UBS's Paris Penalty Shows Le Sheriff Has Come to Town

(Bloomberg) -- Fans of French exceptionalism may not want to admit it but the $5.1 billion penalty a Paris judge slapped on UBS Group AG for helping clients to launder their hidden assets is the strongest sign yet that American-style justice has come to town.

The 3.7 billion euro-fine ($4.2 billion) and 800 million euros in damages the bank was ordered to pay, the biggest ever levied in France, is reminiscent of the muscular approach the U.S. Department of Justice took in punishing Swiss banks for their role in helping Americans avoid tax.

“It’s very much an American phenomenon that has been noticed in France,” said Christopher Mesnooh, a Paris lawyer who practices on both sides of the Atlantic. Set against the Gilets Jaunes protests over wealth disparity that have gripped France, he said French courts are also mindful of their duty to prosecute attempts to rip off ordinary French taxpayers

“They see that the Justice Department is able to levy extremely large fines and so the idea that you can levy such fines has made its way to Europe,” according to Mesnooh.

Landmark Fine

The French prosecutor’s eight-year pursuit of UBS culminated in the Paris criminal court ruling on Wednesday that the Zurich-based lender illegally provided French customers with banking services to hide assets from tax authorities. The landmark fine follows an agreement UBS struck a decade earlier with the Department of Justice to avoid prosecution in return for paying $780 million and handing over the names of clients, a key concession given it went against the fundamental principles of Swiss banking secrecy.

Armed with that so-called deferred prosecution agreement, the Department of Justice widened its disclosure program in 2013, ultimately netting 80 Swiss banks who agreed to admit wrongdoing and pay $1.36 billion in fines in exchange for being spared the embarrassment of a public trial. U.S. prosecutors then separately extracted a guilty plea and $2.6 billion settlement from UBS arch-rival Credit Suisse Group AG in 2014 for its role in helping Americans hide their assets in Swiss bank accounts.

“The bank has consistently contested any criminal wrongdoing in this case throughout the investigation and during the trial,” UBS said in Wednesday’s statement.

UBS said on Thursday that it had already filed an appeal of Wednesday’s ruling, arguing in its statement that the conviction is “not supported by any concrete evidence.” The bank went on to blast the text of the verdict as a “copy and paste” job of the prosecutor’s own documentation.

Guilty Plea

Twice, UBS entered discussion to settle with French authorities but the first set of talks broke down in 2014 after UBS balked at entering a guilty plea and the second set of negotiations collapsed over how much the bank should pay. But the decision to play hardball in court appears to have backfired, landing UBS with a penalty that’s five times what most analysts expected and dwarfing what the bank set aside for legal issues.

“This is the largest fine that a French criminal authority has ever awarded and shows that French justice is approaching American-style penalties,” said Ludovic Malgrain, a lawyer at White & Case in Paris, who is not involved in the trial.

Even outside the finance sector, French regulators are beginning to flex their muscles. Alphabet Inc.’s Google was hit in January with a 50-million euro fine by France’s data authority CNIL after the regulator concluded Google broke tough new European Union data-protection rules.

“They can go after banks and large technology company because they see that the money is there,” says Mesnooh. “I think we’re going to see more and more of it.”

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