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PARIS — The French are calling it “Sarkogate” — and L’Oréal’s Liliane Bettencourt is the catalyst.

This story first appeared in the October 8, 2010 issue of WWD. Subscribe Today.

The name Bettencourt has become the proverbial lit match in France, sparking fires in most realms of everyday life here. The affair encompasses everything the public salivates over: class warfare, political scandal, vast riches, powerful conglomerates, family feuds and potential downfalls. It’s a 19th-century French novel being played out in the up-to-the-second media of the 21st. What started as a simple dispute between Bettencourt — the L’Oréal heiress who’s France’s wealthiest woman with an estate estimated at $21.61 billion — and her daughter, Françoise Bettencourt Meyers, over assets Bettencourt gave to French photographer François-Marie Banier, is now engulfing and engrossing an entire nation.

The scandal could impact L’Oréal’s future ownership. Yet more immediately, most people bet the affair will force Eric Woerth to step down as France’s labor minister for allegedly taking illegal funds to help finance Nicolas Sarkozy’s presidential campaign. And many believe the saga is helping to undermine Woerth’s boss and possibly any hopes Sarkozy may have of running for a second term as French president in 2012. His popularity has hit a low point. In a poll conducted in September by marketing firm Ifop for Le Journal du Dimanche newspaper, 67 percent of French people said they were “discontented” with Sarkozy. That month’s turnout was only marginally better than that of April, his all-time worst month in opinion ratings as president — when 68 percent of the populace was discontented.

“This affair reinforces the skepticism, the sentiment of defiance that the French have vis-à-vis politics in general,” said political scientist Pascal Perrineau.

All Paris is aghast as it watches the name of one of society’s most discreet and well-respected denizens being dragged through the courts and across the nation’s front pages.

“The Banier affair has split Paris in two by demonstrating those who are tight-lipped to the press — social and sophisticated (as described by [Honoré de] Balzac in “Le Père Goriot” or Proust), shocked but ultimately rather amused by Banier, or those who think he was done in by greed for power,” said one insider. “Then there are those not in the social loop, like [L’Oréal chairman] Lindsay Owen-Jones, who is frank about disliking Banier and blabbing to the press. [And who received 100 million euros, or $136 million, of his own from Bettencourt.]

“After the holidays, all social people could talk about was how they had been hounded by the press about Banier,” the source continued. “A sort of competition for ‘how many calls did you get from journalists’ [developed]. But none had talked. Banier is liked for being charming and funny but, [he is] ultimately monstrous. He’s respected for being the bohème — with the billion.”

Another insider said, “The Bettencourt affair has become like a saga, and everyone is sort of thrilled to know more. No one is for Banier because everybody knows there is a certain amount of sordidness there. Everybody probably knows that Liliane Bettencourt is [either] more or less gaga, or that she’s just very generous.”

The ongoing story is even impacting the art world. Paris’ Maison Européenne de la Photographie, for instance, just confirmed it has postponed a solo exhibition of Banier’s photographs, meant to open in early November. The decision was taken “considering the current news,” said a museum spokeswoman.

The largest damage, however, may be to Sarkozy. The Woerth-Bettencourt affair further crystallizes certain observers’ impressions that the French president — who vowed when elected to shake up the system — is really just out to enrich his cronies.

He’s long been known for having an unabashed penchant for and link with the rich and powerful. Nicknamed the “bling-bling president,” Sarkozy’s choice of holding his election-night party in 2007 in Le Fouquet’s restaurant with captains of industry and showbiz types chafed at many. So did Sarkozy’s holidaying on billionaire Vincent Bolloré’s yacht right after his win.

Without those overt displays, “the Woerth-Bettencourt affair wouldn’t have had as much of an impact,” said Stéphane Rozès, a political scientist and president of Conseils, Analyses et Perspectives.

Indeed, numerous French presidents before Sarkozy — such as François Mitterrand and Valéry Giscard d’Estaing — had been chummy with the high and mighty.

“But they simply did it with more discretion,” said Perrineau.

Sarkozy’s expensive taste has led him to become the protagonist of a book called “Le Président des riches” (or “The President of the Rich”), which was published in September. Penned by sociologists Michel Pinçon and Monique Pinçon-Charlot, its subtitle reads: “Une Enquête sur l’oligarchie dans la France de Nicolas Sarkozy” (or “An enquiry into the oligarchy of Nicolas Sarkozy’s France”). The book argues that since Sarkozy’s presidency, France has become a combat zone of a class war led by the wealthy and in which the battles are numerous and harsh. Its subject matter covers a wide swath of ground, from the dinner at Fouquet’s to tax policies to Sarkozy’s personal life. Countless members of the country’s upper crust are mentioned, and woven into several sections are references to the Bettencourt affair, as well.

Sarkozy’s love of the better things in life has come back to the forefront just as he attempts to enact draconian budget cuts to reduce France’s deficit.

“The French don’t like it when political power seems to be serving the power of money,” said Rozès. “That is to say, for the French, political power must be above all other powers. It’s the idea that political power must be at the service of the general interest.”

Vividly embodying how Bettencourt’s name has come to represent the worst aspects of French politics for some was a union poster brandished during a demonstration against a proposed pension reform in early September, when more than a million people hit the streets countrywide to show their disgruntlement about the minimum retirement age possibly being upped to 62 from 60.

Printed on blood-red-colored paper, the poster featured Bettencourt’s face in the foreground and that of Sarkozy and Woerth behind. The tag line read: “‘Il n’y a plus d’argent pour les retraites,’ qu’ils disent…Redistribution des richesses!” (or in English, “‘There’s no more money for pensions,’ they say…Redistribution of wealth!”).

The tentacular Bettencourt affair dates back to December 2007, when Bettencourt Meyers brought a lawsuit against Banier. She claims he exploited the weakness of her 87-year-old mother, who had given him assets valued at about 1 billion euros, or $1.39 billion at current exchange. Banier denies any wrongdoing, while Bettencourt argues she is sound and acting on her own free will.

The Bettencourt-Banier affair morphed into the Bettencourt-Woerth scandal on July 6, when online news service Mediapart published an interview with Claire Thibout, Bettencourt’s ex-accountant. In it, she is quoted as saying that Bettencourt’s financial adviser, Patrice de Maistre, in 2007 asked her to withdraw 150,000 euros, or $207,808, in cash. She said de Maistre explained he would give the money to Woerth, who at that time was the UMP treasurer, to help finance Sarkozy’s presidential campaign. The sum was well above 7,500 euros, or $10,382, allowed for an individual’s political party donation under French law.

Thibout allegedly withdrew 50,000 euros, or $69,269, the most she could from the bank legally, and gave the money to Bettencourt, who then handed it over to de Maistre.

“A few days later, de Maistre told her that he had met Woerth and given him the money and that it pays to have an account in Switzerland,” said Antoine Gillot, a lawyer representing Thibout. “Therefore, she deduced that he had [added to] the sum of 50,000 euros with another sum. She didn’t know where from, but that he probably looked for it in Switzerland.”

Mediapart cited Thibout saying Sarkozy also received envelopes of cash from the Bettencourts, although after the story was published, Thibout said she’d been misquoted.

Mediapart, in the meantime, stuck to its report.

On July 12, Sarkozy appeared on national, prime-time TV to refute corruption allegations. He called claims of his receiving such envelopes “shameful.” During the interview, Sarkozy defended a system in France he initiated that limits direct taxes in France to 50 percent of income. (In comparison, under Dominique de Villepin’s regime, the cap was at 60 percent.) Bettencourt had reportedly been reimbursed 30 million euros, or $41.5 million, in March 2008 under the “tax shield” level instigated by Sarkozy.

He said the 50 percent limit helps keep companies from moving abroad.

“I wish that [Mrs. Bettencourt] remains owner of L’Oréal and that [the company], 17 billion euros in sales, 64,000 employees, doesn’t leave for another country,” Sarkozy told the nation. “Because at that moment, who pays? It’s the employees who lose their jobs.”

Just a day before Sarkozy’s TV appearance, Woerth was cleared in an official investigation into whether he had interfered in Bettencourt’s tax affairs so she would get favorable treatment by tax authorities while he was budget minister, the post he had before becoming labor minister. Regardless, he kept sliding deeper into hot water as Sept. 7 — the day he would first present the proposed pension reform — neared. Questions kept dogging him about the alleged illegal political donations and how his wife came to oversee part of Bettencourt’s finances. Woerth has maintained that he at no point intervened so de Maistre would hire Florence Woerth.

She has since stepped down from her role at Bettencourt’s holding company. Woerth himself resigned as UMP treasurer in late July at the suggestion of Sarkozy, and he has publicly backtracked about his role in de Maistre receiving the Legion of Honor in 2008. Woerth decorated de Maistre when he was Woerth’s wife’s boss at Bettencourt’s holding company, but Woerth had never before acknowledged playing a part in securing the award. Three letters backing up that claim have reportedly surfaced, according to the French press. These days, Woerth is being investigated for alleged influence peddling. Most believe that he will not be given another leading role — if, in fact, any — after Sarkozy’s government reorganization, which is expected in the upcoming weeks.

“Mr. Woerth is now a liability to the government. It would be a major political cost for the president to keep him,” said Jacques Delpla, an economist at the Conseil d’Analyse Economique. “He should have dropped him well earlier.

“Whatever happens — whether [Woerth] is guilty or innocent — it’s going to leave a lasting political scar on the current presidential majority,” continued Delpla. “People will still believe that the current government is much too close to the hyper-rich.”

The political environment could help reinforce voters’ abstention in the local elections in March and ultimately in the presidential elections in 2012.

“One can see very well how these political forces — the extreme left and extreme right — could profit a bit from this climate of denunciation of a would-be corrupt political regime,” said Perrineau.

The Bettencourt affair has further magnified high-profile battles raging in the French judicial system. There’s one between government-appointed prosecutor Philippe Courroye and judge Isabelle Prévost-Desprez. Another pits two eminent lawyers against each other — Georges Kiejman, who represents Bettencourt, and Olivier Metzner, who represents Bettencourt Meyers.

There are questions being raised over L’Oréal, too.

Although Bettencourt Meyers maintains she has no plans to sell her 31 percent stake in the world’s largest beauty company, which her mother has already given her in bare ownership, some industry observers are pondering the future.

At present, there is a shareholder pact between Nestlé, owner of about 30 percent of L’Oréal, and the Bettencourt family. Its principle terms are that neither party can increase its stake in the French beauty giant during Bettencourt’s lifetime and for six months after her death. Each of the parties is free to sell its shares and has conceded the other the right of first refusal until April 29, 2014. The parties can offer the shares to any third party after that date.

Scenting a story of epic proportions, the French media have gone after it like attack dogs chasing an intruder. Most recently, sources ran with reports that Bettencourt had lost 22 million euros, or $30.4 million, through Bernard Madoff’s Ponzi scheme.

All sides in the scandal are leaking information to the French media to get their messages across. One of the most spectacular scoops was given to Mediapart, which reported on June 16 the existence of 21 hours worth of discussions between Bettencourt and her advisers and others that had been clandestinely taped by her ex-butler (between May 2009 and May of this year) and handed over to the police. Mediapart posted some audio recordings, whose subject matter included the existence of Bettencourt’s Swiss bank accounts and ownership of an island in the Seychelles, called d’Arros, which had not yet been declared to tax authorities.

Banier’s hearing — originally scheduled to start on July 1 — has been delayed until the inflammatory recordings and other supplementary information can be reviewed. Reportedly, a new court date is unlikely to be set before next spring.

The Woerth-Bettencourt affair has even spurred a media lawsuit. Le Monde (which recently came under the ownership of the conglomerate formed by Pierre Bergé, Matthieu Pigasse and Xavier Niel) has accused Sarkozy’s office of trying to stifle freedom of the press.

In January 2008, Sarkozy explained he supported a shield law, whereby reporters would be protected from having to disclose the names of their sources. At the time, he said, “A journalist worthy of the title does not reveal his sources. Everyone must understand this, must accept this.”

Fast-forward two years, and the law was passed. However, just nine months later, in its Sept. 14 edition, Le Monde published a front-page story claiming Sarkozy’s office had violated that rule. The paper said the French government had ordered counterespionage agents to find the source of news leaks, especially after Le Monde had published a story in mid-July about ties between Bettencourt and Woerth.

“If it were true, it would be a major mistake made by the government,” said Delpla.

Sarkozy’s office has denied the paper’s claims.

Some have likened all the high drama swirling around Sarkozy to Watergate — hence the nickname “Sarkogate.” Certainly, there are some striking similarities — secretly recorded conversations, a deep throat (or throats) and questionable campaign funding, to name a few. Most agree France’s president is on shaky ground.

“The link between Nicolas Sarkozy and the country is profoundly eroded. But until the presidential election, he will have in hand all the institutional and political resources to hold the majority even if in his camp many would like an alternative,” said Rozès.

“I think there is still a great chance that Sarkozy will run as the center-right candidate because he remains the de facto head of the UMP party,” said Delpla, who deemed it only to be a remote possibility that another UMP presidential candidate will replace him before the 2012 presidential elections.

There are those who think Sarkozy has played a role in the Woerth-Bettencourt saga.

“Personally — and I’m not alone — I think he is very implicated in this affair,” said Gillot. “He is the President of the Republic, and normally he is to oversee the independence of justice. What is rather extraordinary and not sufficiently underlined is that he has personally intervened in a private judiciary affair. During the inquiry that was opened following the complaint lodged by Mrs. Bettencourt’s daughter, Nicolas Sarkozy received Mrs. Bettencourt at the Elysée to speak of the affair. It is incredible that in a private lawsuit the President of the Republic receives one of the parties who is actively involved in the proceedings. She asked to be received to speak about the affair, of course, and notably to ask him to stop it.”

Gillot also took issue with Bettencourt’s entourage learning — before proceedings began in court — of Courroye’s plan to ask that Bettencourt Meyers’ complaint be rejected. There is also the alleged illegal campaign funding.

“The Bettencourt affair has brought to light a different aspect of the function or the dysfunction of democracy — [in regard to] the independence of justice,” said Denys Pouillard, a political scientist who heads up the Observatory of Political and Parliamentary Life think tank.

Yet most political pundits disagree that Sarkozy’s situation has the scale or will ever have the consequences that the Seventies scandal that resulting in former U.S. President Richard Nixon’s resignation had.

“Could it be a Watergate? I don’t think so,” said Delpla, who added he views the Woerth-Bettencourt affair as an impediment to Sarkozy, but no reason for him to fall.

“It’s an exaggeration to say that it’s as important as Watergate,” agreed Rozès.

For one, Sarkozy isn’t being legally investigated for any personal wrongdoing. But even if he were considered suspect, the French Constitution grants judicial immunity to France’s president, who can refuse to testify while in office. In the instance of “neglect of his duties manifestly incompatible with the exercise of his mandate,” a French president could be prosecuted in accordance with specific procedure.

There’s a big question mark punctuating whether Sarkozy would be reelected in 2012 if he were to run as UMP candidate.

Some believe until now, the Woerth-Bettencourt affair has had no impact on Sarkozy’s political standing.

“For the moment, in terms of opinion, for the French, the President of the Republic is not mixed directly in this affair,” said Perrineau. “There are questions about Woerth, but regarding the president, there is no question on his personal implication in the case.

“The other part is the French realize that the Bettencourt fortune has in the past served to finance not simply the parties of the right — not simply the UMP — but also at a time the left,” he said. “The links between François Mitterrand and the Bettencourt family weren’t zero. The French are not completely naïve about this.”

Others believe the French do link Sarkozy with the Bettencourt affair.

“The successive revelations during the different investigations — from police to judicial to media-related — can’t discount the close ties between a candidate for President of the Republic and Liliane Bettencourt’s financial contributions,” said Pouillard. “The ‘affair’ weakens the [governmental] edifice. It’s a bit like water leaking into a basement and, little by little, it eats into the foundation until the day arrives when saltpeter covers the walls of all levels. And the worst occurs when the roof, in turn, lets rainwater in.”

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