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Speculation and tax havens: playing fast and loose with unemployment money.

Half of the Unédic debtholders have accounts in tax havens.

Translated Saturday 19 May 2018, by Jane Swingler

Auditors have delved into the murky depths of the French unemployment insurance debt. Their enquiry reveals that the holders of this debt, who each year are paid 400 million euros in interest from Unédic, operate within tax havens.

This Friday morning - just at the time when the Council of Ministers turns its attention to reforms of professional development, apprenticeships and the system of unemployment compensation, which make up the snappily-named bill “For the freedom to choose your own professional future” - about fifteen members of Gacdac, the citizen’s audit group into the unemployment insurance debt, are set to release their report into the Unédic debt. In it, they expose the lack of transparency in the financing of the body responsible for the management of contributions from 16.5 million workers. It is a “debt system”, whose managers, with the support of the State and investors from the financial markets, have placed it voluntarily into the hands of holders of 35 billion euros’ worth of debt security on unemployment insurance. Among these investors are those who dabble in tax havens and whose names feature in the listings from the Panama and Paradise Papers, as revealed by the press.

Where does Unédic’s money go? What level of tax evasion is drawn from workers’ subscriptions and the CSG (Contribution Sociale Généralisée), the tax paid by workers and retired people as part of their social welfare contribution? After an inquiry lasting several weeks into the twists and turns of Unédic’s accounting and financial operations, what the members of the Gacdac group discovered left them aghast, particularly as one in two unemployed people receives no compensation at all.

If the total debt of the unemployment insurance management, estimated to be between 34 and 37 billion euros, did not surprise the Gacdac members, the close relationship between Unédic and creditors involved in financial optimisation, or even tax avoidance, nevertheless stunned them.

“The lack of transparency within the system did not help us. We do not know the precise whereabouts of the securities (of the Unédic debt), but we know beyond doubt that the groups which own them have been named in the Panama or Paradise Papers listings (account files hidden in tax havens leaked by the press – editor’s note). Half of the 50 investors I managed to track down are present on these lists,” stated Louis Ferrand, who carried out the documentary research for the audit group.

In order to borrow on the financial markets, Unédic uses so-called “placing” banks to issue mainly restricted securities and bonds. For its short-term financial needs, it has recourse to the EMTN (Euro Medium Term Notes), devised in the US. These are loans with flexible rates and duration, and with a low level of regulation, which makes them very attractive to “investors” who can convert them without too many constraints. For its deals, Unédic uses about twenty financial establishments: the French banks BNP Paribas, Société Générale, Crédit Agricole, Bred and Natixis; Barclays and HSBC in Britain; Crédit Suisse in Switzerland; the Italian Unicrédit; the German Commerzbank AG, Nord/LB, Landesbank Baden-Württemberg, DZ Bank AG and Helaba; the American Citigroup and J.P. Morgan; the Canadian Scotiabank and the Japanese Daiwa Capital.

“We do not know who is selling and who is buying”

“Not one of these banks, regardless of the amount of securities it may buy, can consider itself free of blame. They are all, with varying degrees of skill, involved in tax evasion,” note the authors of the audit, who are disappointed at not being able to present a complete picture of the unemployment insurance debt. This is particularly the case in the so-called secondary markets where most activity takes place and which, thanks to the 2002 reforms to the Commercial, Monetary and Financial Code, benefit from screens which guarantee their anonymity.

Once they have been acquired by the banks, Unédic securities are effectively re-sold on another secondary market, for a commission of course, through a clearing house, a financial institution which acts as an intermediary to ensure that transactions go through smoothly. As it happens, Euroclear is one of the two European clearing houses. The second, Clearstream, had been in the news in the 2000s. According to Gacdac, Unédic allegedly passed on around 400 million euros in interest to investors, without really knowing who they were, as its director, Vincent Destival, explained when he appeared before senators in 2015.

“We have no precise monitoring of the manner in which our debt is renegotiated on the markets between the primary bearers and interested investors. We are aware of the price but not who is selling and who is buying.” One of them, however, was tracked down by the authors of the report: Sicav-Fis, a company involved in tax optimisation.

“While investigating, I stumbled upon this private compensation fund. It was set up to manage the reserve of the general retirement pension scheme in Luxemburg. In 2016, it contained some 7.95 million euros of Unédic securities,” explained Louise Ferrand.

The debt is equivalent to a year’s worth of subscription revenue

In this way, the auditors were able to track part of the French unemployment insurance debt as it passed through Luxembourg. Crédit Suisse (currently under investigation for aggravated money laundering, for not having declared millions of accounts to the French tax office) manages on Sicav-Fis’ behalf a loan of 252 million euros that it had itself placed on the primary markets with HSBC (this bank, as an advocate of tax haven investments, has recently avoided a trial by paying the French state 300 million euros in unpaid taxes) on behalf of Unédic.

“We ask that the identity of the creditors be released. We wish to know where the community money goes,” explained Gacdac’s Pascal Franchet. He is under no illusion as to the expected response to the long list of questions posed by the auditors, in a letter accompanying their report to the Ministry of Employment and to the administrators and directors of Unédic.

“The managers chose a system of debt to finance unemployment insurance with the support of the State, which underwrites the loans. This State backing allows Unédic to obtain very low borrowing rates from the banks. However, if there is a rate rise, which is likely, it will be a catastrophe for the unemployment insurance system,” continued Pascal Franchet.

The debt stands at a year’s worth of revenue from subscriptions, whose rate has stagnated for fifteen years, whereas the number of people out of work has itself doubled.

“In fact, unemployment benefit is an adjustment variable; hence the currently appearing race to declare people ineligible to receive unemployment compensation payments," lamented Pascal Franchet.


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