On Monday, the very first day of a trial in France, Swiss bank, UBS Group AG (UBS - Free Report) , its French unit, and six executives were charged of tax fraud and money laundering against allegations that the bank helped its clients in the country to evade taxes, per Reuters.
Notably, following a seven-year probe into such allegations and abandoned settlement negotiations, the bank is liable to counter allegations of illegally soliciting clients in France. Precisely, the bank is expected to be penalized with around 5 billion euros ($5.76 billion), along with damages to be paid to the French regulators of around 1.6 billion euros.
On the first day of the hearing, lawyers for UBS Group AG argued on the part of dropping the money-laundering charges and proceeds with the tax fraud to decrease penalties. Per Swiss bank’s lawyer Jean Veil, the amount demanded as damages by the French state damages is extreme. "They are asking crazy amounts," he told the court.
Defending its position, "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 noted in a statement prior to the trial.
Notably, the case is scheduled to continue till Nov 15.
UBS has been under investigation by the French authorities on potential charges of illegally soliciting clients in France to open Swiss accounts for hiding undisclosed wealth during the period between 2004 and 2012. Later, the investigation included money-laundering charges against the bank.
Following the failure of settlement talks on account of UBS’ refusal to plead guilty, the bank was ordered to pay a €1.1 billion bail amount in July 2014. Apprehending adverse impact on its business, UBS restrained from pleading guilty. The bank appealed against the verdict citing that the bail amount as "unprecedented and unwarranted." Notably, UBS pressed for the figure equivalent to €300 million, which the bank paid as settlement in 2014, to German authorities related to a similar probe into whether or not the banking giant helped clients in the country evade taxes.
However, after losing an initial appeal against the €1.1-billion bail payment in September 2014, the bank’s appeal was rejected again in December 2014 by France’s apex appeals court, Cour de Cassation. Disappointed with the ruling, UBS had proposed to contest the court’s decision, including the right to a fair trial, at the European Court of Human Rights.
In March 2017, according to a French judicial official, the investigating panel from PNF — the national financial prosecutor office — has claimed the charges against the bank as valid and ordered the case to be sent to trial at a later date.
According to the PNF, UBS holds fraudulent money worth around €9.76 billion on behalf of French individuals. On losing the trial, the fine may amount to 50% of the value or funds which were related to laundering operations, per the French Criminal Code.
Nonetheless, UBS disagreed with the allegations and legal analysis, strongly defending itself and looking forward to a fair proceeding.
Notably, in 2009 the Swiss bank had paid $780 million to regulators as settlement related to U.S. criminal and civil investigation, and admitted that it had helped clients evade taxes. UBS is not the only Swiss bank to be involved in such issues. In May 2014, Credit Suisse Group AG (CS - Free Report) pleaded guilty to criminal charges of assisting its U.S. clients to evade taxes and agreed to shell out $2.8 billion as settlement charges to the U.S. authorities.
We believe the ongoing investigations on banks will be a step ahead toward reducing the huge losses incurred due to offshore tax evasion. Regulatory authorities are investigating scandals and are determined to put forward a landmark judgment to curb such shrewd practices.
Shares of UBS have lost around 13.3% in the past year compared with the 11.6% decline recorded by the industry.
UBS Group AG currently carries a Zacks Rank #4 (Sell).
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