UBS’s Record French Tax Fraud Penalty Slashed to $2 Billion

(Bloomberg) -- UBS Group AG was ordered to pay a 1.8 billion-euro ($2 billion) penalty for helping wealthy French clients stash undeclared funds in Swiss accounts, less than half the levy that the lender had initially faced. 

The Paris court of appeals on Monday upheld a 2019 finding that the bank had illegally laundered funds by providing customers with a range of services to hide assets from tax authorities. UBS said in a statement on Monday that it’s reviewing all its options, including a possible further appeal.

The total penalty breaks down as 800 million-euro damages award for the French state, a confiscation order of 1 billion euros and judges slashed the actual fine against the bank down to 3.75 million euros -- from 3.7 billion euros. 

While hardly a victory for UBS, it’s still a significant cut on the original penalty that stunned the Swiss bank two years ago and led to a shareholder revolt over the management’s handling of the case. The decision marks the latest step in a long running drama that outgoing Chairman Axel Weber has said was one of his priorities to address.

UBS only set aside about 450 million euros in provisions to cover the fines for the case, though it also had to post a 1.1 billion-euro bond. Overall, the UBS case relates to the years 2004 to 2012.

Shares in UBS jumped as much as 3% on the ruling, reversing earlier declines. They had largely pared their advance by 4 p.m. in Zurich.

Denis Chemla, a lawyer for UBS, said after the ruling that the fine was reduced on appeal from 3.7 billion euros to 3.75 million euros because the court considered there wasn’t “any proof” on the amounts of taxes evaded.

The fine is based on the maximum statutory penalty for money laundering, rather than prosecutors’ suggestion to use a complex calculation stemming from the dues owed by French taxpayers on undeclared wealth in the bank’s Swiss accounts.

“The court accepted our arguments” on that point, he said. “But they made up for it with a confiscation that wasn’t asked for; we don’t really know what that’s about. It’s a surprise. It wasn’t requested by prosecutors.”

The fines imposed on UBS and its French unit would be suspended if the decision is appealed, the lender said.

Bankers

The French unit of UBS was also found guilty, as well as four former bankers who were defendants in the case. The Paris court of appeals reversed the conviction of Hervé d’Halluin, an ex-banker at UBS France. Paris judges also confirmed the 2019 acquittal of the highest-profile banker in the case, Raoul Weil, who formerly headed UBS’s wealth-management unit.

All six bankers had previously denied any wrongdoing, as had the bank and its French unit.

Two UBS Bankers Acquitted, Three Get Fines Cut by French Court

Monday’s outcome is a setback for prosecutors at the Parquet National Financier who brought the case and may make other companies think twice before seeking to settle investigations.

In the UBS case, the Swiss lender eschewed a settlement in 2017 after failing to agree on an amount, exposing it to in-court demands from the state and prosecutors. 

At the time, UBS started by offering 180 million euros, less than a fifth of the 1.1 billion-euro bond it had to post in the case. As French enforcers dismissed the UBS offer, which it had improved slightly, as unacceptable, the bank’s legal team decided to play hardball, pushing the case to trial in the hope of wringing out a smaller penalty.

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