France budget minister snared in tax probe resigns

Mar 19, 2013, 4:35 PM EDT
French Junior Minister for Budget Jerome Cahuzac is pictured after visiting the Bassens Custums service, on March 7, 2013 in Bassens, outside Bordeaux.
AFP/Getty Images

PARIS (AP) — France's budget minister, ensnared in a ballooning scandal over suspected tax fraud and money laundering, on Tuesday became the first resignation in President Francois Hollande's 10-month-old Socialist government.

Jerome Cahuzac, who had garnered Hollande's trust as point man to help boost tax revenues as France battles a lackluster economy and swelling budget deficit, asked to be removed from his post — and the president accepted, according to a statement from Hollande's office. It said Cahuzac will be replaced by Bernard Cazeneuve, formerly France's junior minister for European affairs.

Earlier Tuesday, Paris prosecutors opened a judicial probe into a case of alleged laundering of money gained through tax fraud centering on Cahuzac — though investigators haven't turned up enough evidence to charge him by name.

Cahuzac, a sharp-speaking former plastic surgeon, has long been a vocal crusader against use of overseas tax havens. He made his name as budget minister by singling out corporate multinational tax dodgers, citizens who live abroad to avoid taxes, and those within France who stash money in overseas accounts.

Then, in December, allegations that Cahuzac himself may have squirreled away money abroad came to light. Online journal Mediapart alleged that Cahuzac had transferred money from a Swiss account into one in Singapore, and the Web site produced a recording that it said was of Cahuzac's voice talking about his secret account.

Cahuzac countered with a defamation complaint against Mediapart, and thundered a speech of self-defense in the gallery of the National Assembly when asked to address the allegations. Hollande expressed support for his minister. In January, Paris prosecutors responded by opening a preliminary investigation, notably to determine whether the recording made public by Mediapart was authentic.

In a statement Tuesday, the prosecutor's office said investigators heard accounts from three witnesses who recognized Cahuzac's voice on the recording. One witness testified that some money transferred into a suspected account had come from "pharmaceutical laboratories," the statement said, without elaborating.

The prosecutors said a judicial investigation has been opened to look into alleged laundering of money from a tax fraud, plus alleged money laundering and receipt of benefits from money laundering. It also said the probe would examine whether a medical worker may have received money improperly from a health-care company that provides services paid for by France's state-run health insurance system.

The budget minister post is one of the most onerous government jobs in France at the moment, as the Socialist leadership battles to cut spending and raise new tax revenues to avoid the type of fiscal and debt pressures that caused major problems for fellow European Union members such as Spain, Greece and Italy — and rattled currency markets over the fate of the euro.

"I thank Jerome Cahuzac for the action he carried out since May 2012 as budget minister for the adjustment of France's accounts. He did so with talent and competence," Hollande said in a statement. "I hail the decision that he took to hand in his resignation as a member of the government to better defend his honor."

The government shuffle is the first under Hollande, who in May defeated conservative incumbent Nicolas Sarkozy.