UBS AG Might be Penalized $6.3B over France Tax Probe - Analyst Blog

UBS AG (UBS) is under probe by the French regulators over doubt surrounding illegal activities related to tax evasion for wealthy French customers. The regulators are scrutinizing foreign activities of Switzerland's largest bank by assets. If found guilty, UBS AG is expected to be penalized with an amount of around $6.3 billion.

Recently, a Paris appeals court mandated the Swiss banking behemoth trapped in money laundering and tax evasion issues to pay 1.1 billion euro ($1.41 billion) bond as claimed by the French investigators. A formal probe against the Zurich-based bank regarding money laundering was initiated by the French authorities earlier this year. The authorities ordered the bank to pay the bail by Sep 30, 2014, so as to cover the potential charges. However, UBS AG made an appeal against the verdict citing the bail amount as ‘unprecedented and unwarranted.'

The latest court verdict in Sep 2014, supporting the earlier order, came as a major setback for UBS AG. The world's largest wealth manager was confident that it would be able to settle the matter for a considerably lesser amount, but its hopes were dashed. Nevertheless, the bank is mulling over its decision to appeal to the Supreme Court.

Notably, the Swiss bank paid $780 million in 2009 to regulators as settlement related to U.S. criminal and civil investigation and acknowledged that it had helped clients evade taxes.

Following UBS AG's settlement, two other Swiss banks, Wegelin & Co. and Liechtensteinische Landesbank AG paid settlement charges of roughly $74 million and $24 million, respectively.

UBS AG is not the only Swiss bank to be involved in such issues. In May 2014, Credit Suisse Group AG (CS) pleaded guilty to criminal charges of assisting its U.S. clients to evade tax. The company will also shell out $2.8 billion as settlement charges to the U.S. authorities. The plea agreement revealed that Credit Suisse in several ways aided U.S. clients in concealing their undeclared accounts from the Internal Revenue Service (IRS), which includes helping clients use false entities, destruction of account information forwarded to the U.S. and avoiding currency transaction reporting requirements by structuring fund transfers.

We believe that ongoing investigations on banks will be a step forward toward reducing the huge losses incurred due to offshore tax evasion. Regulatory authorities are investigating scandals and are determined to put forward a landmark judgment to terminate such shrewd practices in the future, bring justice to the sufferers and punish the wrongdoers.

UBS AG currently holds a Zacks Rank #5 (Strong Sell). Some better-ranked foreign banks include Bank of Montreal (BMO) and Mizuho Financial Group, Inc. (MFG), both with a Zacks Rank #2 (Buy).