both sides were involved in managing as much as tens of billions of euros spread throughout at least 300 trusts, according to the ruling published last week. As regulatory regimes and international cooperation agreements evolved, they shifted the funds around from Bermuda to end up in Canada, which they identified as particularly protective of the beneficiaries’ identities, the court documents say.
“Is Canada a tax haven?” Synnott asked in his ruling. “At least that’s what the parties in this case think.”
Rich families were able to avoid for years France’s wealth tax through the ruse of the Canadian trust, the court said.
Despite years of legal infighting within the group, the secrecy of their system ensured that no names leaked out for years. But in 2021 Canadian courts dealt them a blow by ruling that they could no longer hold back information about the beneficiaries from French authorities and press reports started coming out. Newspaper Liberation mentioned a few artists, aristocratic families and some industrialists. Several beneficiaries, Liberation wrote, were descendants of the Schlumberger family, and the most prominent were the Seydoux brothers, cinema moguls in France.
But Synnott focused mainly on the actions of the people who managed the trusts and the tactics that were used to conceal identities and allegedly avoid paying taxes. He highlighted the testimony of one of the Paris-based lawyers involved in moving the funds who advocated for secrecy. She was previously employed at Blue Bridge.
“Generally speaking, we keep no traces, as much as possible, of everything that’s done concerning trusts because trusts are considered in French tax law as tax evasion or even tax fraud nowadays so we don’t want to take any risks,” attorney Delphine Doron is quoted as saying. “The less traces there are, the better.”
Doron described during the Quebec trial how her law firm would regularly destroy and throw out computers to “protect” the identity of the beneficiaries of the trust. The group avoided using their clients’ names, referring to them with acronyms such as BE or SC or nicknames such as “the fishers” or “our friend.” They preferred sending faxes rather than emails to avoid any digital fingerprints on servers.
The actual brains behind the operation was Jacques Le Blevennec, a now-retired Paris lawyer who was previously an official at France’s finance ministry, court papers said. He worked hand-in-hand with Alain E. Roch, founder of Blue Bridge, after a career at UBS Group AG and Julius Baer Group Ltd. in Switzerland and Canada.
“After Roch meets Le Blevennec in 2005, rich families flock to Blue Bridge with hundreds of millions, even billions,” the judge wrote. By 2011, Blue Bridge had more than C$4 billion (2.8 billion euros) under management.
Initially, the billions were “hidden” in Bermuda, the judge said. The vast majority of the money was eventually moved to Singapore after the Caribbean archipelago signed a tax treaty with France in 2009. Just two years later, the assets were sent to Canada over fears that Singapore would no longer protect the identity of the beneficiaries. Trusts were created in Ontario rather than in Quebec – where Blue Bridge is located – because the province is said to offer better protection of the beneficiaries’ identity.
The firm sought to “launder millions of dollars belonging to certain trusts, through donations made to foundations in the name of Blue Bridge,” Synnott said. This was especially done for an unknown prominent family.
In a statement sent by email Friday, Blue Bridge said “these donations are intended to enable these foundations to carry out their missions,” contrary to what the court claims and arguing that all operations are subject to regulatory obligations.
The firm disagreed with the characterization of Canada being a tax haven.
“The Court ruled on the application and interpretation of national and international tax rules related to trusts, complex issues which were not before the Court and on which the parties to the dispute have had the opportunity to make neither evidence nor representations,” it stated, adding these questions are the subject of legal debates in France.
Doron and Le Blevennec did not respond to requests for comment. The Autorité des Marchés Financiers, Quebec’s financial regulator, said in an email it could not provide any detail on the matter at this time.
For years, the business was fruitful for the group. Le Blevennec was charging Blue Bridge about €1 million each year between 2008 and 2013, according to the ruling.
But shortly after, the noose tightened around the group, with banks such as HSBC Holdings Plc and Royal Bank of Canada closing all of Blue Bridge’s accounts by 2014.
Relationships between the main protagonists also started deteriorating. It led to the court litigation, which started in April 2015. Since then, both parties multiplied procedures and spent millions in legal fees, according to the judge.
“Like the parties of this dispute, the families behind the trusts act in full knowledge of the facts,” Synnott said.
Blue Bridge said in its statement that a judicial ruling on a dispute with the French tax authorities regarding the legality of the taxation on the capital of Canadian trusts is expected in France early February. The firm refused for years to transmit to the authorities information about some trusts’ beneficiaries, bringing the matter as far as the Supreme Court of Canada.
Judge Synnott was unequivocal: “Without beneficiary anonymity, the house of cards collapses, taking with it the income of Roch and Blue Bridge.”
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