Can Europe Make It?

LuxLeaks court case against two whistleblowers and a journalist

As Luxembourg strives to mend its tarnished image with a 'Nation Branding' scheme, a lawsuit against two whistleblowers and a journalist puts the small country back into the international spotlight.

Moh Hamdi
9 May 2016

Luxembourg's Prime-Minister Jean-Claude Juncker being granted the title of Doctor Honoris Causa of the University of Porto, May, 2013, in Portugal. Paulo Duarte / Press Association. All rights reserved.Two years after the divulging of confidential documents by the International Consortium of Investigative Journalism (ICIJ), Antoine Deltour and Raphaël Halet, the two Frenchmen who triggered off the Luxembourg Leaks, are standing trial for theft, illegal access to and possession of confidential data and breach of secrecy.

The documents in question had caused international outrage at the time of their disclosure as they shed light for the first time upon the inner workings of Luxembourg's tax ruling system. More than 300 companies — among them, multinationals such as Disney, Skype, Google, Amazon a.o. — had managed to save millions paying as little as 1% in taxes. The first wave of revelations centered on the deals facilitated between 2002 and 2012 by the consulting agency PricewaterhouseCoopers(PwC), allegedly in tandem with Luxembourgian government officials. In December 2014 followed a second wave of leaks, this time including material concerning the other Big Four auditors KPMG, Deloitte and Ernst&Young.

The scandal couldn't have been more untimely for the newly appointed President of the European Commission, Jean-Claude Juncker. The tax arrangements that came to light were set up during Juncker's lengthy tenure as Luxembourg's Prime Minister. After 18 years in office, Juncker was ousted in 2013 following a national scandal involving the State Secret Service (SREL). He was then nominated and elected as the Commission's President replacing Jose Manuel Barroso on 1 November 2014. The LuxLeaks scandal erupted during the very first week of his incumbency which led some people to regard the leak as a deliberate and planned attack directed at Juncker. Indeed, Juncker's appointment was immediately challenged by his many critics. Faced with general opprobrium and an imminent motion of no confidence which he would eventually withstand, Juncker was forced to justify himself in front of the European Parliament.

His main line of defence was to underline that tax arrangements of this kind are not per se an illegal practice. In fact, as Juncker pointed out quite rightly, many EU member states are carrying out such rulings. To depict it as a Luxembourgian problem rather than a European one is therefore misleading. Accordingly, the LuxLeaks scandal is something of a misnomer and should be renamed EuroLeaks, so Juncker said. Whistleblower Antoine Deltour concurred. In an interview with the French daily Libération he said that it was 'unjust that Luxembourg is the only country to be put in the pillory and that only one auditor is being singled out, for the procedures are systemic'.

Deltour is the main defendant in the ongoing court-case. The former employee at PwC is said to have copied 45.000 pages on his last workday - a huge amount of data, but comparatively little in contrast to the Panama Papers. His deeds were prompted by a sense of civic responsibility, he said on Tuesday 3 May during his hearing. He acted for the common good and is proud to have launched a debate around tax rulings. The second whistleblower Rapahël Halet has mostly remained in the background and his name was only revealed shortly before the trial started. As it turned out, PwC had approached him before the start of the proceedings in order to convince him to keep silent. In return, he agreed to be sued for a symbolic sum of 1 Euro instead of a 10 million Euros sanction.

Halet it was who sparked the second wave of Luxembourg leaks. He forwarded the documents to the French journalist Edouard Perrin, who publicized the findings in a video report. Perrin is now also facing trial. He is accused of instigating both whistleblowers into leaking documents and targeting specific companies. His indictment has attracted a great deal of criticism as it is seen to be violating the freedom of the press and the freedom of information. Perrin himself stated during the hearing that the accusations were merely intended to frighten whistleblowers and media companies. Other witnesses testifying in court, such as MEP Sven Giegold, confirmed that without the revelations of the 3 accused, the world would have remained in the dark about the tax optimisation system which in turn could not have been called into question. He especially stressed the importance of whistleblowers and the need to better protect them.

Ironically, Luxembourg is one of the only 5 EU member states which have adopted a law to safeguard whistleblowers from harmful consequences. However, not all whistleblowers are covered by this law as the articles only mention leaks related to money laundering, influence peddling and corruption. Hence, the law does not pertain to Deltour and Halet. A better protection is in the process of being elaborated on an EU-wide level. On 25 November 2015 the European Parliament adopted a resolution which charges the Commission with the task of putting forward a legal framework for the protection of whistleblowers by June 2016. A draft legislation was already presented by Green MEPs last Tuesday.

Meanwhile, the European Parliament has also passed the 'Trade Secrets Directive' which aims at better protecting companies from espionage. Given that this further jeopardizes the status of whistleblowers, the directive has attracted the ire of many politicians and activists. The directive seems all the more irritating as it was approved shortly before the LuxLeaks process and in the middle of the Panama Papers affair. Both scandals could not have been exposed without the material provided by whistleblowers. Margrethe Vestager, the European Commissioner for competition who has worked extensively with the disclosed LuxLeaks documents commented that 'everyone should thank both the whistleblower and the investigative journalists' who brought the Luxembourgian tax ruling system to light.

But not everyone is of the same opinion. Gaston Vogel, lawyer and well-known public figure in Luxembourg, opined that Deltour betrayed his employers by breaching trade secrets and that he should meet the sentence provided by the law, irrespective of the content of the documents he disclosed. Others think it wiser to avoid public statements. Even Vestager, who was invited to testify in court has surprisingly declined to bear witness, despite the plaudits she had previously given to the defendants. Xavier Bettel, the incumbent Prime Minister of Luxembourg, observed that he was not in a position to voice his opinion for it would breach the separation of powers. His French counterpart, Manuel Valls, reacted equally evasively when confronted with the LuxLeaks trial during his visit to Luxembourg on the 11 April. 'The whole affair is a matter of the Luxembourgian justiciary' he laconically said. 

Whether the affair is solely a matter of the Luxembourgian justiciary  or not, the leaks have set in motion a debate that reaches well beyond the frontiers of the Grand-Duchy. Apart from the proposals to better protect whistleblowers, several initiatives addressing fiscal fraud have materialized after the revelations. The Special Committee on Tax Rulings (TAXE 2), which Giegold is a member of, was for instance established as a direct consequence of the LuxLeaks scandal. This committee examines the tax practices of EU member states in order to prevent tax avoidance. Another plan was introduced by the OECD which put in place a 15-point plan dubbed 'Base Erosion and Profit Shifting' (BEPS) to combat tax evasion. Furthermore, the European Commission has adopted a directive which obliges its member states to automatically exchange information on tax rulings. It is to come into force on 1 January 2017.

Additionally several groups in support of the three accused have been created as a response to the lawsuits. An online petition has gathered more than 200,000 signatures. On the morning of the 26 April, shortly before the opening of the legal proceedings about 100 supporters and journalists from all over Europe had gathered in front of the court of justice on the Plateau St. Esprit. Among them was Robert Denis, the journalist behind the so-called Clearstream affair. This affair was uncovered by a whistleblower ten years ago and lay bare another international web of fraud in Luxembourg's financial sector. Denis, who has himself been dragged to court for his role in the Clearstream affair, ardently defended the 3 accused of the LuxLeaks trial. 'The wrong people are being tried', he declared. Those who expose wrongdoings are being judged whereas those who carry out the wrongdoings are left unscathed, he observed. 

Last Wednesday the lawyers of Halet and Perrin as well as of the plaintiff PwC presented their pleadings to the judge. Antoine Deltour's position will be defended this coming Tuesday. According to preliminary assessments, a follow-up to this case at the European Human Rights Court in Straßburg is to be expected.

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