Swiss banking giant UBS is the subject of a two-pronged investigation for alleged abetting of tax evasion in France which targets UBS AG, the parent company, and its French subsidiary UBS France.
In May 2013, UBS France was formally placed under investigation – one step short of charges being brought – for aiding the illicit recruitment of clients in France, and the following month UBS AG was placed under investigation for the illegal soliciting of clients in France. In July this year, UBS AG was placed under investigation for aggravated fiscal fraud.
Mediapart has had access to the judicial order prepared by investigating magistrates Guillaume Daïeff and Serge Tournaire in July in which they justify the 1.1 billion bail they fixed, and summarize the evidence acquired so far against UBS. The bail sum was calculated on the basis of the maximum fine UBS faces, and which, the magistrates argue, could reach as much as 4.88 billion euros.
The bank, which was originally given until September 30th to pay the bail, has announced that it will launch another appeal before France’s highest court and against what it called “an unprecedented and unjustified amount”. It considered that both “the legal basis for the bail sum and the methods for calculating it are profoundly erroneous”. UBS said it “continues to believe that this is a highly politicised affair” and announced it would take its case to the European Court of Human Rights to claim “the right to a fair trial”.
The bank officially denies all the suspected crimes it is under investigation for, arguing that its implication in tax fraud has not been proven. The bank is suspected of having organised tax evasion by thousands of its wealthy French clients over the period 2004-2012, and the investigating judges are focusing on two distinct issues.
One is the illicit recruitment of French clients over this period by special envoys from the bank’s Swiss base who have no legal right to operate on French territory. Under French law, only banking institutions registered in France are allowed to recruit clients, which include local subsidiary UBS France but not UBS AG.
The other, more serious issue of the investigation is how UBS, also during the period 2004-2012, was allegedly involved in a regular manner in tax-evading operations to help its clients illegally escape income, wealth and company tax payments by transferring deposits to accounts kept hidden outside of France.
During their investigation, the magistrates questioned 15 current and former employees and managers of the bank, based variously in France and Switzerland. They also questioned around 20 people some of who were clients of the bank and others who were targeted by it as potential customers.
The magistrates have established that several thousand French residents held tax evading accounts with UBS outside of France, as admitted by the bank itself since it has begun cooperating with a French clampdown on tax evasion. In their July judicial order, the magistrates indicate that UBS AG confirmed that about 1,000 of its French clients had already settled their situation with the French tax authorities, while 2,000 more were in the process of doing so.
The investigation has concluded that, between 2005 and 2012, the total value of all the accounts of French residents specifically recruited as clients by representatives of UBS based in Switzerland, Luxembourg, Belgium and Singapore amounted to 1.5 billion euros.
Whenever money was sent into a UBS account outside of France, the bank’s French subsidiary was notified that the movement had been made successfully. After the French magistrates investigated the routes of the transfers, they discovered that between 2005 and 2008 there were 29 foreign accounts which UBS France was unable to identify and which represented a total of 176 million euros. The magistrates wrote in the judicial order in July that there were “strong suspicions” that the sum was hidden for purposes of tax evasion and was collected by the Swiss bank’s practice of illegally recruiting clients.
The magistrates attempted to evaluate the value of the assets of French residents that were managed by the bank’s France International department in Switzerland. However, UBS AG refused to communicate the sums. It also refused to provide the number of account managers working for France International over the 2004-2012 period, and also refused to communicate the average value of the accounts which they handled.
The magistrates managed to identify through existing evidence a total of 94 account managers who worked with France International during the 2000s, and their presumption is that these managers would have handled the same average amount per account as their colleagues at UBS France, and which in 2010 totalled 130 million euros per account. Mediapart has learnt that the magistrates have questioned an account manager from the bank’s Swiss office who, in an interview given last year on condition of anonymity, told Mediapart they managed between 300 and 600 French clients per year, for assets of a total value of between 200 million euros and 600 million euros.
UBS facing more woes in other countries
Taking all of this into consideration, the magistrates estimated the total amount of the assets managed by UBS’s France International department over the eight years in question to amount to 12.2 billion euros. Basing themselves on the most prudent estimation from evidence uncovered during their investigation, the magistrates subsequently estimated that of this sum of 12.2 billion euros, at least 80% was hidden from the French tax authorities. That percentage amounts to 9.76 billion euros which, which means that UBS faces a potential fine of half that sum, which is 4.88 billion euros.
Past and present employees questioned by the magistrates testified that most of the offshore accounts were undeclared to the French tax authorities, and that UBS provided tax evasion to its French clients. But the bank has contested the credibility of this evidence, and has queried how one of the witnesses was allowed to testify anonymously.
In their case notes, the magistrates state that “UBS offered to open bank accounts under the names of entities (offshore companies, trusts and foundations), and life insurance contracts, in order to increase opacity”.
The magistrates also noted that up until 2007 UBS AG did not provide the combined fiscal statement (IFU, for imprimé fiscal unique)) which is required of French taxpayers as proof of their legal possession of a bank account, even when a client requested one. They also observed that between 2007 and 2013 “almost no French client” of UBS, except for a small number of cross-border workers, asked the bank for an IFU.
The investigation found that in 2012 “about” 92% of clients managed by France International (and 99% in 2005) “had not opted for the transmission of information about their account to the French fiscal administration, which allows the assumption that the account was not declared to it”.
Under the terms of a treaty between Switzerland and European Union member states, and which became effective as of July 1st 2005, unidentified bank accounts in Switzerland are taxed on interest at source – which today is 35%, up from 15% in 2005.
The magistrates underlined “the absence of cooperation by the Swiss judicial authorities”. They cited the “questionable” argument of the Swiss federal justice office that summons for questioning sent by the magistrates to Swiss residents had no legal grounds because they concerned the issue of laundering the proceeds of tax evasion, which is not a crime in Switzerland. They noted that 104 requests for administrative assistance sent to the Swiss authorities by the French tax administration in the framework of the investigation remained unanswered.
The magistrates partly justify the colossal bail sum demanded of the bank because “no-one can predict the future of UBS AG” (which received financial help from the Swiss authorities during the 2008 financial crisis), and that it “could merge with, or become absorbed by, another bank”. They also observed that 1.1 billion euros is equivalent to 42.6% of the bank’s profits after tax last year and represented 2.8% of its funds. Therefore the bail demand, they concluded, “appears compatible with UBS AG’s resources”.
By upholding the bail demand this week, the Paris appeals court has given a clear sign in favour of sending UBS for trial, which would add to a catalogue of the bank’s legal woes in several countries. On June 20th, the head of its subsidiary UBS Belgium, Marcel Bruehwiler, was charged with money laundering, tax fraud and the illegal exercise of the profession of financial intermediary. In Germany, the bank was this summer fined 300 million euros by the North Rhine-Westphalia authorities for its activities aiding tax evasion, and it is the focus of another ongoing probe in the state of Baden-Württemberg.
In the United States, UBS agreed in 2009 to pay a 780 million-dollar fine to settle civil and criminal charges that it helped thousands of American clients evade taxes through Swiss accounts, and it was forced to reveal the identities of 4,450 of its US clients.
The fraud in the US was headed by Raoul Weil, a Swiss national who was chairman and CEO of Global Wealth Management & Business Banking at UBS, which fired him after he was indicted by the US authorities. After refusing to surrender himself, Weil, 55, was arrested last October during a trip to Italy, from where he was extradited to the US. Now under house arrest on bail of nine million dollars, he is due to stand trial next month. Prosecutors claim his network of 60 private bankers helped UBS earn 200 million dollars per year from about 20 billion dollars of assets that it kept hidden from the US tax authorities.
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The French version of this article can be found here.
English version by Graham Tearse