INVESTIGATION - Criminal networks are taking advantage of the Covid-19 crisis to lend to entrepreneurs on the verge of bankruptcy. Bercy's anti-money laundering unit is on alert.

The alert was issued from Italy on the eve of last spring. While the  Covid-19 epidemic is in full swing in the territory, financial crime services are agitating behind the scenes. Dozens of investigators, in charge of the fight against the Italian mafia, spot an influx of suspicious transactions: clans would take advantage of the crisis to lend to entrepreneurs on the verge of bankruptcy, in order to launder their income from criminal activities.

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Their favorite prey: SMEs and businesses in difficulty. Because some structures and stores short of cash and losing activity, no longer able to turn to banks to re-finance, are more inclined to accept the "dirty money" of unconventional lenders.

La Botte then informs its European neighbours of these practices, so that they can be prepared for the emergence of such phenomena in their country. 'Business transfers and inflows into the capital of companies represent a classic typology of money laundering. Each economic crisis thus offers new opportunities for criminal organizations," Soazig Ledan-Cabarroque, delegate of the National Council of Administrators and Judicial Representatives of France (CNAJMJ), in charge of the fight against money laundering and the financing of terrorism, told Le Figaro. The mass phenomenon and the unprecedented scale of the Covid crisis make it easier for these actors to go unnoticed.

Bercy's anti-money laundering unit stands ready

In France, Bercy's anti-money laundering unit, Tracfin, is ready. This division of the Ministry of the Economy made public a note on this subject last May, calling for medium-term vigilance for banks, stockbrokers and other actors who must report any suspicious financial transaction. Its human and material investigative resources are significant: it has an elaborate investigation service, staffed by 160 people.

Between the investigators of Tracfin, the Directorate of the Judicial Police, attached to the Ministry of the Interior, the teams of the DGCCRF, various actors of the State are mobilized. Close partnerships also exist between Tracfin and the CNAJMJ, as well as with the clerks of the commercial courts and notaries. Since 2013, the judicial police has had liaison officers at Tracfin.

After the scams with sanitary equipment (masks, tests), and the fraudes of short-time working ), the investigators of the judicial police are now worried about the risk that weighs on weakened societies. Hairdressers, dry cleaners, bakers and small restaurants, local shops that "brew species daily" represent easy targets for malicious actors. "Business leaders are looking for an escape from a complex financial situation. They are offered to buy their store at a good price, they will sometimes not ask themselves more questions than that, "says Anne-Sophie Coulbois, head of the Central Office for the Suppression of Major Financial Crime (OCRGDF).

This may include the takeover of a business in difficulty, where foreign actors take full control of the company; through the acquisition of legitimate businesses and cheap real estate, criminal organisations want to enjoy structures that appear legal to launder money.

Sometimes, the initial transaction concerns a simple acquisition of a stake in the capital, a purchase of receivables or the acquisition of a branch or segment of activity of the company. Agreements between organizations and a leader who would switch to the "dark side" are rarer, although some may have to open their capital more easily to suspicious foreign investors to ensure the sustainability of their business, explains Anne-Sophie Coulbois.

For the time being, all these elements remain at the hypothesis stage, because there has still been no proven case of takeover of French companies by individuals linked to a criminal organization since the beginning of the health crisis, says the Commissioner. But the authorities are watching over the grain.

Criminal organizations of foreign origin

The infiltration of money from drug trafficking into the French real economy remains significant. It is the illicit activity that generates the most income in the territory. Often, criminal organizations that buy weakened businesses can be providers of money laundering services for other criminal organizations.

In France, they are rather of foreign origin, but well established on the territory for a few years. In particular, Turkish organizations are very active, police sources said. The nationality of the criminals may, however, vary depending on the geopolitical context. In this regard, the country is working with the Financial Action Task Force (GAFI), an intergovernmental body, which evaluates the effectiveness of legislative, regulatory and operational measures to combat money laundering. The  Tracfin activity report from 2019 reveals that the most hostile operations in France came mainly from Chinese and Russian investment funds.

Since January 2020, the Tracfin intelligence service has processed nearly one hundred reports of suspicion of money laundering and entrusted about twenty files, directly or indirectly related to the epidemic, to administrations or judicial authorities.

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Commercial Courts on alert

It is more difficult to detect cases of fraud when the court does not intervene directly in a business buyout transaction. This is the case when the company is not subject to judicial treatment of its financial difficulties.

In this context, however, the legal act necessary to carry out a transaction must still pass into the hands of lawyers, notaries, accountants or banking institutions. 'It is up to them to be vigilant. They can make declarations of suspicion to Tracfin", explains the delegate of the CNAJMJ. The financial intelligence agency of the Ministry of the Economy may ultimately oppose a transaction deemed suspicious.

On the side of the Commercial Courts, companies in difficulty have not rushed to open preventive procedures (ad hoc mandate, conciliation) or collective (safeguard procedure, judicial reorganization, judicial liquidation). Because since last March, government aid measures, partial unemployment and state-guaranteed loans (PGE) in the lead, have put companies on hold. "The executive has adopted measures of exceptional financial support for companies. This has avoided or delayed, more than in Italy, bankruptcy filings, "says Anne Sophie Coulbois. At the same time, until the end of August, companies benefited from a reprieve to declare themselves in default of payments. In fact, the number of insolvencies was lower compared to previous years: they decreased by an average of 42% from March to September.

In recent weeks, the number of restructuring cases concerning VSE-SMEs has risen at the level of commercial courts, explained Wednesday the Minister Delegate for Industry Agnès-Pannier Runacher. Bercy expects a surge in suspicious transactions in the coming months, particularly around the repayment of EMPs.

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The Commercial Courts are on alert. "We train administrators and judicial representatives to ask a whole series of questions: why does this investor want to be interested in this company? What is its interest?" explains Soazig Ledan-Cabarroque, who leads training courses to raise awareness of these risks in the profession. To uncover money laundering attempts through a takeover or refinancing offer, they mainly assess the consistency of operations, the origin of the funds and the complexity of the acquisition scheme.

Justifying revenue surges

In 2019, the 440 administrators and judicial representatives in France, working on preventive and collective procedures, had made 1272 declarations to Tracfin. Sometimes, investigations, entrusted to Tracfin or the prosecutor's office, make it possible to dismantle financial crime networks. A widespread technique is that of "Smurfing": mafia groups recruit hundreds of people who will each have money to launder in different territories.

The status of European funds is more admissible because they are subject in principle to the same anti-money laundering system as the France. Depending on the nature of the country, the court may have to force foreign buyers to deposit their funds in a French bank account.

Finally, the police services intervene in the field of the judicial investigation once the suspicious transactions have been carried out. The aim is to materialize the existence of the offences. For example, investigators can check whether there has been a change in the actual activity of the company, in particular by comparing accounting and balance sheet activities from one year to the next. "If we see that the new owners brew three times more money than the old ones, it can be suspicious," explains Anne-Sophie Coulbois.

For businesses such as bakeries, it would be implausible to explain a surge in turnover by a supposed "catch-up movement" of customers after the crisis. In addition, it is necessary to be able to justify significant financial flows from an economic point of view.