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UBS Is Fined $4.2B in French Tax-Evasion Case (wsj.com)
217 points by bryanwbh 26 days ago | hide | past | web | favorite | 71 comments



Another slap on the wrist. No one goes to jail because of Deferred Prosecution Agreements

HSBC got fined about half that when they caught laundering money for the Mexican cartels a few years back. True story: HSBC had to design special teller windows because the standard ones were too small to fit the sacks of money that were being brought in and laundered. If you want to know why these guys don't go to jail, pull up a bottle of lithium and sit down with The Chickenshit Club.


It was 4.2 billion not million, it probably should have been more, but that's definitely not a slap on the wrist.


Right. For context, that's around 9% if their $48 billion market cap. Much worse than sending any one person to jail.

Also: in the US, I've heard the "value of saving a life" for some decision calculations to be assumed at ten million dollars. That's $200k per year for 50 years. (In New Zealand, from talking to some civil engineers, it is a lot lower.)

At the American price, the fine is worth 420 human lives.


I agree that this is more than a slap on the wrist, but I doubt that it's more effective as a deterrent than jailing the individuals involved. From what I understand, the banking industry is built almost entirely on a Rand'ian "every man for himself" ethos, with little attachment to the company involved. I don't see how you can then hope to incentivize these individuals by fining the company. Except if the suits were quick enough that most of them were still at UBS, to feel the consequences. But that's not desirable either.


I wonder if that's the case. I think the source of the problem is people prioritising the short term over the long term, and I'm not sure whether potential jail time in the long run will deter you when your direct environment is pushing you another way.

Instead, if the company risks fines like these, the environment of its employees may start to emphasise derisking more, to prevent them from being hit with new fines.

Of course, this is all just me looking into my crystal ball.


One NZ price that is just in the news is 4.7MM NZD.

https://i.stuff.co.nz/national/politics/110753822/is-a-life-...


i just meant it was a slap on the wrist because everyone signs a DPA and no one goes to jail


The French hierarchy of UBS got some prison time, but it's 6 to 18 suspended prison sentences, so no real jail time.

They were also fined 50000 to 300000 euros personally (they have to pay as private citizens, it's not part of the 3.7B euros fined to UBS).

Not completely full, but also not completely empty.


50k and 300k are peanuts to these people, who have been pocketing millions each year in salaries and bonuses.

Jail time would be the only real punishment. They take very calculated and rewarding risks. If they don't get caught they walk away with many millions. If they get caught they walk away with many millions minus a few k.

Technically this is a "sure bet".


HSBC allegedly laundered (not revenue, not profit, they laundered) $880 million.

They were fined $1.9 billion.

Not "fined about half"


They were caught with $880 millions. That doesn't mean they laundered only that.


People and 'the News' most times don't read the details, which is logical since we never get the full reports on our hands. The scope of the audit/examination should document the limitations/boundaries of the examination. E.g. X, Y, and Z, countries, A, B, and C subsidiaries, for the period of dd/mm/yyyy to dd/mm/yyyy. And which transactions where checked? All deposits? From all business lines? E.g. bank deposits OR their investment brokers?

There are many ways to get money in a large Banking group like UBS, HSBC, and others. They have become Lernaea Hydras and for a good reason.


They were fined on what they were caught, not on what they did. They seem to keep repeating such schemes time and time again. Unless execs are jailed, this is cost of doing business. At some point an exec either said, "let's do it," or closed his eyes and ears.


This time the fine was calculated based on the recovery rates from the French people retrieving their money back to France (the law changed drastically in France and to avoid jail time, many people brought back money from Switzerland). This gave the government statistics to evaluate the effective fraud and thus calculate the corresponding fine.

Of course, over the years, we can be pretty sure that UBS made more money out of these schemes than the fine and they are most likely having such a scheme running right now which may be discovered in 10 years if we are lucky.


I like the idea: ”here is our best estimation, you can counter it by providing us with some documentation”


I think he meant half of $4.2 billion.


indeed i did thanks


Not sure if you need the "allegedly" when they admitted to the laundering.


The terms of the agreement was a fine without an admission of guilt. So in the interest of jurisprudence, allegedly is the correct word to use in this situation.


i meant roughly half of the 4.2


This comments comes back on every single case like that no matter what the amount is, it's almost a cliché now.

Sure prison would be nice, but 4.8 billion dollar is very far from "a slap on the wrist", it it more than half of their yearly operating income worldwide.


It's not cliché, it's NOT ok that these corporations can commit huge crimes and no one goes to jail. I would say the fact that you seem OK with it is not OK.

Literally no one went to jail for the crimes of 2007-2008. No one went to jail for laundering money for the cartels, no one went to jail for Libor scandal, and no one went to jail here. Yet if you walk into McDonalds and rob it of the amount in the cash register, you could go to jail for many years


It is not a deterrent though - they key doing it again and again. Right now employees aren’t punished (really) and the bank takes all the risk so why wouldn’t they do whatever they can get away with?


I think many would be happy to go to jail and keeo the billions instead.


You're very wrong. They can always make more money, but they can't make more time.


That might be true for people who would otherwise be desperately poor, but these are not.


Moneyland is another good book on this subject.


Those bigger teller windows were appalling, but this was more the actions for a rogue branch/country network than an officially sanctioned policy from senior management.

It does show a lack of controls in place, though.


Senior management must be responsible for the actions of "rogue branch" in an official capacity. When you slip and fall on black ice, you don't sue the janitor.



Does anyone know what the likelyhood of the 4.2B being paid out is? I imagine that UBS will go through all possible appeals processes.

Also if the article is right in that this was affected by the protests, then that is a big win for protesting.


UBS's market cap is $46B. After this was announced, their stock fell 4%. This drop, if permanent, would equate to a loss of ~$1.84B in market cap.

There are many factors that could be influencing price, but if we attribute this 4% delta entirely to the announcement, the market is guessing the actual penalty will amount to $1.84B. This could be bc the market thinks UBS can appeal with a 50% success rate, or can negotiate the penalty down by 50% with high certainty.

Edit: I hadn't considered tax implications. If UBS is able to deduct these penalties pre-tax (which I'd assume they would), then it suggests that they are very likely going to have to pay the full penalty. Of course, this is all guess work. e.g. the market could be scared that this sets a precedent for future additional penalties which would decrease the signalling towards full payment on this penalty.


This isn't quite right -- The 4% loss could just represent the delta between what was already priced in and the actual loss. This case has been a long time coming so the expectation of the penalty should have been priced in long ago.

Secondly, and it depends on the jurisdiction, but penalties and fees associated with wrongdoing generally aren't tax deductible.

The US clarified this during the TCJA but most countries agree: https://www.clearyenforcementwatch.com/2018/02/1962/


There's also that weirdness of financial companies having price-to-book less than one... (For UBS it's around 0.9. Don't ask me how it makes sense.)


There may be good reasons for that.

First, there are two ways to value companies, depending on what kind of companies they are. The two extremes are on one side a consulting firm, where the value is worth only the present value of the future fees to be earned by the consultants. But the company itself has no asset, very little debt, and its balance sheet is pretty much irrelevant to its valuation. The other extreme is an investment fund, where the company is worth exactly the current market value of its assets, it has no other future revenues other than the expected incomes from these assets.

A bank is somewhere in the middle. It is kind of an investment fund in the sense that all its assets are financial assets that can be sold pretty much at their book value (unlike a factory where the book value may mean very little in term of how much the asset is really worth). But the book value may differ from the fair market value (that's often the case if there are bad loans). But part of the value will also be generated from profits that are unrelated to these assets: fees on payment processing, advisory fees, trading income, etc. So part of the value is also a PV of future revenues.

And these future revenues may be negative. If you look at the past 10 years, banks have experienced huge revenue volatility. From trading losses, fraud (Kerviel style), fines (like UBS here), bad loans (RBS and HBOS style), etc.

And then you can have all sort of weird technicalities. Like the book value may be increased for gains on own credit (if the company fair values part of its liabilities). That's a paper gain that the market is unlikely to give any credit for.


Presumably that is down to straightforward doubt as to the value of UBS's book. It is not uncommon for unpopular companies that are holding a lot of their balance sheet at "market value" (as banks do) to trade at discounts to their stated book. Take a look at LSE:LAND, a "£10bn" REIT trading at a £6bn market cap.


Well, just as this case demonstrates, certain companies have exposure to other things (like paying a gargantuan fine) that would make their shareholder equity trade at a discount.


”if we attribute this 4% delta entirely to the announcement, the market is guessing the actual penalty will amount to $1.84B”

No, the market’s guess is $1.84B higher today than it was yesterday. The latter likely isn’t zero, as https://en.wikipedia.org/wiki/UBS_tax_evasion_controversies#... states ”In July 2014, the bank was required to post a bond of 1.1 billion euros, which UBS complied with while making multiple appeals in the French court system, finally losing its appeal at the Cour de Cassation, France's highest court”


It seems like your back-of-the-envelope estimate is assuming that the market values UBS at exactly its assets minus its liabilities. This disregards goodwill, which (someone correct me if I'm wrong) includes expectations of future earnings. That number wouldn't even be affected in a straightforward way since banks, especially European banks, tend to be levered quite a bit in order to survive on interest income.


Goodwill is often counted as an asset (or a liability if they don’t want to pay taxes) on the company’s book. I’m not sure if UBS included it on theirs, though


I believe that's just after an acquisition. Shares trading on the secondary market shouldn't really affect the company's balance sheet.


I want to be hopeful of this, but according to the article: "In the U.S., UBS is contesting charges from ... the financial crisis more than a decade ago."

That was 10 years ago, and and it's still being argued in court. I can very well see this being another delayed settlement that will drag on for another decade or more.


They already paid a 1B€ “bail” (read in a dream has newspaper) before the court hearing. I am unfamiliar with the procedure, so I don’t know what kind of events would trigger a restitution (it’s not intuitive, because you can’t put a company in jail before the trial)


I was wondering the same thing. Switzerland is not part of the EU either, what power does the French court have over them other than local branches?


If UBS were to go down that route and succeed, I’d expect their ability to operate as a bank in the EU would be placed at risk.

That would be more costly than paying whatever is due after exhausting legal appeals.


What happens if a fine is greater than the value of a multi-national company's operations in a country? As $4.2 billion is ~10% of UBS's market cap, does UBS derive more than 10% of its value from within France? If not, might they just abandon operations in the country for the government to seize and avoid paying the fine, or would EU or international-level agreements or courts enforce payment? Anyone know of any precedent regarding such a scenario?


Court orders can, and are, routinely enforced in other countries. The interested agent goes to country B courts with a decision from country A and asks for a local enforcement order. When granted, this has the same power as a court order from country B. Even if UBS decides to abandon all assets in France and never do business there again, agents of the French state can get the fine from UBS assets in other countries.


They'd most likely request European Arrest Warrants for the CEO and most board members and seize all French assets. Then they'd go for the assets in all other EU countries.


If I owed you money and flee in another country, can't you generally sue me in that other country to get your money back?


€3.7B ($4.2B) is last year profit. Fine is €4.5B($5.1) Here is link to not paywalled article https://www.reuters.com/article/us-ubs-trial-fraud/ubs-to-ap...

EDIT: Actually fine is €3.7 + €800m in damages.


We are shifting more and more towards a legal system where not only those who actually did something wrong (here the tax evaders), but also those whose services have been used to do so are considered guilty. Another example is copyright, where websites are increasingly held liable for user uploads. I'm not convinced that this is a good development.


If a stranger walks up to you, and gives you $10,000 to drive a large, heavy, body-sized bag to the outskirts of town, and dump it in a river, I think most reasonable people would consider you to be at least an accessory to murder. On the other hand, if you were a department store clerk who sold that bag, most reasonable people would consider you in the clear.

There's a spectrum for this sort of thing, and I think UBS was clearly on the 'knowingly profiting from crime' side of it.


I think we are talking about a company calling people to ask them if they have a bag to dispose of and organizing conferences on the fine art of bag disposal, a primer on material science, some workshops on bag design and the intricacies of selecting rivers.

They were cold calling the customers accross the border, not closing their eyes on the paperwork associated with the money.


They were actively recruiting clients in France to offer them tax evasion services. There's nothing innocent here.


You're exaggerating. Due diligence is a thing in most professional services. Banks have been complicit in money laundering and tax evasion for decades and they have shown that they have little interest in solving these issues.


Software Developers have been complicit in copyright infringement for decades and they have shown that they have little interest in solving these issues.

Just like bits have no color for you[1] dollars had no color for bankers for a long time. Stopping money laundering in your organization is just as much pain as stopping copyright infringement on your system.

[1] https://ansuz.sooke.bc.ca/entry/23


The analogy doesn't work. You've constructed a fragile argument by simple substitution as though money laundering and tax evasion had the same impact and damage as copyright infringement.

Well, it's been established empirically that such is not the case, and that the supposed statistics by the copyright lobbyists on the damage of piracy are outright lies.

Moreover, there is a very strong argument to be made that strong enforcement of copyright goes against several rights that individuals have whose values are above copyright. Privacy, fair use, distribution, preservation of knowledge and culture all have higher priority in many jurisdictions and the fight in this matter for the past two decades has shown that the argument in favor of strong copyright enforcement is not for the benefit of all.

But money laundering? Tax evasion? There are few if any arguments that support what is essentially billions and billions of dollars of theft from the commons where there is real, easily quantified damage to the entirety of society.

Arguments such as yours are fundamentally weak in that you expect that mere substitution of terms equates to... anything really. I don't know what world you live in where that's a strong proposition.


The GP's point is fair, though. Money is fungible, which is just another way of saying that it has no color. Anti-money-laundering schemes are essentially DRM for money.

Now it is my personal and completely biased opinion that money laundering and tax evasion are very big problems affecting society negatively, while copyright infringement on-line is mostly a non-issue due to IP laws being abusive; still, while relatively different in importance, the problems are still similar in the way GP describes them.

(And in both cases you learn that color is very important to the law.)


Except it's not DRM for money. I, as a normal software engineer, have never encountered any difficulty in moving money around. Even fairly large sums ($100k+) across continents. It was quick and almost painless.

I imagine most of us here have never felt like our money had "DRM" on it.

Our money is, in fact, a different color from the terrorists'.


That's because you're on the golden path. I don't feel "DRM" when I'm watching YouTube or Netflix on my Windows/Chrome. It's only when I want to do the unconventional - like watching a movie that's region-locked, or listening to some YouTube music on my phone with the screen turned off - it's only then that I suddenly experience the extent of machinery that pays attention to colors of bits.

> Our money is, in fact, a different color from the terrorists'.

Yes. The point is, the color isn't a feature of money - or of bits - but the legal systems around use of those.


I think that’s definitely the exception, moving money internationally is a PITA unless you want to pay high fees for less hassle. It’s definitely more trouble than moving money within the same country.


I wonder if they will rethink their "fat billboards at Beijing airport" marketing strategy. Who wouldn't love to see China fine a Swiss bank?


Big banks a such an easy target these days. Everyone in hates them and politicians love that because they can extract big fines. win-win-win. Until all the banks go under at least - US banks are mostly solvent still, European ones look like all the big ones will go under.


> Until all the banks go under

If 2008 taught us anything it is the fact that big banks don't "go under" because they are considered "too big to fail" and as such will not be allowed to fail.

The German term for this is "systemrelevant", (systemically important) which imho fits way better than "too big to fail" because it's way blunter.


The predicate for this dates back a long way. I believe UBS were offered an initial sum of $1.1b to settle a few years ago and took it to trial [1]

> The judges’ move followed a failed plea bargain between national financial prosecutors and UBS representatives, the first time such an out-of-court settlement was tested in France. French magistrates reportedly offered UBS to settle the case for 1.1 billion euros ($1.2 billion), after considering an initial deal of 2.2 billion euros ($2.4 billion). - 2017

However the basis was

> The assets illegally concealed by French clients in Switzerland between 2004 and 2012 allegedly amounted some 10 billion euros ($10.75 billion).

Another quote puts it at $600billion[2]

I'd love to know the definition of "illegally concealed" in these circumstances

The chances of it being reasonable I'd consider very slim; France is not a reasonable country nor is it run by reasonable people. France is a failing protection racket running out of people to shake down, by and large. When the people who run the socialist party government budget are offshoring their wealth - perhaps your country is fundamentally broken.[3]

[1] https://www.apnews.com/2c7032c7d75a40728395587fd917517e

[2] http://www.ipsnews.net/2012/04/europe-loses-billions-to-tax-...

[3] https://www.bloomberg.com/news/articles/2015-02-17/three-ex-...

Edit: Downvotes without comment. Not exactly productive conversation.


I can see why you are being downvoted, but you are right, France isn't a very reasonable country. France has some of the most absurd, protectionist, socialist, anti-market laws the world has ever seen. Hopefully they are getting the message that their stodgy old world socialist world-view is self-defeating and unproductive.

America has some problems, but there's a reason why they have a GDP 40x larger than France with only 5x the population.


I won't enter into the policy discussions about wealth distribution, and you are right that the GDP per capita of the US is larger than that of Franc, but. The difference is more that of 43K vs 59K. So not 900%.

In fact, the GDP per capita is 100$ less than that of the UK, and more than that of, for example, Japan or South Korea.

Also of note may be that France, unlike the US, does not dispose of oil resources, which makes comparisons not quite as simple.

https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)...


Sorry it's not 40x it's more like 10x for GDP. But there is a difference between GDP/capita and PPP. If we're talking about standard of living PPP is a good measure. But if we're just talking about "wealth" then I think GDP/capita is a better measure. Or actually, just total GDP is probably a better measure than per person.


Even at nominal GDP it is 59k vs 39k, so 50% difference and not 100%.

And I'm not sure to understand why you prefer one mesure over the other. Pure GDP does not take into account systemic issues, such as the cost of health care or education. And the point of the discussion was the relevant merit of various economical systems.

But I did not post in order to correct some semantic point. But rather to explain the non-commented down votes.

In your original post you made an extraordinary claim, that was off by an order of magnitude. I pointed this out, and instead of checking facts, you downgraded your claim, even though a simple Google lookup would have been enough to know that even that was wrong by 100%.

https://en.m.wikipedia.org/wiki/List_of_countries_by_GDP_(no...

In my mind this is an example of why it is difficult to have meaningful debate in our society. There is no point in debating if one or both parties are not willing to challenge their understanding of the facts.


I’m not the one who originally posted. The 10x GDP is just based on raw GDP numbers. I don’t think they’re biased. As are the population numbers.


As of 2018, the US GDP is 7.34x the one of France, not 10x. And in 2019, the US population is 4.91x bigger that France population, leading to a GDP per capita being 1.50x higher, not 2x.

You cannot round numbers at 1 significant digit and use them for further computations, that's butchering math.




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