French Gov agency warns of money laundering in vineyard sales to foreigners

TRACFIN is the French Ministry for the Economy and Finance's office in charge of enforcing the rules against money laundering and fiscal evasion. The analysis of denunciations received by TRACFIN in the last three years is said to show an increased reporting regarding the acquisition of French vineyards by foreign investors, according to the annual report of the agency released last month. The report singles out potentially suspect operations by Chinese, Russian and Ukrainian buyers.

According to industry sources quoted by the South China Morning Post, Chinese investors currently own about 50 vineyards in Bordeaux alone, while Russian investors are more present in Cognac. Some Chinese who bought vineyards a few years ago are said to be reselling to other Chinese and the time span between buying and selling appears to be shortening. The RACFIN report notes a "growing presence of investors with ties to China". The newspaper further quotes People's Bank of China's deputy governor Li Dongrong, saying that the issue of money laundering has risen to the "national strategic level". The

Chinese authorities are busy trying to keep in check massive capital outflows from the country.

The report states that it is difficult to establish the origin and the legality of the funds used to purchase the vineyards since the buyers are shielded by "complex judicial arrangements with holding companies located in fiscally privileged countries."

The Chinese economy is facing uncertain times and the Chinese government seems decided in trying to curb down corruption. Many Chinese who have amassed huge fortunes in the years of frenzied growth are anxious about the long term economic and political prospects of their country and are getting out; they are increasingly looking to reposition their wealth out of China. According to Global Financial Integrity, an advocacy group that tracks international unlawful money flows, the illicit financial outflows from China between 2000 and 2011 would amount to US$3.79 trillion. The trends in the former Soviet republics (chiefly Russia, Ukraine and Georgia) appear to be analogous.

Are vineyards a fertile destination for dubious capital flows as the TRACFIN implies? The answer is complex.

There has been a steep decline in domestic consumption of wine and the farms average size has increased while the number of properties decreases and in many areas there is a rising price environment per hectare. Meanwhile, activity in the wine and spirits industry – traditionally dominated by French family groups- is marked by an increase in exports, linked to strong demand in emerging countries, notably in China. While it is true that international money flows are much harder to monitor than domestic ones, there is a sense of urgency in the TRACFIN report. It is certain that the French Government is eagerly looking for new revenue sources in an environment of fiscal distress.

The report mentions the case of a Cypriot holding owned by a shell company based in a low-tax country belonging to a Russian national who appears to be, ultimately, the not-so-obvious beneficial owner of this investment. However, one can sense the caution in the wording and, after all, that isn’t illegal in itself. One gets the impression that there is more than meets the eye and that the anti-laundering agency is trying to incentivize notaries, lawyers and banks to report on their potentially questionable clients. 

However, Chinese investment has been very beneficial for Bordeaux and it has revived properties that were on the brink of disappearing. The industry, let’s face it, has been under-invested in for quite a long time. And investment is badly needed in France's current economic situation. The authorities must certainly do their job in enforcing the law against illicit money laundering, but it would be wrong and even stupid to discourage honest private investors who just want to preserve their privacy as long as they remain within the boundaries of the law.