French vineyard sales leave bitter taste amid laundering fears by Russian and Chinese investors

August 18, 2013 9:17 pm

French vineyard sales leave bitter taste amid laundering fears

By Anne-Sylvaine Chassany in Paris

French anti-money laundering authorities have raised the alarm over recent acquisitions of vineyards by Russian and Chinese investors.

The use of multiple holding companies based in tax havens to buy French wine estates has pushed Tracfin – whose mandate is to uncover money laundering and terrorism funding schemes – to issue a warning in its 2012 report published this month.“Given the complexity of legal structures used to buy wine estates, the ultimate beneficiary and the origins of the funds can be difficult to determine,” it said in the report. “These pieces of evidence, coupled with the sizeable amounts at stake to acquire estates that often have large operating losses, require . . . stronger vigilance.”

Tracfin, which relies on notaries, bankers and lawyers to track down money laundering activity, said it received alerts related to Russian, Chinese and Ukrainian investors. In particular, it describes, without giving names, the suspicious purchase of a vineyard by a Cyprus-based company owned by a vehicle located in another unspecified low-tax jurisdiction and whose ultimate owner is a Russian citizen.

The agency, which does not have the power to conduct full investigations, would typically inform relevant courts when it detects signs of possible money laundering. It declined to comment on specific cases.

The warning comes as soaring exports of wine and cognac to markets such as China and Russia in the past decade have fuelled demand for French vineyards from a new kind of cash-rich buyer.

Karin Maxwell, at Maxwell-Storrie-Baynes, a local estate agent, said that the new breed of clients sometimes had a different approach.

“We have had more inquiries from Russians, but I am not very receptive to them once they start talking about going outside the normal parameters,” Mrs Maxwell said. “I advise them of the law, the fact that in the contract they will be signing, the price paid is the real price, and so on. I never hear from them again once I have advised them of the rules.”

Chinese investors have targeted Bordeaux, where they have snapped up about 40 châteaux, including the Grand Cru Classé Bellefont-Belcier in Saint-Emilion – out of the 8,000 in the region. Russians have focused on Cognac, further north, where they bought about seven estates out of 5,000 over the past eight years, according to Paul Hosteing, an agent at Quatuor. Foreign investors are vying for the 250-year-old Hine cognac house, one of the largest with 120 hectares, which is for sale, according to agents in the region.

While marginal in numbers, the newcomers tend to seek large estates. In an industry long dominated by families, they often ruffle feathers locally as rising property prices mean fewer French producers can afford to compete with them or grow their estates.

Jacky Chat, a cognac maker in the Fins Bois area – known for producing some of the finest eaux de vie – said he faced local opposition last year when he sold his 110-hectare estate to the St Petersburg-based vodka distributor Ladoga Group – a deal that Tracfin reviewed, he said.

Mr Chat’s long-time lender, Crédit Agricole, demanded he pay down all his debt, saying it did not want to deal with the Russian company, according to Mr Chat. Crédit Agricole de Charente-Maritime Deux-Sevres declined to comment.

Ladoga, which paid three times more than some local offers, has kept all five employees and modernised the estate, said Mr Chat, who started in 1972 with six hectares and did not find a suitable successor in the family. Ladoga did not comment immediately.

“I was criticised for selling to foreigners, but I was lucky to find them,” Mr Chat said. “They are good guys. They laugh a little when we tell them some have doubts about them.”