Paribas, France's Largest Bank, Rocked by Asset Stripping Scandal

Paris: On November 9, the former chairman of Paribas (Compagnie Financiere de Paris and Pays Bas), France's largest banking group, was charged with violation of currency regulations and with defrauding a client= charges which carry penalties of up to five years prison and huge fines. French business and media sources are unanimous, however, in the opinion that these charges are being pursued principally because of the Socialist government's fury at the role played by the former chairman, Pierre Moussa, in shareholding, and asset manipulations that "saved" much of the bank from being nationalized by the French government.

Paribas is one of the companies to be nationalized (see MM, September, 1981) under legislation that is presently held up by more than 1,000 amendments proposed to committees of the parliament.

As the debate over nationalization rages, the Paribas case has been described by the top-selling French weekly Le Nouvel Observateur as "the first national psychodrama of the new regime." Moussa himself has become a hero to those who oppose the Socialists' plans, while to leftists he represents the "wall of money" which they believe is intent on sabotaging the government's economic program.

Six months ago, Paribas was the ninth largest finance bank in the world, had interests in 44 countries and was expanding. The darling of the French and international finance world, Moussa was to be named "banker of the year" by the U.S. financial review, Institutional Investor.

Moussa is an unlikely target for pent-up socialist anger. A suave, literary and open man, he is the antithesis of the "gnome" banker. When head of the African section of the World Bank in the mid-sixties, Moussa earned a reputation as a friend of the third world. He counts among France's new Socialist ministers more friends and former colleagues than he had in the old Giscardian regime with whom his relations were often strained.

These relations apparently led him to believe that an agreement would be reached with the new Socialist government that would keep much of Paribas out of state control.

Moussa proposed to the French government that Paribas's international interests be separated from the group's French banking operations into a Paribas International Corporation, with only 20% state participation.

Moussa argued that the bank would lose its clients in the USA, the Arab nations and in Asia if there were a state takeover. Moderate members of the Socialist government agreed.

But the nationalization bill presented to the French parliament on September 17 included all of Paribas and merely promised that the international holdings of the company "would be sold off at a later date."

Moussa, who had believed until the last moment that his scheme would .be accepted, was furious. "I've been fooled and manipulated. It's a complete disaster. They've decided to plough Paribas into the ground. Just like Carthage," he declared to his staff.

But from the events which followed it appears as if Moussa, even before the bill was presented to parliament, had laid plans to get around its intent by creating-with or without government approval-a separate bank, Paribas International, with the same clients and the same contracts as Paribas' foreign division formerly: had.

Moussa first transferred the formal ownership of almost $200 million of the group's international assets away from the French parent company, to the Swiss subsidiary, Paribas-Suisse. Then a consortium of financiers-including the New York-based investment bank A.G. Becker, of which Paribas owns more than 20%, and the Power Corporation of Canada in which a Paribas minority interest was transferred to Paribas-Suisse in May of this year-bought 60% of Paribas-Suisse through a Swiss finance company, Pargesa Holding S.A.

These transactions came to light when Pargesa made its offer to buy Paribas-Suisse in October of this year, for $420 million, and French finance minister Jacques Delors reacted by forcing Moussa to announce that Paribas opposed the bid for its Swiss offshoot. But because Moussa had already transferred the ownership of the Swiss subsidiary away from the French parent to other subsidiaries, Pargesa was able to buy up 60% despite the government's opposition.

When the outcome became clear, Socialist deputies exploded with rage with prime minister Pierre Mauroy declaring, "Pierre Moussa has the mentality of an emigrant" (a reference to aristocrats who fled abroad during the French revolution), and president of the national assembly Louis Mermaz announcing that "All the elements of a financial and economic counter-revolution are in place ... class war is upon us."

The reaction in international financial circles was congratulatory toward Moussa, but few of the banker's colleagues in the French business world sprang to his defense.

On October 21 Moussa resigned as head of Paribas after being disavowed by his board, three of whose members are presidents of companies destined, like Paribas, for state takeover.

French business leaders apparently fear that the Paribas affair will strengthen the hand of radicals within the government. Coming as it did on the eve of the French Socialist Party congress, the affair provoked blood-curdling language from Socialist deputies. "It's them or us," declared interior minister Gaston Deferre, in a reference to the capitalist class. And the national secretary of the Socialist party, Paul Quiles, in a stirring speech reminiscent of the French revolution, said "the time has come for heads to roll."

The government is, however, unable to pin any wrongdoings on Moussa for having separated Paribas from its Swiss subsidiary-which accounts for nearly 40% of Paribas's international holdings-and so it has brought up a year-old-affair of currency violation.

When French customs, on an anonymous tipoff, raided Paribas' plush Paris headquarters in November, 1980, they found in the bank's exchange department details of 450 accounts which had been fraudulently opened in Switzerland for Paribas clients to transfer money out of France. The customs investigation also found details of a transaction involving U.S.$6.75 million in gold coins which the bank smuggled through its Belgian branch to Canada for the owner, a French industrialist.

Customs officials say that not only did the bank illegally transfer the coins but also defrauded the client by substituting ordinary gold coins for 1,000 extremely valuable ones.

On Tuesday, November 3 of this year, police raided the Paribas offices again, and less than a week later, Moussa and three senior members of the Paribas exchange department were charged with currency violations and defrauding a client-the French businessman-who is himself charged with complicity in gold smuggling. If convicted of the smuggling charge, Moussa and the other defendants could face up to five years in jail and fines of up to five times the amount . smuggled.

Usually, currency regulation transgressions of this sort in France are settled quietly and out of court with the guilty paying a customs fine. In this affair, however, the minister of the budget, Laurent Fabius, has said that all those involved in transactions concerning over $200,000 (which is all but 100 of the 450 Paribas clients with illegal Swiss accounts) will be charged in the courts.

The French government is concerned about the flow of capital out of France which, since the Socialists came to power, has reached $9 billion. Only a small amount has been confiscated at the frontiers, notably the French/Swiss border.

The Swiss are not adverse to seeing an increase in French bank deposits in Switzerland, which already amount to $70 billion in French francs.

The Moussa affair has tarnished the image of France's most successful finance bank and set the government on a campaign to "moralize" business. Pierre Moussa, for having chosen. "stateless capitalism" over the interests of his own country, has become the Socialists' public enemy number one.