Recently, Swiss bank, UBS Group AG UBS and its French unit were found guilty by the French trial court of tax fraud and money laundering against allegations that the bank helped its clients in the country evade taxes. The court has penalized the bank with EUR 4.5 billion ($5.1 billion), including civil damages of EUR 800 million.
Notably, following a seven-year probe into such allegations and abandoned settlement negotiations, the bank was liable to counter allegations of illegally soliciting clients in France. Around $2.5 billion set aside by UBS as provisions for legal fines might be used and will likely hurt profits in 2019.
UBS had been persistently denying any criminal wrongdoing throughout the investigation and during the trial, and therefore, has contested the verdict and plans to appeal. Per the bank, the conviction was based on "unfounded allegations of former employees." Further, UBS opines the ruling to be based on discrimination in France, known for elevated taxes against Swiss tax practices.
According to UBS, it was only offering "legitimate and standard services under Swiss law that are also common in other jurisdictions." However, the Paris court opposed the opinion and has charged the above-mentioned criminal fines. Moreover, penalties were also levied on five ex-UBS executives.
"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 noted in her ruling. "Hence, the crimes are exceptionally serious," she added.
Per investigators, UBS employees implored business from wealthy executives or athletes at the time of sports or music events in France requesting them to put money in Switzerland. Notably, the assets worth 10 billion Euros ($10.75 billion) are likely to be illegally transferred in Switzerland in 2004-2012 by French clients.
"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," he added.
Per French law, an appeal made by the bank would shelve the judgment put forward by the trial court and transfers the case to the Court of Appeals.
UBS has been under investigation by the French authorities on potential charges of illegally soliciting clients in France to open Swiss accounts for hiding undisclosed wealth during the period between 2004 and 2012. Later, the investigation also included money-laundering charges against the bank.
Following the failure of settlement talks on account of UBS’ refusal to plead guilty, the bank was ordered to pay a €1.1-billion bail amount in July 2014. Apprehending adverse impact on its business, UBS restrained from pleading guilty. The bank appealed against the verdict, citing that the bail amount as "unprecedented and unwarranted." Notably, UBS pressed for the figure equivalent to €300 million, which the bank paid as settlement in 2014, to German authorities related to a similar probe into whether or not the banking giant helped clients in the country evade taxes.
However, after losing an initial appeal against the €1.1-billion bail payment in September 2014, the bank’s appeal was rejected again in December 2014 by France’s apex appeals court, Cour de Cassation. Disappointed with the ruling, UBS had proposed to contest the court’s decision, including the right to a fair trial, at the European Court of Human Rights.
In March 2017, according to a French judicial official, the investigating panel from PNF — the national financial prosecutor office — has claimed the charges against the bank as valid and ordered the case to be sent to trial at a later date which commenced in October 2018.
Nonetheless, UBS has disagreed with the allegations and legal analysis, strongly defending itself and looked forward to a fair proceeding.
Notably, in 2009, the Swiss bank had paid $780 million to regulators as settlement related to U.S. criminal and civil investigation, and admitted that it had helped clients evade taxes. UBS is not the only Swiss bank to be involved in such issues. In May 2014, Credit Suisse Group AG CS pleaded guilty to criminal charges of assisting its U.S. clients to evade taxes and has admitted to shell out $2.8 billion as settlement charges to the U.S. authorities.
We believe the ongoing investigations on banks will be a step ahead toward reducing the huge losses incurred due to offshore tax evasion. Regulatory authorities are investigating scandals and are determined to put forward a landmark judgment to curb such shrewd practices.
Shares of UBS have lost around 35.2% in the past year compared with the 15% decline recorded by the industry.
UBS Group AG currently carries a Zacks Rank #4 (Sell).
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