UBS France probed on suspicion of interfering with tax witness

Admission by wealth management unit is latest twist in decade-old evasion case
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Wealth management has been the financial saviour of Switzerland’s biggest banks but it can also be a perpetual thorn in their side, as the latest French investigation into UBS’s private bank shows.

UBS France said on Thursday that it was being officially investigated on suspicion of interfering with a witness in a tax evasion case, the latest twist in a saga that dates back more than a decade.

The admission came less than a week after Belgian state prosecutors escalated a probe into UBS over allegations of money laundering and organised tax fraud.

Credit Suisse, meanwhile, has been in the headlines after one of its Geneva private bankers was charged with fraud and criminal mismanagement over the handling of the account of Georgia’s former prime minister.

UBS has strenuously denied any wrongdoing in the French and Belgian probes and believes it will be exonerated.

Credit Suisse said that the fraud case was “an isolated incident which is very regrettable” and that the bank had “taken steps to ensure that controls are tighter than they previously were”.

Analysts are unconcerned about the financial effect of the latest Credit Suisse and UBS issues, which are of a far smaller magnitude than the US tax evasion cases that cost Credit Suisse $2.6bn and UBS $780m. Credit Suisse has taken a provision of SFr228m in relation to the Georgian case.

Still, the allegations are unhelpful and badly timed for an industry that is trying to improve its reputation after the tax evasion scandals.

Stefan Jaecklin, a consultant with Oliver Wyman in Zurich, said cases such as these would prompt Swiss private banks to look at risks in a new way.

“Much of the risk perspective is still based on the bank balance sheet risks,” he said. “However, in private banking, the key risks are related . . . to the client assets and their impact on the bank, as well as the client himself.

“The banks produce tons of paper on each of these risks. However, the industry really needs to evolve towards an integrated perspective across these risks, for management to make sound decisions.”

In the latest UBS case, the Swiss bank said that French authorities had “[decided] to put the bank under formal examination for interfering with the witness”.

But UBS said the judge was not pursuing claims of “moral harassment”, also alleged by the former employee. “We strongly deny these allegations and are confident that we can vigorously defend our rights and position,” UBS said.

The latest twist involving the former UBS employee, a whistleblower, was part of investigations that started five years ago into cases dated between 2004 and 2008.

In Belgium, UBS said it would “continue to defend itself against any unfounded allegations” after the Belgian prosecutor said the bank was “suspected of having directly approached Belgian customers (without going through its Belgian subsidiary) with the goal of encouraging them to sign up to tax-evasion structure”.

In Credit Suisse’s case, Georgian billionaire Bidzina Ivanishvilli claims that unauthorised hazardous trading caused significant losses to his portfolio.

Credit Suisse has filed a criminal complaint against Patrice Lescaudron, the banker in charge of Mr Ivanishvilli’s account. Mr Lescaudron could not be reached for comment.

In a related case, two Russian clients allege that the private bank made unauthorised trades to cover up losses. They argue that this amounts to criminal mismanagement and abuse of confidence.

While wealth management has been a public-relations ordeal for the Swiss banks at times, the stable earnings it provides has been their financial lifeline in the aftermath of the 2007-09 crisis.

UBS has won wide praise, and healthy share price rewards, for its 2012 decision to put wealth management at the heart of the group and scale back its investment bank. Credit Suisse’s latest strategic plan, unveiled in October, also envisages a bigger role for private banking and a smaller one for its markets division.

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