UBS Accused of Bond Movie Tactics in Paris Tax-Dodging Trial
(Bloomberg) -- France is seeking 1.6 billion euros ($1.8 billion) in compensation from UBS Group AG, which went on trial in Paris on Monday accused of encouraging rich clients to stash cash outside the country to evade taxes.
Eric Dezeuze, a lawyer for UBS France SA, revealed the amount on day one of a trial where the Swiss lender is accused of deploying tactics “worthy of James Bond” to help customers launder money they hadn’t declared to French authorities. He said the French state’s lawyer cited the amount in recent written submissions.
Zurich-based UBS dispatched bankers across the border to seek out new clients even though they lacked the paperwork -- a banking license or European passport -- to offer such services in France, the lead investigator wrote in the indictment ahead of the trial which got underway on Monday 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. The bank has consistently denied any wrongdoing.
UBS’s French unit, UBS France, 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 defense teams for UBS and its French unit raised procedural issues at the onset of the trial.
Dezeuze said that the bank is accused of facts that could be prosecuted either as laundering undeclared money or aiding and abetting prospective clients commit tax fraud. The lawyer said this raises a problem: UBS could be prosecuted in two different ways and be liable for two different sets of penalties for the same set of facts. He asked for the matter to be clarified by France’s constitutional court.
Christine Mee, the presiding judge, said the criminal court will read out its ruling on the request on Thursday afternoon.
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 300 million-euro ($345 million) 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 1.1 billion-euro bond to cover any potential penalties -- an amount even the European Court of Human Rights didn’t consider unfair.
It ended up in 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 emailed statement ahead of the trial.
Julia Stasse, a lawyer for Kiefer, declined to immediately comment.
Investigators say UBS bankers organized 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.
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 9.8 billion euros in undeclared offshore funds under the Swiss bank’s management -- putting the maximum fine at half that amount or 4.9 billion euros.
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 2.2 billion Swiss francs ($2.2 billion).
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 567 million 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 Monday’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 U.S. over sales of toxic mortgage securities in the years before the financial crisis.
Shareholder group Glass Lewis & Co singled out the cases in an emailed report earlier this year, saying the failure to reach settlements is likely to continue to be a significant cause of concern for many shareholders.
Nearly a decade ago, UBS agreed to pay $780 million to avoid U.S. prosecution in a similar tax probe after admitting it helped thousands of clients in the country cheat the Internal Revenue Service.
The tax evasion dispute between the U.S. and Swiss banks was kicked off by Bradley Birkenfeld, a former UBS banker arrested in the U.S. who then assisted investigators probing about $20 billion in taxpayer assets hidden overseas.
That sparked investigations into other Swiss lenders and, along with pressure from European governments, led to the end of Switzerland’s famous secrecy laws for offshore accounts.
“This is justice for the French people," Birkenfeld said as reporters lined up outside the Paris court ahead of the trial, set to last for six weeks until November 15.
An earlier version of this story was corrected to change the date of the U.S. settlement.
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