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Banking & Finance

UBS is accused in Paris tax-evasion trial of tactics akin to schemes in a Bond movie plot

PUBLISHED : Monday, 08 October, 2018, 8:39pm
UPDATED : Monday, 08 October, 2018, 9:12pm

UBS Group AG goes on trial in Paris on Monday accused of encouraging rich clients to stash cash overseas to evade French taxes by deploying tactics “worthy of James Bond.”

The Zurich-based lender dispatched bankers across the border to seek out new clients even though they lacked the paperwork - a banking license or European passport – to offer such services in France, the lead investigator wrote in the indictment ahead of the trial which starts on Monday afternoon.

When they came over from Switzerland to France, UBS bankers allegedly took several steps, described in the prosecution’s opinion on the case as akin to 007 techniques and listed in a “security risk governance” manual, to avoid detection by authorities.

They used encrypted computers, had business cards without the lender’s logo and were told to switch hotels regularly, according to prosecutors.

UBS also allegedly helped clients to launder money they hadn’t declared to French authorities. The bank – which risks billions of euros in fines if found guilty – has consistently denied any wrongdoing.

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UBS’s French unit UBS France SA, as well as several top executives including Dieter Kiefer, the former head of UBS Group AG’s wealth management for western Europe, will also stand trial for their alleged roles in the case. The defence teams for UBS and its French unit are expected to raise procedural issues concerning the indictment at the onset of the trial.

The UBS case is part of a French crackdown on tax fraud operated via Switzerland that’s seen the conviction of a former minister and a 300 million (US$345 million) settlement with HSBC Holdings last year.

The seven-year-old case began with a whistle-blower report and culminated in 2014 with UBS being forced to post a 1.1 billion bond to cover any potential penalties – an amount even the European Court of Human Rights did not consider unfair.

It’s coming to court after settlement talks between UBS and French authorities broke down in March 2017 over the size of the fine.

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“After more than six years of legal proceedings, we will finally have the opportunity to respond to the often unfounded allegations that were frequently leaked to the media, in clear violation of the presumption of innocence and the legal confidentiality of the process,” UBS said in an emailed statement.

“The bank intends to firmly defend its position. Out of respect for the French judicial institutions, we will not argue our case in public before the trial begins, but reserve our arguments for the court.” Julia Stasse, a lawyer for Kiefer, declined to immediately comment.

Investigators say UBS bankers organised client events in France, including golf tournaments, hunting outings and art exhibitions, to encourage residents to move undeclared assets to Switzerland, according to a summary of prosecutors findings.

To calculate the basis for any fine in the French case, authorities set out to estimate the depth of the tax fraud. In one estimation, investigators say French citizens may have stashed 9.8 billion euros in undeclared offshore funds under the Swiss bank’s management – putting the maximum fine at half that amount or 4.9 billion.

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Kepler Cheuvreux analyst Jacques-Henri Gaulard says the HSBC precedent – where the amount of concealed assets was more than five times smaller than in the UBS case – suggests the fine could reach 2.2 billion Swiss francs (US$2.2 billion).

Still, other analysts have pointed to a smaller sum. A settlement “in the same range” as HSBC would be taken well by the market, JPMorgan analysts led by Kian Abouhossein wrote in a note to clients.

UBS had 567 million Swiss francs of provisions for litigation and other regulatory matters at its wealth management unit as of the end of June. The bank does not break out how much of that number is dedicated to Monday’s case.

The French tax case is one of two big legal issues still weighing over UBS. The lender is among several big banks that have yet to settle disputes in the US over sales of toxic mortgage securities in the years before the financial crisis.

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Shareholder group Glass Lewis & Co singled out the cases in an emailed report earlier this year, saying the failure to reach settlements is likely to continue to be a significant cause of concern for many shareholders.

Nearly a decade ago, UBS agreed to pay US$780 million to avoid US prosecution in a similar tax probe after admitting it helped thousands of clients in the country cheat the Internal Revenue Service.

The tax evasion dispute between the US and Swiss banks was kicked off by Bradley Birkenfeld, a former UBS banker arrested in the US who then assisted investigators probing about US$20 billion in taxpayer assets hidden overseas.

That sparked investigations into other Swiss lenders and, along with pressure from European governments, led to the end of Switzerland’s famous secrecy laws for offshore accounts.

“This is justice for the French people,“ Birkenfeld said as reporters lined up outside the Paris court ahead of the trial, set to last for six weeks until November 15.

An earlier version of this story was corrected to change the date of the US settlement.

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