On February 20, 2019, a French trial court issued the largest judgment against a bank for tax-related and money laundering crimes. The court found UBS AG and UBS (France) SA guilty of illicit solicitation and laundering of the proceeds of tax fraud. It imposed a penalty of € 3.7 billion and € 15 million respectively and civil damages of € 800 million.
UBS issued a press release that it “strongly disagrees with the verdict. “ It argues that the conviction is not supported by any concrete evidence. Instead, UBS says it is based on “the unfounded allegations of former employees who were not even heard at the trial.” UBS says the decision is devoid of evidence that any French client was solicited on French territory by a UBS AG client advisor to open an account in Switzerland. UBS criticized the decision as effectively applying French law in Switzerland, thereby undermining the sovereignty of Swiss law and posing significant questions of territoriality.
During the trial Hervé d’Halluin testified about a practice of poaching of clients and pressure by UBS Swiss bankers to provide tips about potential clients.
It appeared that the court relied significantly on the creation by UBS of a parallel accounting system known as milk books. Milk books are the small notebooks Swiss cow farmers use as ledgers. They were used to account for and simultaneously disguise transfers of illicit money between France and Switzerland. UBS has said the milk books were to determine whether a French or a Swiss bank should receive the credit for landing a French client. UBS’s French bankers obtained annual bonuses linked to new business from abroad.
French judges ruled the milk books were evidence UBS was attempting to hide financial transfers from its official books and to assist French clients avoid paying taxes.
UBS in its press release states the verdict is devoid of evidence and a credible methodology for the calculation of the fine and damages. UBS states the charges of laundering the proceeds of tax fraud do not stand up, since the predicate the decision lacked proof of an original tax fraud offense of French taxpayers. UBS says it respected and met its obligations under Swiss and French law as well as the European Tax Savings directive, which became effective in 2004.
UBS will appear the verdict and evaluate whether the written decision requires any further steps. French law provides that an appeal suspends the judgment of the trial court and results in a transfer of the case to the Court of Appeals, which then retries the case in its entirety.
Initially French financial prosecutors and UBS representatives discussed a plea bargain, but UBS rejected the out-of-court settlement, reportedly € 1.1 billion.
The case illustrates the growing criminal prosecutions of so-called enablers, including banks, lawyers, asset managers, and fiduciaries, for tax and money laundering crimes. Already 5 UBS employees received suspended prison sentences and fines from €50,000 to €300,000 in 2018 in the case. The verdict occurs as France is competing with other countries, especially Ireland and Germany, to attract banks leaving London as a result of Brexit. Other tax authorities and prosecutors have targeted so-called enablers of tax crimes. In the context of the implementation and enforcement of the Common Reporting Standard, the OECD and EU have taken initiatives targeting enablers.
The March issue of the IELR will have a more comprehensive article on this story and its implications.
 Liz Alderman, French Court Fines UBS $4.2 Billion for Helping Clients to Evade Taxes, N.Y. Times, Feb. 21, 2019, at B4, col. 1.