France defends billion-euro guarantee demand in UBS probe

[July 24, 2014]  By Chine Labbé

PARIS (Reuters) - A 1.1 billion euro ($1.48 billion) guarantee payment demanded by French judges of Swiss bank UBS reflects the size of the fine it could pay if found guilty of helping wealthy French customers avoid tax, the French prosecutor's office said on Thursday.

In a major escalation of a 15-month inquiry, the Zurich-based bank said on Wednesday it had been put under formal investigation on allegations it laundered the proceeds of tax evasion and was ordered to make what it called an "unprecedented and unwarranted" guarantee payment.

French authorities defended the move, which comes as Paris seeks to cooperate more closely with its neighbors Switzerland to crack down on its citizens with hidden Swiss bank accounts.

"It was by assessing the fine that is potentially applicable that the level of the surety was fixed," an official in the prosecutor's office said, adding that if guilty, UBS would pay a fine equivalent to half the value of the transactions involved.

UBS has already paid a much smaller 2.875 million euro guarantee in the case. The official said UBS would now have to make up the difference to 1.1 billion euros by Sept. 30, and in one single transfer.
 

In its statement on Wednesday, UBS said it considered the legal basis and calculation for the sum to be "deeply flawed" and announced it would appeal.

One source familiar with the investigation said French authorities offered to settle all tax-related investigations with the Swiss bank for a sum less than 100 million euros in recent weeks. However a French Finance Ministry source told Reuters the ministry had declined to negotiate any settlement.

French investigating judges suspect UBS regularly helped wealthy French clients avoid tax during the period from 2004 to 2012 and opened an inquiry into the activities of the bank and its French unit in April 2013.

The alleged sales practices in question involved seeking out wealthy customers in France who would be interested in opening bank accounts inaccessible to French tax authorities.

Three former and current executives with UBS' French subsidiary were also individually placed under investigation, a spokesman at the subsidiary said on Wednesday.

"In the course of the last few years, we have done everything we can to bring this matter to a close. We have also taken significant and broad steps to ensure tax compliance of our clients and will continue to do so," UBS said.

Switzerland effectively ended Swiss banking secrecy in May by agreeing to join other countries in sharing tax information once that is established as an international standard.

France's Socialist government has taken a tough stance on tax evasion. Cooperation efforts between Paris and Switzerland have been complicated by a long-running dispute over inheritance tax for wealthy French citizens in Switzerland.

(Reporting by Chine Labbe and Yann Le Guernigou in Paris; Katharina Bart in Zurich; Writing by Mark John; Editing by Andrew Callus)

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