Swiss bank UBS to appeal after fined 4.5 billion euros in French tax fraud case
A French court found Swiss bank UBS AG guilty of illegally soliciting clients and laundering the proceeds of tax evasion, ordering it to pay 4.5 billion euros ($5.1 billion) in penalties.
Shares in the Swiss bank fell as much as 3.2 percent after the ruling on Wednesday. UBS, which has denied any wrongdoing, said it would launch an appeal.
“The court can only conclude that (UBS) consistently put its own financial interests over the sovereign rights of the French state,” the court’s president Christine Mee said in her ruling.
“Hence, the crimes are exceptionally serious,” she added.
The case shows how French courts are taking a hard line on financial misconduct in general, and tax fraud in particular.
The trial will be scrutinized by European bankers who have come under pressure from regulators to tighten compliance with money laundering rules since the financial crisis.
“This is a clear signal to all financial intermediaries: you will be punished severely if you don’t behave,” said banking law professor Thierry Bonneau from Paris Pantheon Assas University.
“They will have to be excessively prudent on all these questions of tax fraud.”
The penalties, which exceed the bank’s net profit last year, included a 3.7 billion euro fine and additional damages of 800 million euros to the French state. UBS last month reported a 2018 net profit of $4.9 billion.
“This decision is incomprehensible, we will appeal,” UBS general counsel Markus Diethelm told reporters outside the courtroom. “We have seen no facts and no evidence.”
An appeal could see the case drag on for years and the bank will not have to pay anything until all appeals are heard.
The combined penalties are a record for France and more than double the $2.46 billion the bank has set aside to cover potential losses from litigation and regulatory requirements.
The bank may have to increase its provisions in the coming weeks, Citi said in a note to investors and its plan to buy back as much as $1 billion worth of shares this year is at risk, it added.
“Industrial” Scale Laundering
The French trial follows a similar case in the United States, where UBS accepted a $780 million settlement in 2009, and in Germany, where it agreed to a 300 million euro fine in 2014.
The penalty is high by European standards, although in the United States judges have levied higher fines including the $8.9 billion a U.S. court in 2015 ordered BNP Paribas to pay for violating U.S. economic sanctions against Sudan, Cuba and Iran.
The size of the penalty in the UBS case will push banks to accept settlements in future cases, a standard practice in the United States that is rare in France, Bonneau said.
The ruling marks the culmination of a seven-year investigation and aborted settlement negotiations.
French prosecutors said UBS sent Swiss bankers to golf tournaments, classical music concerts and hunting parties to solicit new clients illegally and advised them to park their money in Switzerland and offered them methods to shield activities from the French taxman.
UBS was “systematic” in its support to tax-evading customers and that the laundering of proceeds from the tax fraud was done on an “industrial” scale, the prosecutors had told the court.
UBS’s lawyers have said the prosecution failed to show material evidence of specific cases of clients advised to evade tax payments.
Under French law, those convicted of money laundering can be ordered to pay a fine totaling half the amount laundered. The prosecution estimates UBS’s customers hid billions of euros from the French tax authorities.
Prosecutors told the court that UBS’s bankers would hand over business cards without any logo and used computers which carried software allowing data to be quickly erased.
Lawyers for UBS have previously said the case had become politicized. The bank turned down a settlement offer of 1.1 billion euros.
UBS’s French unit was also convicted to pay 15 million euros, while five of the six former UBS executives charged were given suspended prison terms and fines ranging from 50,000 euros to 300,000 euros.