UBS awaits verdict in French tax evasion case

At the beginning of the 2000s, when Swiss banking secrecy was still in its heyday, Raoul Weil, Dieter Kiefer, Olivier Baudry and Philippe Wick were in charge of international wealth management at UBS.

Today, the four bankers could write a book about the French legal system. Back in late 2018, the former senior UBS managers could be spotted queueing humbly, like good orderly Swiss, outside a huge new Paris courthouse building.

Several months later in February 2019, a Paris court fined UBS €3.7 billion for aiding and abetting tax evaders and ordered the bank to pay an additional €800,000 in damages. UBS immediately launched an appeal, The four bankers had been charged, along with their employer, UBS, with promoting illegal banking services and money laundering of tax evasion proceeds.

At the appeal in March 2021, the Swiss bankers looked oddly conspicuous in their formal suits and ties in the historic Paris courthouse located on the Ile de la Cité. This was the same place where Marshal Philippe Pétain was tried for treason in 1945. Last September, the bankers returned to hear the final verdict – but one of the judges was ill, so the hearing was postponed until December.

Will this be the end of the legal marathon?

On December 13, the Paris Court of Appeal will announce its verdict – if it finds the bank guilty and, if so, the amount of the fine. The prosecution is now calling for “at least” a €2 billion fine and €1 billion in damages payable to the French government. As for the four accused, it is seeking a suspended sentence of 18 months and a fine of €300,000 for Raoul Weil. He used to be third-in-command at UBS and was acquitted in the initial trial. It is also calling for a suspended sentence of 18 months and a fine of €300,000 for Dieter Kiefer, former chairman of the UBS France supervisory board; a suspended sentence of 12 months and a fine of €200,000 for Philippe Wick and Olivier Baudry, both of them used to be managers at the France international desk at UBS.

"Switzerland on trial"

The book “600 billion owed to France” [Ces 600 milliards qui manquent à la France], published by journalist Antoine Peillon in 2012, lifted the lid on the allegedly questionable practices of UBS in France. Using information obtained from employees of the French branch of the bank, Peillon listed concerts, golf games and hunting trips sponsored by UBS that allowed it to approach rich customers in France who were frustrated with the French tax system. The scandal blew up after Peillon’s book appeared.

Promotion of illegal banking services and money laundering for tax evasion were the main findings of the French investigating magistrates. At the 2018 trial, the accused attempted to hide behind the principle of banking secrecy that was still in place at the time. “After five years of investigation and a five-week trial, the prosecution could only come up with three names of UBS customers” accused of tax fraud, noted Jean Veil, the UBS lawyer. He concluded: “Switzerland is on trial here, but since you can’t prosecute a sovereign state, they found this clumsy way of doing it.”

The court did not seem to have much sympathy with this rather arrogant line of defence. In 2019, UBS was fined €3.7 billion and an additional €800 million in damages. A relatively large amount, even for the world’s biggest wealth manager.

For its appeal, UBS hired a different lawyer and adopted a less “political” line of defence. The prosecution also lowered its fine to €2 billion. Was this a calculated step? Between 2008 and 2015, when Swiss banking secrecy collapsed, about 4,000 French customers of UBS discreetly contacted the French tax authorities to regularise their situation. The government ended up with a €3.7 billion windfall. Between the two trials, France’s highest court, the Cour de Cassation, determined that in this kind of affair, the basis for calculation for penalties should be the amount of unpaid tax and not the entire amount of hidden wealth.

Will the panel of judges follow the prosecution’s recommendation?

“This election period is not ideal for UBS,” declared an anonymous Swiss banking expert. “At the same time, French courts like to demonstrate their independence.”

“It is not a matter of casting doubt on the decision of the French judges,” wrote journalist Richard Werly in the Swiss newspaper Le Temps. “But let’s look at it properly: in dealing with UBS, they now have a weight of responsibility that is more than just legal. Their verdict will reveal the moral of the story. It will be the last word on a system of tax evasion in France that dated back to the 1930s.”

Record profits for UBS

Even if it is a large amount, UBS is likely to take the fine in its stride. “Since the beginning of the year, the bank has racked up a profit of CHF5.5 billion, which will make 2021 one of its best years since the financial crisis of 2007-2008,” says journalist Yves Genier, who has written a book on “The end of banking secrecy” [La fin du secret bancaire].

But has the UBS brand been damaged by this whole affair?

“In France maybe, but not elsewhere. This case brings to an end an old story,” says Genier. The journalist, who has just published another book, “Scandals at Credit Suisse: when banks lose their heads!” [Scandales chez Crédit Suisse. Quand les banques perdent la tête!], thinks it would be odd if UBS was completely exonerated, “given that some of the things it was accused of have turned out to be true”.