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UBS Group's (UBS) French Tax Fraud Fine Curtailed to EUR 3.75M

·4 min read

Legal hassles have intensified for UBS Group AG UBS and its French unit UBS France S.A., regarding the bank’s cross-border business activities in France between 2004 and 2012. An appeals court in France ordered the Swiss bank to pay a fine of €3.75 million for unlawful solicitation and laundering of tax-fraud proceeds of wealthy clients. The penalty is reduced from a fine of €3.7 billion, ordered in 2019.

Additionally, the court instructed the confiscation of €1 billion. This apart, civil damages worth €800 million slapped on the Swiss firm to be paid to the French state are intact from the 2019 ruling.

UBS France S.A. is let off the hook in relation to its aid and assistance in laundering the proceeds of tax fraud but found guilty of abetting in illicit solicitation. Hence, the court levied a fine of €1.875 million on the firm.
The fines imposed on UBS Group and UBS France S.A. will be suspended in case the decision is appealed.

UBS Group was under investigation by the French authorities on potential charges of illegally soliciting clients in France to open Swiss accounts for stashing undisclosed wealth between 2004 and 2012. Later, the enquiry included money-laundering charges against the bank. In 2019, following a seven-year probe into such allegations and abandoned settlement negotiations, the bank was liable to counter allegations of those illegal activities.

Per a Bloomberg article, the fine imposed is based on the maximum statutory penalty for money laundering rather than prosecutors’ recommendation to use an intricate calculation derived from the dues owed by French taxpayers on undeclared wealth in the bank’s Swiss accounts.

Per the article, around €450 million set aside by UBS Group as provisions for legal fines might be used.

Conclusion

UBS Group operates in a business and regulatory environment that is complex, uncertain and subject to change. Also, the company is subject to numerous regulations by the U.S. and non-U.S. regulators that add complexity to the ongoing global compliance operations.

We believe that the prevalent investigations on several banks will be a step forward to reducing the huge losses incurred due to offshore tax evasions. Regulatory authorities are investigating scandals and are determined to make a landmark judgment to terminate such shrewd practices in the future, bring justice to the sufferers and punish the wrongdoers.

The ongoing probes will undoubtedly dent UBS Group’s reputation in the global arena. With such fines being imposed on UBS Group, its bottom line would take a hit. Nevertheless, resolution of such issues will likely restore investors’ confidence in the stock.

Currently, UBS Group carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of UBS Group have gained 6.1% in the past three months against a 4.8% decline recorded by the industry.

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Several finance companies continue to encounter legal hassles and are charged with huge sums of money for business malpractices. Some of them are Franklin Resources, Inc. BEN, Washington Federal WAFD and Charles Schwab SCHW.

Last month, a lawsuit was filed against Franklin Resources by a group of investors claiming that the company sabotaged a startup named Onsa to get its technology and hence, an entry into the flourishing fintech market. The news was reported by Bloomberg.

Washington Federal agreed to pay a civil money penalty of $2.5 million to the Office of the Comptroller of the Currency (OCC) in relation to its February 2018 Consent Order for Anti-Money Laundering and Bank Secrecy Act (“AML/BSA”) deficiencies.

In April 2017, Washington Federal entered into an agreement to acquire Anchor Bancorp in an all-stock transaction. That year, in September, the companies amended the merger’s termination date from Dec 31, 2017, to Jun 30, 2018, because of the identification of some faults with respect to procedures, systems and processes of Washington Federal’s BSA program. However, the deal was terminated on Jul 17, 2018.

SCHW was slapped with a class-action lawsuit over violations of its fiduciary duty by placing its interest before the protection of its clients through the bank’s robo-adviser Schwab Intelligent Portfolios’ cash sweep program.
The case, filed in the U.S. District Court in Northern California, also accused Charles Schwab of breach of contract and the infringement of state laws.


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