UBS On Trial In France For Tax Fraud

by Ike Obudulu Posted on October 8th, 2018

Paris, France : Swiss banking giant UBS Group AG goes on trial in Paris on Monday to face accusations it orchestrated a huge tax fraud scheme for wealthy French clients, with potential fines of billions of euros.

The Zurich-based lender dispatched bankers across the border to seek out new clients even though they lacked the paperwork — a banking licence or European passport — to offer such services in France, the lead investigator wrote in the indictment ahead of the trial which starts today afternoon.

When they came over from Switzerland to France UBS bankers allegedly took several steps, described in the prosecution’s opinion on the case as akin to 007 techniques and listed in a “security risk governance” manual, to avoid detection by authorities. They used encrypted computers, had business cards without the lender’s logo and were told to switch hotels regularly, according to prosecutors.

UBS also allegedly helped clients to launder money they hadn’t declared to French authorities. The bank — which risks billions of euros in fines if found guilty — has consistently denied any wrongdoing.

UBS’s French unit, UBS France SA as well as several top executives including Dieter Kiefer, the former head of UBS Group AG’s wealth management for Western Europe, will also stand trial for their alleged roles in the case. The defence teams for UBS and its French unit are expected to raise procedural issues concerning the indictment at the onset of the trial.

The UBS case is part of a French crackdown on tax fraud operated via Switzerland that’s seen the conviction of a former minister and a €300mn ($345mn) settlement with HSBC Holdings Plc last year. The seven-year-old case began with a whistleblower report and culminated in 2014 with UBS being forced to post a €1.1bn bond to cover any potential penalties — an amount even the European Court of Human Rights didn’t consider unfair. It’s coming to court after settlement talks between UBS and French authorities broke down in March 2017 over the size of the fine.

“After more than six years of legal proceedings, we will finally have the opportunity to respond to the often unfounded allegations that were frequently leaked to the media, in clear violation of the presumption of innocence and the legal confidentiality of the process,” UBS said in an e-mailed statement. “The bank intends to firmly defend its position. Out of respect for the French judicial institutions, we will not argue our case in public before the trial begins, but reserve our arguments for the court,” UBS added.

Julia Stasse, a lawyer for Kiefer, declined to immediately comment.

Investigators say UBS bankers organised client events in France, including golf tournaments, hunting outings and art exhibitions, to encourage residents to move undeclared assets to Switzerland, according to a summary of prosecutors findings. France Must Discourage Bank Data Theft, Macron Swiss MP Says

To calculate the basis for any fine in the French case, authorities set out to estimate the depth of the tax fraud. In one estimation, investigators say French citizens may have stashed €9.8bn in undeclared offshore funds under the Swiss bank’s management – putting the maximum fine at half that amount or €4.9bn.

Kepler Cheuvreux analyst Jacques-Henri Gaulard says the HSBC precedent – where the amount of concealed assets was more than five times smaller than in the UBS case — suggests the fine could reach 2.2bn Swiss francs ($2.2bn).

Still, other analysts have pointed to a smaller sum. A settlement “in the same range” as HSBC would be taken well by the market, JPMorgan Chase & Co analysts led by Kian Abouhossein wrote in a note to clients. UBS had 567mn Swiss francs of provisions for litigation and other regulatory matters at its wealth management unit as of the end of June. The bank doesn’t break out how much of that number is dedicated to today’s case.

The French tax case is one of two big legal issues still weighing over UBS. The lender is among several big banks that have yet to settle disputes in the US over sales of toxic mortgage securities in the years before the financial crisis.

UBS’s trial in France follows a similar judicial process in the United States where the bank accepted in 2009 to pay $780 million in a settlement after admitting it helped thousands of clients in the country cheat the Internal Revenue Service. In Germany, UBS agreed to a 300 million euro fine in 2014.

The investigation into UBS in the United States began after UBS employee Bradley Birkenfeld revealed a scheme to funnel wealthy customers’ cash from the United States to Switzerland bypassing the U.S. taxman.

Birkenfeld spoke separately to French investigators. Even though he is not due to testify in court in Paris he will attend the hearings.

For money laundering, French criminal law lets judges enforce fines as high as half of the amount laundered. In the French case, prosecutors estimate that up to 10.6 billion euros was denied to the taxman.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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