The same “FT” journalist who got the Wirecard case rolling accuses Leonteq of having facilitated a suspected case of tax evasion through lax business practices. The company vehemently denies the allegations.
The derivatives company Leonteq defends itself against the allegations of the “Financial Times”.
The facts are unclear, but the allegations are substantial: investigative journalists from the British business newspaper The “Financial Times” (“FT”) essentially accuses the Swiss derivatives provider Leonteq of through lax controls, he allowed French brokerage firms to allegedly evade taxes or even launder money when selling Leonteq investment products.
Leonteq describes the allegations, which go back to whistleblowers, as unfounded.
Nevertheless, investors reacted violently to the report in the “Financial Times”: The Leonteq share price fell by almost 20 percent on Monday. This is probably also due to the fact that the main author of the article is Dan McCrum. He was instrumental in exposing the fraud and balance sheet scandal involving the German payment provider Wirecard, which has since disappeared. The case even got him the lead role in a Netflix documentary recently.
A transaction with many participants
What exactly is Leonteq accused of? The case unfolded in March 2021, when a broker in Paris and a consultancy in Lille sold two Leonteq structured products, each worth €750,000, to a French workers’ cooperative. The middlemen do not work with a sales partner from the Leonteq branch in Paris, as is usually the case, but choose a detour via a sales partner called Ladoga Capital. Its company is registered in the British Virgin Islands and has a distribution agreement with the Leonteq branch in Dubai.
The transaction is potentially delicate from the point of view of “FT”, because apparently neither the French broker nor Leonteq’s consulting firm have asked for a commission for their services. The sales partner involved in the deal in the British Virgin Islands received a commission for this. 120,000 euros or around 8 percent of the total flow into his account. The transaction is also potentially sensitive because the sales partner would not have been authorized to sell products in France due to his contract with Leonteq.
According to the whistleblowers quoted by the “FT”, this fuels the suspicion that one or both of the French middlemen could have used the detour via the sales partner in the British Virgin Islands “as a cover” to avoid disclosing the commissions as taxable French income . According to “FT”, the consulting company justifies the waiver with considerations of customer loyalty, i.e. in order to receive orders again in the future. The broker in Paris did not answer inquiries.
Unclear evidence
Whether taxes were actually evaded or money laundered is unclear based on the current situation. The “FT” provides circumstantial evidence, but no evidence, that money flowed from the distribution company in the Virgin Islands to the French middlemen. Even whether the commissions were “high” can only be said if you know the term of the products sold.
According to the FT, however, the documents and records viewed by the journalists “raise questions about weak controls, a culture of rule-breaking and poor corporate governance at Leonteq.” The newspaper quotes a whistleblower as saying that there seems to be a culture at Leonteq where commercial interests sometimes take precedence over compliance.
The newspaper also goes to court harshly with the auditing company EY, whose Swiss subsidiary came to the conclusion in an investigation report commissioned by Leonteq that there were no indications “that would justify the accusation of money laundering or tax evasion”. In the report, EY recorded internal control problems and the lack of email and telephone recordings, but only superficially clarified the actual facts. In response to media inquiries, EY said on Monday that it would not comment on specific customer matters, but emphasized: “We have robust internal processes to ensure high quality work.”
A central question is also whether Leonteq should have reported the case to the French authorities after it became known, as the whistleblowers explain in the “FT”. After clarifications from a French law firm, the company itself considered the reporting of the activities to be “not necessary”.
Leonteq vehemently rejects the allegations in the “FT” at the request of the NZZ. “The allegations were reviewed by our compliance department and by EY as part of an independent investigation. No evidence of money laundering or tax evasion was found.” The company emphasizes that it cannot be held responsible for any breach of the distribution agreement by a third party.
Leonteq pursues a “zero tolerance policy” with regard to non-compliant business conduct. From the compliance department to management to the board of directors, all instances were involved in clarifying the case. The investigation was carried out by a specialized team from EY, which works independently of the internal audit team, which also works for Leonteq.