PARIS (Reuters) - UBS was warned numerous times over a period of at least six years that its French private bank risked breaking local tax laws, according to the written judgment in a case where the Swiss bank faces a 4.5 billion euro ($5.10 billion) penalty.
The hefty sanction — a 3.7 billion euro fine and 800 million euros in damages — has stunned the European banking world and raised questions over how the bank handled the process.
UBS consistently denied wrongdoing and immediately appealed the verdict, describing the court’s decision as “incomprehensible”. The judgment, published late on Thursday, said UBS staff of different levels of seniority in the bank’s French business told management that they had concerns about its practices.
The judgment showed that as early as 2003, Eric Dupuy, the legal department’s director at UBS’ French business, warned his bosses that staff were not respecting all compliance proceedings when registering risks associated to new customers.
Others came forward in 2006, 2007 and 2009, the court documents showed. Jean-Frederic de Leusse, the head of UBS’s French unit, on Thursday dismissed the content of those warnings as “unsubstantiated gossip”.
“Every time there was an accusation like that, we carried out thorough investigations, but no specific facts were presented,” de Leusse told reporters at a news conference in Paris.
He reiterated that the bank had done nothing wrong.
But financial regulators expressed concerns about the thoroughness of UBS’ internal investigations. The judgment said UBS’s auditing of the whistleblower reports was a “superficial work that led to erroneous conclusions,” an inspector for the banking regulator said in 2011. According the judgment, UBS employees said Swiss bankers from the group signed up wealthy clients in France at golf tournaments, classical music concerts and hunting parties in a breach of French rules on soliciting new business.
French regulations stipulate that only employees of banks registered in France can solicit potential clients.
The judgment said that Dupuy, the former legal department director, said French salespeople were encouraged to help Swiss colleagues, who were instructed to encrypt their agendas, use acronyms and codes for clients to hide their dealings.
According to the judgment, the bank kept track of customers brought to Switzerland though French salespeople via so-called “milk notebooks.”
The judgment said the notebooks were later replaced by an excel file named “cow” which included the names of clients, the names of the salespeople from France and Switzerland and the amounts collected by the bank. The notebooks also were used to calculate French salespeople’s bonuses, the judgment said.
Reporting by Inti Landauro, Angelika Gruber and Emmanuel Jarry; editing by Richard Lough and Jane Merriman