UBS faces tax-fraud trial in France after talks on deal break down

UBS Group will stand trial in France in a tax-fraud case that may leave the Swiss bank open to a fine of as much as €4.9 billion.

UBS, which posted a €1.1 billion bond to cover any potential penalties three years ago, said on Monday that it will have to answer charges that it helped wealthy clients evade taxes by stashing funds overseas. The criminal case is coming to court after settlement talks with French authorities broke down over the size of the fine. No date has been set for the trial.

“UBS has made clear that the bank disagrees with the allegations, assumptions and legal interpretations being made,” the bank said in a statement. “We will continue to strongly defend ourselves and look forward to a fair proceeding.”

The bank had been pushing to settle the French investigation for less than the €300 million it paid to resolve a similar case in Germany, where the wealth-management market is larger than France, people familiar with the matter said this month. France’s financial prosecutor sought €1.1 billion, the same amount as the bond, according to a person familiar with the matter.

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“A court case may create a bit more noise than a settlement, but for investors it can be also good news that the bank is fighting the case,” Peter Casanova, a Kepler Cheuvreux analyst, said on Monday. “It’s also a chance for the bank to fend off allegations that might be wrong.”

Civil settlement

Talks between the financial prosecutor and UBS began after French lawmakers last year approved a civil settlement procedure requiring that fines be based on the advantage derived from the wrongdoing.

After several confidential meetings with France’s financial prosecutor, UBS general counsel Markus Diethelm said last week that he was “very pessimistic” about reaching an accord.

“What was put on the table wasn’t reasonable,” he said.

In court, UBS could be fined as much as half the €9.8 billion that investigative judges estimate French citizens have stashed in undeclared offshore funds under its management.

The Zurich-based lender is accused of illicitly soliciting clients on French territory and laundering the proceeds of tax fraud, according to a person familiar with the indictment. The bank’s French unit as well as several former employees will have to respond to the charges in court, the person said.

– Bloomberg