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The Bettencourt affair: can other families avoid a similar scandal?

By Katie Barker

Octogenarian L'Oreal heiress Liliane Bettencourt has dominated the headlines this week as a string of allegations have emerged about her financial affairs, writes Katie Barker.

Stories about tax evasion, illegal donations and links between her family office and the French government have been splashed across the world's press. The most recent allegations, made by Bettencourt's former accountant last week, claim Bettencourt gave an illegal donation of ?150,000 to France's ruling political party. 

The accusations culminated in French president Nicolas Sarkozy appearing on prime time television on Monday night to defend his labour minister and protest his own innocence in the scandal. 

For most ultra high net worth families, this amount of press coverage is tantamount to a disaster. Bettencourt's silence on the accusations, apart from a short statement in June, suggests she is not relishing the limelight either. But as France's richest woman and heiress to one of the world's largest cosmetic companies, she is always going to be of interest to the media.

Yet despite her elevated position, the problems Bettencourt is facing are not uncommon. So how can other families avoid these very public situations that distract from the successful running of the business? 

For Bettencourt, accusations over her financial affairs first surfaced in June when a former butler released illicit recordings of the heiress in talks with an advisor over apparently undisclosed holdings in Switzerland and the Seychelles. Transcripts of the tapes, made between 2009 and 2010, were made public, sparking an inquiry into the billionaire's tax affairs.

In a swift response to the accusations, Bettencourt said: "I have decided to declare all of my family assets that are currently abroad in cooperation with the French tax authorities." 

According to Alexia Rambosson, executive director, wealth and tax planning at Julius Baer, Bettencourt's response is indicative of a greater move towards transparency that is happening across the financial world. "My clients are talking about it, where as two or three years ago they were not. There was no such discussion as to whether it was correct to not disclose assets," she says. "It is no longer acceptable not to pay your taxes. People are deciding to voluntarily disclose their wealth, which comes from an overall shift in attitudes."

However, this was not the end of Bettencourt's problems. Once the light was shone on her financial affairs, other interesting details also surfaced. One of her financial advisors is married to Eric Woerth, labour minister in president Sarkozy's government. Rumours were rife that Bettencourt's finances had escaped detailed scrutiny due to this relationship.

Such claims were taken seriously by the French government, who immediately launched an investigation into Woerth's links to Bettencourt. The results were released on Sunday, stating that Woerth "did not intervene in the services under his authority to demand, prevent or influence a decision or an inspection affecting Mrs Bettencourt."

The political fallout may have been averted if it had not been for more accusations, which surfaced last week from Bettencourt's former accountant Claire Thibout. She claimed Bettencourt's financial advisor, Patrice de Maistre, gave Eric Woerth a ?150,000 donation in 2007 from the Bettencourt family. The accusation is severe as an individual political donation cannot exceed ?7,500 under French law.

Woerth is once again at the centre of these claims as, aside from being labour minister, he also serves as treasurer of the ruling UMP party. The situation was deemed serious enough for the president to address it himself on prime time television where he denied Thibout's claim that he had been given envelopes full of money from the Bettencourts early on in his political career.

There was no direct discussion of the ?150,000 donation, but the president said he had asked Woerth to step down citing a conflict of interest. 

Leading family business figures will often have relationships with other powerful people, but this episode shows how vital the management of such relationships is to ensure the family is not seen to gain from them unfairly. There is no evidence this is what Bettencourt has done, but the proximity of her family office to the French government was always going to attract suspicion if any financial irregularities surfaced.

In the background to the political scandal is a family conflict that has been rumbling on for three years; Bettencourt's only daughter, Francoise Bettencourt-Meyers, has brought a case against a close confident of her mother's, claiming he took advantage of the 87-year-old heiress' mental "frailty" for just under ?1 billion. The trial was scheduled to begin earlier this month, but was postponed while the authorities investigate the content of the butler's recordings.

The secret recordings from the butler and the scandalous accusations from the accountant may add to the high-drama, but they also place a spotlight on the importance of choosing close advisor that you can really trust. They also seem to add weight to Bettencourt-Meyer's case that her mother is a frail, 87-year-old woman who is not fully in command of her senses.

As the investigations continue and a trial with her daughter awaits, Bettencourt could well be asking whether it has all been worth it.

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