Early this week the Audiencia Nacional chose to reject the investigation of the “Equity Release” alleged fraud on grounds that include, on the one side, the argument that they lack “geographical” jurisdiction and on the other, that there is not enough evidence within the claim (250 pages) to merit starting a criminal investigation by their Courts. And if those grounds were not enough, to further convince themselves of the wisdom of their decision, they also mentioned that we had not managed to prove enough the relationship between the cowboy coastal IFAs and the reported banks (informally known in Spain as “chiringuitos financieros”), as if to suggest that we should have eavesdropped on their board meetings or tapped their telephone conversations. I would be lying if I said that we were not aware that it would very be difficult to get these elitist Magistrates to deal with white-collar crime, even if as serious as this.

In our opinion, this is a clear case of judicial apathy by the Court which, after probably not reading the claim, considered it nevertheless irrelevant in what is a steadily worsening record of protecting rights of consumers.

In stark contrast to this indignant “skimping over”, the Danish Government has reacted forcefully to the allegations published by the largest newspaper in Denmark, the Morgenavisen Jyllands-Posten. According to the daily newspaper, Sydbank targeted wealthy expat residents of Spain, encouraging them to take out a Danish mortgage on their property and offering to transfer the released money to Switzerland. Jyllands-Posten claims that the Aabenraa-based bank was aware that Swiss bank secrecy rules would allow these assets to be hidden from the Spanish tax authorities.

The newspaper points to an internal mail sent from a director of Sydbank Switzerland to senior management in Denmark, including CEO Karen Frøsig. EPN.dk quoted the email admitting that in Spain, tax on inheritance on real estate only applies on the equity. Mortgaging serves primarily the purpose of inheritance tax reduction. It was also mentioned that Sydbank may not even have had a license for operating in Spain, let alone offering tax evasion products.

The Danish Tax Minister, Thor Möger Pedersen, has indicated that It is clear that my awareness increased if a large bank is proposing a maneuver in which the tax due on the loan is placed in a tax haven country without accountability. If it is a widespread traffic in the financial sector, it is definitely something we will look at.

According to Johnny Schaadt Hansen, director of The Danish Tax Office Special Department of Economic Crime, there may be a counselor responsibility, which the bank may be punished for. It does not sound very good if a Danish bank is involved in such a concept. It will be included in our priorities, and one should not forget that in such a case can be a counselor responsibility, as one can be punished for, whether you are accountant, lawyer or banker, said Johnny Hansen Schaadt.

The articles also quotes Lars Krull, a senior consultant and expert in banks from Aalborg University, saying that if it is primarily tax that drives it, and not a real need for funding, you should be wary. Also, the specialized financial daily Finanswatch.dk openly regards this practice as a scam.

Finally, a few days ago we learned that three Swiss bankers are charged in a New York indictment with conspiring to hide more than $1.2 billion of taxpayer assets from the Internal Revenue Service, in what is a very similar tax dodging scheme (they were using offshore companies, straw-men and other mechanisms to defraud).

News from the Danish Media (in Danish)

• Sydbank hjalp med at skjule formuer 09-01-2012 – epn.dk
• Flere banker arbejder i skattely 10-01-2012 – epn.dk
• Sydbank: Vi var måske for offensive  10-01-2012 – epn.dk
• Spansk advokat jagter danske banker 13-01-2012 – epn.dk
• Skyer over Solkysten 14-01-2012 – Finans Watch (Subscription Required)
• Kommentar: Bankernes kulsorte hemmelighed 15-01-2012 – Finans Watch (Subscription Required)

As we were almost expecting, the Audiencia Nacional has chosen to not deal with this case. Just as they chose to do with the “Urdangarin” case, King Juan Carlos’ son-in-law, they consider this matter not susceptible of being investigated by the higher AN but directly via the local Courts of First Instance. Below is a brief explanation of the position of the case and what we will be proposing next:

Dear Sir/Madam,

We are writing to you to advise that the Audiencia Nacional, the Madrid Courts specialized in major criminal cases, terrorism, money laundering and other high-profile cases, has rejected investigating the matter on jurisdictions grounds.

This decision comes as no surprise after learning, via the press, that only a few days ago they also rejected (on similar grounds) a petition to investigate the activities of the King Juan Carlos’ son-in-law, on corruption and tax evasion grounds, in spite of the very serious charges brought against him as well the geographically dispersed nature of his activities, throughout Spain (two key elements to attribute jurisdiction). The case is therefore now back to Court number 3 in Palma de Mallorca against the wishes of the, surprisingly, indicted person.

This relocation of jurisdiction in favour of district Courts of First Instance is thus a mere formality that has, in principle, the following immediate consequences:

1. The choice of legal action (civil or criminal) will be determined by the specifics of the case, the situation of the mortgage and namely the existence is enough evidence to demonstrate criminality, in the form of deceitful publicity and swindle when selling the equity release products.

1. Jurisdictional matters will now have to be re-addressed, depending on whether civil or criminal charges are instigated, the place of signing the contracts (both investment and mortgage loans) and where the offices of these banks are situated (some have closed their offices altogether).

Our firm is in favour of filing civil cases pursuing the declaration of “nullity and voidness” of equity release contracts on broader grounds, as is permitted in the civil jurisdiction where the legal standard of proof is reduced to “the balance of probabilities”, often referred to “more likely than not”. Our main arguments will be based on 2 Supreme Court rulings on an almost identical case, which found a Spanish bank guilty of mis-selling financial products to customers with no financial knowledge. A summary of the cases and how they relate to equity release can be found on the following links:

http://belegal.com/blog-by-antonio-flores/equity-release-contracts-full-of-cracks-i/

http://belegal.com/equity-release/equity-release-contracts-full-of-cracks-ii/

From our perspective however, the need for further clarification of the nature of the contracts necessarily will require an expert opinion, financial in this case. Also, we are very keen to obtain the opinion of the Spanish regulators in respect of the following, for which we will apply directly to them (as we had requested the rejecting Madrid Courts to obtain such reports and will now not be getting them):

 

1. If the Tax Office considers that mortgaging one’s home and hiding the proceeds in Luxembourg is a valid way to avoid taxes.
2. If the Bank of Spain gave clearance to this speculative product, aimed at retirees, pensioners and older people.
3. If the Financial Regulator (CNMV) gave clearance to this investment vehicle, the promotional literature devised to sell it, the IFAs through which the products were sold and the content of the contracts, from a consumer protection legislation perspective.
4. Where the investment vehicle was a unit-linked insurance policy, if the Insurance regulator (DGS) approved the items on point c).

We will write to you shortly with a legal representation proposition as soon as we decide the venues for bringing an action and whether we can join together lawsuits where the defendant is one same bank, regardless of the address of the mortgaged property. Needless to say, from a legal fee point of view this proposition take into account your financial situation and will give weight to the no-win no-fee element of the legal fee, in detriment of the retainer, that will be much reduced and that can be paid by installments.
B. regards

Story originally posted on The Equity Release Fiasco blog.