French Court Slams UBS with €3.7 Billion Penalty

French Court Slams UBS with €3.7 Billion Penalty

On Wednesday, French tax authorities hit Swiss banking giant UBS with a 3.7 billion Euro fine for assisting its French clients to evade their tax obligations.

The fine, the largest of its kind in the country’s history, was imposed as a result of UBS helping its clients hide vast sums of income from the local tax authorities between 2004 and 2012.

More specifically, as explained by UBS, the French authorities found the bank “guilty of illicit solicitation and laundering of the proceeds of tax fraud and assessed a penalty of EUR 3.7 billion and EUR 15 million respectively and civil damages of EUR 800 million.”

As reported by the New York Times, this decision stems from a seven-year investigation into UBS “when several whistle-blowers at UBS France alleged that UBS bankers in France and Switzerland were engaging in illegal activity.”

Prosecutors claimed UBS bankers from Switzerland came into France looking for potential clients, a practice that is not permitted under French law.

As part of the prosecution’s argument against the bank, Hervé d’Halluin, ex-head of UBS’s Lille division, talked about the “nauseating practice of widespread poaching of clients, done in an almost industrial way” by his Swiss counterparts.

These meetings between potential clients and Swiss bankers often happened in informal settings such as the opera and art exhibits with UBS employees relying on the bank’s “security governance manual,” a specific guide on how to evade detection from French tax authorities.

This manual, writes Liz Alderman of the New York Times, “included instructions for using encrypted computers, using business cards without the bank’s logo and switching hotels frequently,” and “advice on how to hide information or documents about Swiss and offshore accounts if stopped by the authorities.”

Furthermore, UBS hid the movement of undisclosed funds from France to Switzerland via “a parallel accounting system known as the milk books, after the small notebooks used as ledgers by Swiss cow farmers.”

Judge Christine Mee said about the decision, “The criminal wrongdoings were of an exceptionally serious nature... These acts were committed behind the veil of opacity.”

“The concealment of assets and the unpaid taxes caused financial damages of an exceptional nature given the longevity and size of the fraud,” Mee added.

UBS Opposes Tax Evasion Decision in France

UBS Opposes Tax Evasion Decision in France

UBS was quick to oppose this verdict and plans to appeal the French court’s decision.

According to UBS in a press release, there were several problems with the investigation, mainly that the decision was “not supported by any concrete evidence, but instead is based on the unfounded allegations of former employees who were not even heard at the trial.”

Furthermore, UBS writes, “no evidence was provided that any French client was solicited on French soil by a UBS AG client advisor to open an account in Switzerland. As no offence in France was established, the decision effectively applies French law in Switzerland,” essentially “[undermining] the sovereignty of Swiss law” and presenting “significant questions of territoriality.
Finally, the decision “lacks proof and a credible methodology for the calculation of the fine and damages,” as “the charges of laundering the proceeds of tax fraud are without merit.”
Following this verdict, fines for which amounted to the bank’s 2018 net profits, shares for UBS dropped by 4.2 percent in Switzerland.

As reported by Bloomberg, the amount of the penalty was “five times what some analysts expected, the biggest ever fine for a Swiss bank, and more than 15 times what HSBC Holdings Plc paid to settle a similar matter in France in 2017.”

How will this ultimately end? Let us know your thoughts with a comment!

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