One of the biggest tax fraud trials ever held in France may hinge on the contents of trusts in the Cayman Islands, the Bahamas and Guernsey.
French-American Guy Wildenstein, the heir of a New York art-dealing empire, is facing a trial in Paris for allegedly hiding his family fortune offshore.
French authorities are demanding about US$620 million in back taxes. If convicted, the 70-year-old art dealer could serve up to 10 years in prison.
Investigating judges in the case believe Mr. Wildenstein and his late brother Alec Wildenstein understated the family’s wealth in estate tax returns filed between 2002 and 2008.
The family business, launched by Guy’s great-grandfather Nathan Wildenstein in 1870 in Paris, is famous for having dealt in paintings by the great masters, Monet, Renoir, Caravaggio, Picasso, Velazquez and Rembrandt. But the exact contents of the family collection are known to only a handful of Wildenstein & Co. employees, most of them family members.
Prosecutors allege in court documents that when the head of the dynasty, Daniel Wildenstein, Guy Wildenstein’s father, died in 2001, most of the family’s estate had been transferred into trusts based in the Bahamas, Guernsey and the Cayman Islands.
While Guy and Alec Wildenstein declared to have inherited only about $60 million in 2001, the assets in the trusts allegedly include properties in New York, a 30,000-hectare ranch in Kenya, racehorses, a jet and hundreds of valuable paintings and other artworks. While the paintings were held by offshore trusts, prosecutors say, many of them in fact remained in the family’s vaults in Switzerland.
The case was thrust open in 2008, when Sylvia Wildenstein, Guy Wildenstein’s stepmother, who has since died, released family documents to French authorities because she believed she was being cheated out of her inheritance.
The documents show, her lawyer suggested, that a vast number of artworks had been moved into a Cayman Islands trust without Sylvia’s knowledge, for the benefit of Guy and Alec Wildenstein.
Correspondence between Coutts in the Cayman Islands as trustees of Delta Trust, and an attorney in Switzerland who served as the trust’s protector, appears to identify the brothers as the beneficiaries of the trust.
In a fax from 2002, Coutts proposed a loan arrangement to the Swiss attorney. To generate cash in the trust for distribution to beneficiaries and to cover costs, the document outlined how a portfolio of artworks that was part of the trust could be used to obtain a $100 million Coutts loan to Delta Trust.
“Collateral for the facility could be in part provided with a formal charge over a segregated collection of art with an appraised low auction value of $250 million,” the document suggested.
The fax included a number of scenarios for the generation of net income of between $1 million and $3.4 million. Coutts remarked that the projected net income “is not significant in the context of the family’s requirements but it should be sufficient to cover the majority of the costs related to the trust and the protection and storage of the art.”
A distribution schedule by Delta Trust from May 2001 to July 2004 for the benefit of Alec and Guy Wildenstein appears to show that during that period, each received $35.45 million in cash and dozens of artworks, including paintings by Picasso, Fragonard and Marquet, worth more than $40 million.
In an interview with Paris Match, Guy Wildenstein admitted that he knew his father had made use of trusts but he denied having any knowledge of the details or the tax implications.
His lawyer, Hervé Temime, stated that the use of trusts was lawful at the time of their inception and it is not clear that any tax is due at all. Mr. Wildenstein is therefore challenging the 553 million euros demanded in back taxes, and in separate proceedings, the allegation of tax fraud.
Last week, his lawyers argued the criminal trial should be suspended until the questions surrounding the tax treatment of the trusts have been settled, whereas the prosecution held the two cases should run in parallel.
A presiding judge on Monday rejected the bid to put the case on hold. Judge Oliver Geron said a suspension would delay the trial by several years and would infringe the rule that judgments have to be handed down within a reasonable time frame.
In June, France’s constitutional court overturned a ruling by a lower court that had deemed the combination of criminal procedure and tax-evasion trial involving the defendants unconstitutional and in violation of double jeopardy rules.
The trial is expected to last about a month.