A French court’s ruling over money laundering in France puts UBS in front of a fundamental decision.
Sometimes it pays to argue. A ruling after the first hearing over the solicitation of wealthy French clients in February 2019, threatened the bank with a record fine of 4.5 billion euros ($5.1 billion) including damages. Yesterday (Monday) an appeals court in Paris reduced this sum to 1.8 billion euros.
UBS has a few days to decide whether it will accept the ruling or take the case to a high-instance court. The fine, which was cut by 2.7 billion euros, could be a strong incentive for the bank to give in and pay. However, it would also mean the bank admitting to having committed a criminal offense – which could also have consequences in other jurisdictions.
The sentence that UBS received confirms the verdict from 2019 of illegal client solicitation and money laundering aggravated by tax fraud.
UBS’ former CEO Sergio Ermotti upheld an uncompromising attitude in previous proceedings. The current CEO Ralph Hamers, however, might have a different view.
Until now, the bank has always insisted that it had done nothing wrong legally. It rejected the accusation that it deliberately recruited rich customers in order to hide their money from the French tax authorities.
It also argued that under the 2003 Savings Tax Agreement between the EU and Switzerland, it was not possible to prosecute for money laundering retroactively. A position that was sometimes perceived as arrogant in France.
UBS softened its tone during the appeal compared to the first trial. Criminal law specialist Hervé Temime took over from Paris-based star lawyer Jean Veil. But this did not change the outcome significantly.
Management’s duty to its shareholders to avert damages. This is a strong argument for the bank to continue litigating, to avoid a criminal conviction at all costs. It also means that legal costs are likely to pile up.
The UBS tax case in France involves events that occurred years ago. They were set in motion by statements by former employee Stéphanie Gibaud and her book. Gibaud worked in communications and marketing at UBS in France from 1999 to 2012. In 2014, she published a book titled The woman who really knew too much in reference to the alleged tax fraud practices of the bank.
The penalty reduction can be seen as a triumph for UBS. Although the verdicts suggest otherwise. The bank also lost an employment law case against the whistleblower Gibaud. The bank withdrew a lawsuit against her and her publisher for defamation. At the European Court of Justice in Strasbourg, UBS was also unsuccessful with a lawsuit against the security deposit of 1.3 billion euros demanded by France.
In Belgium, UBS was able to settle a tax dispute without admitting guilt. It was ordered to pay a 49 million euro fine and charges of money laundering and of operating a criminal organization were dropped.
