UBS May Use Money-Launderer Case to Appeal $5.4 Billion Penalty
05 Mar 2021

Just over two years ago, UBS Group AG got a nasty shock when a Paris judge handed it a record $5.4 billion penalty for helping French clients avoid taxes.

As the Swiss bank returns to the French capital on Monday for a three-week long appeal, its team of lawyers is likely to invoke a landmark ruling from France’s top court in an unrelated case. The ruling called into question calculations like those used to fine UBS — and could at the very least mean a significant penalty cut on appeal.

UBS’s 3.7 billion-euro ($4.4 billion) fine and a further 800 million euros in damages in February 2019 — far more than analysts expected — was the largest in-court financial penalty ever levied in Europe. It was emblematic of a French crackdown on tax evasion that has focused on the big banks from HSBC Holdings Plc to Credit Suisse Group AG, who the government believed encouraged such behavior by its citizens.

While UBS will try to get its conviction overturned, the worst-case scenario appears to have become a little less scary. Six months after UBS was slapped with the fine, France’s Cour de Cassation in September 2019 ruled that the penalty demanded from a man convicted of laundering undeclared funds should be sharply cut. The top judges said it had been erroneously based on the amount hidden from tax authorities rather than on dues owed.

UBS’s hefty fine was similarly based on the undeclared wealth in the bank’s Swiss accounts that nearly 4,000 French clients belatedly admitted to and declared by 2015, rather than the tax they avoided. That gives UBS room to argue for a far lower penalty based on recent case-law.

“Even if UBS’s conviction is confirmed on appeal, the bank stands to get a significant fine reduction,” said Arnaud Tailfer, a tax lawyer at Arkwood SCP in Paris who isn’t involved in the case.

UBS declined to comment ahead of the appeal. It circulated a memo to clients and shareholders in January, now posted on its website, in which it denied criminal wrongdoing.

New Calculations

In a sign that UBS may be confident it will win at least a reduced fine on appeal, it has set aside 450 million euros in provisions for Monday’s case. Since the bank’s appeal of its first-instance conviction suspends the order to pay the penalty, UBS will only get to know what it actually has to disburse — if found guilty again — at the end of the second trial.

UBS’s 2019 fine was based on a complex calculation to reach a maximum potential penalty of 9.25 billion euros by using a multiplication factor of 2 1/2. The multiple might be the same for any appeals penalty but the starting point is expected to be lower.

Two years ago, the starting point had been 3.7 billion euros — assets held in Swiss UBS accounts that were belatedly declared. UBS may argue that the new top court guidance indicates the basis should instead have been the tax owed on these assets, or some 620 million euros.

The appeal, originally set for last June before being delayed by the coronavirus, is UBS’s first chance to attack what it said in 2019 was an “extremely superficial, inconsistent and contradictory” ruling. The bank had been brought to that point by deciding to play hardball and go to trial rather than settle for what may well have been less than a billion dollars.

By Hugo Miller and Gaspard Sebag, Bloomberg, 5 March 2021

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