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UBS to Face French Tax Trial After Settlement Talks Fail

Updated on
  • Bank accused of helping clients evade taxes in France
  • Talks between UBS, prosecutor broke down over amount of fine

UBS Group AG will stand trial in France in a tax-fraud case that may leave the Swiss bank open to a fine of as much as 4.9 billion euros ($5.3 billion).

The bank, which posted a 1.1 billion-euro bond to cover any potential penalties three years ago, said on Monday that it will have to answer charges that it helped wealthy clients evade taxes by stashing funds overseas. The criminal case is coming to court after settlement talks with French authorities broke down over the size of the fine. No date has been set for the trial.

“UBS has made clear that the bank disagrees with the allegations, assumptions and legal interpretations being made,” the bank said in a statement. “We will continue to strongly defend ourselves and look forward to a fair proceeding.”

UBS had been pushing to settle the French investigation for less than the 300 million euros it paid to resolve a similar case in Germany, where the wealth-management market is larger than France, people familiar with the matter said this month. France’s financial prosecutor sought 1.1 billion euros, the same amount as the bond, according to a person familiar with the matter.

“A court case may create a bit more noise than a settlement, but for investors it can be also good news that the bank is fighting the case," Peter Casanova, a Kepler Cheuvreux analyst, said by phone Monday. “It’s also a chance for the bank to fend off allegations that might be wrong.”

Not Reasonable

Talks between the financial prosecutor and UBS began after French lawmakers last year approved a civil settlement procedure requiring that fines be based on the advantage derived from the wrongdoing.

After several confidential meetings with France’s financial prosecutor, UBS General Counsel Markus Diethelm said last week that he was “very pessimistic” about reaching an accord.

“What was put on the table wasn’t reasonable,” he said.

In court, UBS could be fined as much as half the 9.8 billion euros that investigative judges estimate French citizens have stashed in undeclared offshore funds under its management.

The trial may herald “a change of paradigm” in how France combats financial crimes, according to Stephane Bonifassi, a criminal lawyer in Paris.

‘Totally Backwards’

“It could mean the end of small fines -- in the millions of euros -- and that’s a good thing,” said Bonifassi, who isn’t involved in the case. “France was totally backwards compared to the U.S. in that respect,” he said, warning that there’s always a risk that the court will dismiss the case.

While French prosecutors had sought a four-year prison sentence plus a massive 250 million-euro fine for Guy Wildenstein over tax-evasion charges, Paris judges fully cleared the art dealer earlier this year.

The Zurich-based lender is accused of illicitly soliciting clients on French territory and laundering the proceeds of tax fraud, according to a person familiar with the indictment. The bank’s French unit as well as several former employees will have to respond to the charges in court, the person said.

The French investigation has seen several twists and turns. UBS had previously sought to reach a deal with French authorities before the new settlement procedure was approved, but talks broke down in July 2014 after the lender balked at entering a guilty plea. The following year, French authorities issued arrest warrants for three former UBS executives, including Dieter Kiefer, the former head of UBS Group AG’s wealth management for Western Europe, after they failed to show up for questioning.

‘Bond’ Techniques

French investigators accuse UBS bankers of organizing clients events in the country, including golf tournaments and art exhibitions, to encourage residents to move assets offshore to Switzerland, according to prosecutors’ recommendations issued last year, which were seen by Bloomberg.

UBS, which wasn’t allowed to solicit clients in France, took steps “worthy of James Bond” to avoid detection, a former employee of the firm’s French unit said in the prosecutors’ document. UBS employees in France used encrypted computers, had business cards without the lender’s logo and were told to switch hotels regularly, according to the document.

While UBS paid $780 million in 2014 to avoid U.S. prosecution in a similar tax case after admitting it helped thousands of clients in the country cheat the Internal Revenue Service, the Swiss lender may be testing a new approach in a different probe. UBS is weighing the option of going to court with the U.S. Justice Department over allegedly deceiving investors who bought mortgage-backed securities, people familiar with the discussions said earlier this month.

— With assistance by Jan-Henrik Foerster

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