French Court Fines UBS $4.2 Billion for Helping Clients Evade Taxes
PARIS — Boxes at the Paris Opera. Prime seats at the French Open. Luxury hunting retreats in Normandy. The financial giant UBS spared no expense in enticing wealthy French people to open bank accounts in Switzerland.
The lavish spending caught up with UBS on Wednesday, when French judges ordered it to pay a record 3.7 billion euro fine, about $4.2 billion, for carrying out what prosecutors said was a long-running scheme to help French clients hide huge sums of money from the authorities.
The penalty, the largest in French history, included €800 million to be paid to the government, which said it had lost revenue as a result of UBS’s helping French citizens evade taxes from 2004 to 2012.
UBS said in a statement that it “strongly disagrees with the verdict” and that it planned to appeal. “The bank has consistently contested any criminal wrongdoing,” the statement said, adding that the judgment was “not supported by any concrete evidence.”
The ruling coincides with crackdowns on tax evasion in France and other countries that have put Swiss banks in particular on the defensive.
UBS paid a $780 million fine in the United States in 2009 to resolve accusations that it had helped rich clients dodge taxes, and pledged to divulge the names of over 4,450 people with Swiss bank accounts. Credit Suisse was fined $2.6 billion by the Justice Department in 2014, and €300 million by France in 2017 in similar cases.
A seven-year investigation by the French financial authorities began when several whistle-blowers at UBS France alleged that UBS bankers in France and Switzerland were engaging in illegal activity. At a trial in Paris in October, prosecutors likened the scheme to the plot of a James Bond novel, with top bankers colluding to entice wealthy clients, shielding more than €10 billion from the French tax authorities.
Prosecutors said bankers from UBS France, motivated by the prospect of lucrative bonuses, had alerted their counterparts in Switzerland to potential “big potatoes” — French citizens with assets of €500,000 to €10 million.
French law allows commercial bankers to put customers in touch with counterparts in other countries, but it prohibits foreign companies from soliciting clients on French territory.
UBS rainmakers from Switzerland would travel to France to offer their services, even if they did not have European passports or the proper banking license, prosecutors said.
To avoid detection, the bankers involved in the scheme followed a UBS “security governance manual” that included instructions for using encrypted computers, using business cards without the bank’s logo and switching hotels frequently, prosecutors said.
The manual also included advice on how to hide information or documents about Swiss and offshore accounts if stopped by the authorities. The tips included wearing a coat or a backpack with hidden pockets.
UBS bankers organized expensive activities in France that included shows at the Paris Opera, art exhibits and hunting outings, where Swiss bankers could meet informally with prospects in hopes of slipping around French prohibitions, prosecutors said. The goal was to persuade people to open undeclared accounts in Switzerland.
UBS, in its statement, said the case was based on “unfounded allegations” lodged by former employees who had not testified at the October trial.
“No evidence was provided that any French client was solicited on French soil” by a UBS Switzerland client adviser to open an account in Switzerland, the bank said.
At the trial, the former head of UBS’s branch in Lille, France, Hervé d’Halluin, described “a nauseating practice of widespread poaching of clients, done in an almost industrial way,” by UBS’s Swiss bankers. He said the Swiss teams had applied “intense pressure” on their French counterparts to provide tips about potential clients.
The bank also created a parallel accounting system known as the milk books, after the small notebooks used as ledgers by Swiss cow farmers, prosecutors said. The books were used to keep tabs on and mask transfers of illicit money between Paris and Geneva, prosecutors said.
UBS has said the milk books were used to note whether a French or a Swiss banker should get the credit for bringing in a French client. Annual bonuses for UBS’s French bankers were tied to new business from abroad.
The French judges ruled that the milk books were proof that UBS was trying to hide financial transfers from its official books, and to help French clients avoid paying taxes. The authorities said their case was bolstered recently when a raid on UBS operations by the authorities in Germany turned up a list of 38,000 non-declared Swiss bank accounts held by French clients from 2006 to 2008 that held a total of around €10 billion.
UBS’s appeal will probably take years, meaning it does not need to pay the fines anytime soon. The bank turned down a €1.1 billion settlement offer last year.
Five UBS France employees received suspended prison terms and fines from €50,000 to €300,000 last year.
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