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8 juillet 2010 4 08 /07 /juillet /2010 09:00

07/07/2010 06:16 PM

A Growing Scandal in France

L'Oréal Affair Reaches Sarkozy

By Britta Sandberg and Stefan Simons

Questionable ties with billionaire L'Oréal heiress Liliane Bettencourt have put French Labor Minister Eric Woerth at the center of a major political scandal. New accusations this week have drawn President Nicolas Sarkozy into the affair. The allegations could threaten the restructuring of the pension system that are the heart of Sarkozy's planned reforms.

At times, there must have been something like a run on the salon of the villa on the outskirts of Paris. High-ranking conservative politicians would flock to the home to obtain cash-filled envelopes directly from the hands of the Bettencourts. Sometimes it was €10,000, sometimes €20,000, but even as high as €50,000 or €100,000. In this discrete manner, the billionaire family at the helm of the L'Oréal cosmetics empire put their stamp on French politics.

The latest twist in the case came on Tuesday, when the French website Mediapart published claims by a former accountant for heiress Liliane Bettencourt, who answered police questions about missing ledgers in the billionaire's books last week. Claire T. then shared her revelations with the site. She claims that the happy recipients of the cash gifts at Bettencourt's palatial home were prominent conservatives. At the time the gifts were allegedly given, French President Nicolas Sarkozy -- then mayor of Neuilly-sur-Seine, the well-heeled Paris suburb where Bettencourt lives -- was a frequent visitor.

The sensational details about the Bettencourts and their relations with France's political leadership come at a bad time for Sarkozy: Up until this week, the architect of his important pension reforms, Labor Minister Eric Woerth, had previously been the highest official entangled in the affair.

Élysée Palace, the president's office, has strenuously denied all claims of wrongdoing. It has also dismissed claims that Sarkozy obtained cash from the Bettencourts as "totally false." On Tuesday, Sarkozy described the allegations as "libel that aims only to smear, without the slightest basis in reality." And Woerth said he was "outraged" by the claim and that he has "never received the slightest euro that wasn't legal." Bettencourt herself has said she acted within the legal limits with donations she made to Sarkozy's Union for a Popular Movement (UMP) party.

Embarrasing New Revelations

Still, the government has been burdened by the almost daily series of embarrassing new revelations in the scandal. Sarkozy had hoped that the allegations about the possible participation of his labor and treasury ministers could be whitewashed through the firing over the weekend of two state secretaries embroiled in an expenses scandal. But the public glimpse of the incestuous relationship between money and power still threatens to shake the country's leadership -- because, for the first time now, the president is being personally drawn into the scandal.

Claire T. has claimed to police that she herself was responsible for withdrawing the cash from a branch of BNP bank in Paris' 16th arrondissement. At times, she says, the accounts would be replenished with cash from Switzerland -- but that was primarily the work of the Bettencourt's financial advisor Patrice de Maistre. Among those T. alleges profited from the generosity were senior leaders of the conservative and now defunct Rally of the Republic (RPR) party, including former Prime Minister Édouard Balladur or, more recently, UMP party treasurer Woerth, who she claims received a generous €150,000 for Sarkozy's presidential election campaign.

"Sarkozy got his envelopes, too," Mediapart has quoted the accountant as saying. "That usually happened after the meal, and everyone in the house knew it." Sarkozy had made frequent visits to the Bettencourts. "It happened in a small living room on the ground floor, and because the Bettencourts had hearing problems, they spoke loudly to the politicians and you could understand everything," she claims, according to the news site.

It will be difficult for prosecutors to confirm Claire T.'s claims. According to the bookkeeper, the amounts given out were noted in three different account books, and any cash political contribution was labeled "Betencourt" so that Claire T. "would leave no traces of the contributions to politicians."

Mediapart director Edvy Plenel said that Claire T. is "aware of the seriousness of her allegations." Explaining her motive for coming forward, he said: "She is upset about the mixing of public and private interests and the highest national level -- right up to the presidency."


Love, Money and a Lot of Trouble


Initially, the Bettencourt saga had little to with politics. Instead, love was behind it -- the love and affection an 87-year-old billionaire has for a man 25 years her junior, the photographer François-Marie Banier. But it had a money hook, too. It has been reported that, since 1995, the wealthy L'Oréal heiress has given the gay photographer gifts worth somewhere between €600 million and €1 billion ($750 million and $1.25 billion), though no one can say exactly how much for sure.

"That's only a few percent of her total wealth," the widow's attorney points out, adding that Bettencourt is free to spend her money as she pleases. For his part, the photographer says: "All of it is nothing compared with what I have been allowed to learn from her."

Banier has been a family friend since 1987. At the time, Bettencourt's husband, André, was still alive, and the three of them would vacation together. In an interview, Banier said he always prized Liliane's independent spirit. She, in turn, financed his photo exhibitions and even learned to appreciate rock 'n' roll for his sake.

But shortly after her father died in November 2007, Françoise Bettencourt-Meyers, Liliane and André's only child, filed a legal complaint against her mother's companion, claiming that he was exploiting the elderly lady's alleged mental frailty to fraudulently enrich himself.

At first, the case was suspended. But, then, one of the family's butlers hid a recording device under Liliane Bettencourt's desk, with which he taped conversations she had with her financial adviser. In May, the butler handed over the recordings -- 28 CDs holding almost 100 hours of conversation -- to Françoise, which in turn were anonymously leaked to the French news website Mediapart.

From Family to National Affair

Since then, the recordings have not only become a major headache for the widow and the photographer; they have also become a threat to both Woerth's political career and the country's planned pension reform, which Sarkozy hopes will become the hallmark legislation of his term in office. Woerth, who previously served as budget minister under Sarkozy, is the man in charge of pushing the president's controversial legislation through.

Knowing full-well that this push will entail his biggest political battle to date, the labor minister for months now has been consulting experts, having financial models calculated and convening roundtables with representatives drawn from various civic organizations. Failure to push these reforms through, on the one hand, could severely hurt Sarkozy. On the other, if the president, unlike his predecessor, succeeds, he could prevent France's pension funds from becoming even more mired in a spreading pool of debt that is already in the billions.

Now, everything could hinge on the allegations made by Claire T. and just one short bit of the secret recordings made by a butler who could no longer stand to watch his boss being exploited. The recordings not only uncovered that Liliane Bettencourt had Swiss bank accounts holding a total of €78 million, but also that she owned an island in the Seychelles that wasn't one of her declared personal assets and had dubious transactions in Liechtenstein. They also revealed how Sarkozy and his staff had gotten directly involved in the legal proceedings that Bettencourt's daughter set in motion.

Uncomfortably Close

Furthermore, the tapes document that there were ties between the wealthy widow and Woerth, that the ties were, in fact, very close -- and that they were perhaps even a bit too close. Until her very recent retirement, Woerth's wife, Florence, worked at Clymène, the investment house in charge of administering Bettencourt's assets. Likewise, the minister is believed to have assisted Bettencourt in her efforts to buy certain property, to have personally nominated her financial adviser, Patrice de Maistre, to receive the Legion of Honor, one of France's highest awards, and to have received several checks from the L'Oréal heiress for his political party, UMP.

None of this squares with the image Woerth has always cultivated for himself: that of a matter-of-fact, capable and upright man. This, of course, is the same man who received information about several thousand French tax dodgers who had hidden their money in Switzerland, and handed it straight over to the public prosecutor's office.

Martine Aubry, head of the left-leaning Socialist Party (PS), has called for the creation of an investigative committee in parliament, although the soonest it could be convened would be in the autumn given that the conservatives hold the majority. That's why Aubry spoke directly at Sarkozy, saying: "The president of the republic must, with all clarity and transparency, explain (the events) and as quickly as possible." Otherwise, "today's crisis of confidence could become a political crisis." And Ségolène Royal, head of the Poitou-Charentes region and Sarkozy's challenger for the Socialists in the 2007 election, added: "Nicolas Sarkozy said he would clean up the Paris suburbs with a Kärcher (the brand name of a high-pressure hose), but he will need a whole lot of them in light of what is happening inside the Sarkozy System today."

On Wednesday, a French judicial offical said that the prosecutor's office in the Paris suburb of Nanterre has opened a preliminary investigation into the allegations.

A Man with Two Hats

Denials or not, one thing is already certain: Woerth doesn't always make a clear distinction between his ministerial duties and the interests of his party. Of course, that's not exactly a rarity in France; but, in this case, it might also lead to his demise.

In early 2008, for example, Woerth hosted a reception in a government-owned palace on the Rue de Lille that looks out over the Seine and the Tuileries Garden -- and whose own garden is the final resting place of Coco, the last dog of Queen Marie-Antoinette. The guest list for the evening included a dozen bankers, industrialists and real estate agents as well as de Maistre. Robert Peugeot, the heir of the automotive fortune, made an appearance as well.

In this case, however, Eric Woerth was not hosting the party wearing his hat as budget minister but, rather, that of treasurer of the ruling UMP party. For years, he has played this double role with a certain dexterity: By day, he has collected taxes and administered the federal budget; by night, he has solicited donations for his own party -- even from the tax cheats.

Since the butler's revelations, the French have been asking themselves questions about just how much Woerth's ministerial obligations have conflicted with those of being a party operative. Could Woerth have somehow impeded the Justice Ministry from looking into Liliane Bettencourt's hidden accounts? Could he have used the widow to help avoid paying some taxes of his own? And shouldn't he have discouraged his wife from working for Bettencourt?

Last Tuesday, Nicolas Sarkozy defended his minister, saying that "Eric is honesty incarnate." That same day, French Prime Minister François Fillon stood before Woerth in parliament during the last hour of questions before the summer recess and accused the Socialists of launching attacks that "assault the Democratic principles of the republic."

Speaking for himself, Woerth told parliament that he is the victim of a witch hunt, that he has never shared sensitive, job-related information with his wife, and that he has done nothing worthy of blame.

By that time, though, it had already been a while since the Mediapart website and the weekly magazine Le Point had published the incriminating statements from the recordings. Since then, the architect and chief negotiator of Sarkozy's most ambitious project has been doing everything he can to limit the damage to his reputation. And it's not like he doesn't already have enough on his hands trying to revamp France's ailing retirement and pension system.


France's Pension Predicament


Each year, the gap between what France has set aside in its coffers to pay retirement entitlements to its aging population and what it has actually obliged itself to pay is growing. Indeed, if the current system remains unchanged, it is estimated that, by 2018, the shortfall in the budget could swell to €42 billion. To counter this danger, in addition to introducing a series of tax hikes, the government hopes to gradually raise the retirement age by two years. According to its plan, beginning next summer, the government will bump the retirement age up by four months each year so that it can eventually reach 62 by 2018. Even then, it will still be low when compared with the European average.

Still -- despite the global economic crisis, rising unemployment and all the rigorous austerity measures -- most French are opposed to the plan. In fact, according to a recent poll, 63 percent are opposed to having to work any longer than they already have to. They view Woerth's reforms as an assault on their hard-won gains, and some of them even see them as the beginning of the end of the French welfare state. In their eyes, 60 -- the legal age of retirement introduced by President François Mitterrand in 1983 -- is sacrosanct.

Two weeks ago, according to union estimates, up to 2 million workers all across France participated in a mass protest against the reforms that would have made the Jacobins proud. They bore banners proclaiming: "Forty years of work is already too much." At the helm was Martine Aubry, the leader of the Socialist Party (PS), who has already pledged to repeal any and all of the retirement-reform measures should her party come to power after the 2012 elections. On her side are six unions, ranging from the Force Ouvrière to those representing communists, civil servants, teachers and railway employees. In other words, half of France.

La Belle Vie, But at a High Price

At the same time, no one has any idea how France's pension system can be paid for. The major reason behind the deficit is the fact that the French leave the active workforce much earlier than workers in other countries. According to a study published by the Organization for Economic Cooperation and Development (OECD), the average age for doing so in France is 58.7. In Germany, by way of comparison, the figure is 62.1.

The second problem is that the French also live longer than others, which only compounds the financial strains on the pension system. The average person in the OECD's 31 countries enjoys 18 years of life after retiring. In France, that figure is 24 -- which is great for the French, but expensive for the state. Of course, you can partially attribute such longevity to healthy food, red wine, olive oil, good medical care and the like. But it also has something to do with having to work less.

On top of all this come the special retirement arrangements -- the so-called "régimes spéciaux" -- that have been negotiated for certain classes of workers, including firemen, train drivers and even, for example, working women who have had three children. Many of the workers belonging to one of these classes can already retire at 50. That means that they often have far fewer than 40.5 years of contribution to the general retirement fund behind them, which is the minimum number needed in order to be entitled to a full pension.

These days, the French unions are also lobbying to have special provisions introduced for other classes of workers, particularly those required to perform hard physical labor, such as roofers, masons and shift workers. Both Woerth, who is in charge of labor matters, and Sarkozy oppose these efforts. If their reforms go through, special provisions will only be granted after occupational health physicians have carried out examinations that confirm a disability.

Furthermore, the French are now suffering from what -- for them -- is a completely new type of occupational disability. In 2007, the most frequently diagnosed causes of work-related illness were depression and anxiety. "If you adhere to the traditional criteria for hard labor," says Monika Queisser, the head of the OECD's social policy division, "a lot of the affected people fall out of the (labor) system." As she sees it, the only way around this is to have people claiming such disabilities be individually examined by a physician.


Of all of the reform efforts that Sarkozy has launched, pension reform is not only one of the most complicated, but also one of the most urgent. For a while, it looked like he and Woerth's efforts were on a guaranteed path to success. But then came "Bettencourtgate," the name the media has given to the scandal involving Liliane Bettencourt, her photographer friend, her billions and the labor minister.

While campaigning, Sarkozy once claimed that he wanted an "impeccable republic," one that had more efficiency and more transparency. But now he has a labor minister who is under constant fire. Last Friday, Woerth even had to defend himself against accusations of having personally approved a €30 million tax refund for Liliane Bettencourt in March 2008. His ministry responded to this charge by saying that a minister doesn't get personally involved in the tax returns of individual citizens, which other people are responsible for. "People are trying to shoot me down," Woerth had previously explained, "because I'm an easy target."

"It's depressing," Bettencourt said last Friday during an interview on the evening news broadcast of the French television channel TF1. But, in this case, she was referring to her troubled relationship with her daughter rather than the political implications of the scandal. The 87-year-old widow wore white sneakers, white slacks, an apricot-colored sweater and a scarf around her neck. She spoke slowly, but clearly.

During the course of the interview, an interesting detail emerged. While it is apparently usual for wealthy individuals in France to be audited every three years, Bettencourt claimed that she hadn't been audited in 15 years.

In the meantime, Sarkozy has reacted with unusual reserve to the scandals. He has pledged a restructuring of his cabinet in the autumn, and he also appears to be preparing a direct television address to his people. July 13 has been named as a possible date -- the day in which pension reform will be debated in paraliament and the day before Bastille Day -- a day in which the French Revolution is celebrated with fireworks, music and dance.

But Sarkozy has little to celebrate this year, and he has already cancelled the "Garden Party" traditionally held at Élysée Palace. That will save a whole €700,000. At least.


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