Analysis
17 November 2023

Saga UBS: second reassessment of the UBS’s historic financial penalty

On November 15, 2023, as part of the UBS saga that began on 20 February 2019, the judges on the Quai de l'Horloge confirmed the bank’s guilt on charges of illegal bank solicitation and aggravated tax fraud laundering. In this case, the Swiss bank had been sentenced to a record 4.5 billion euros, which was reduced on appeal to 1.803 billion euros. However, this conviction was overturned by the Criminal Division of the Cour de Cassation.

 

In this legal saga, which began with a report from the Autorité de contrôle prudentiel in 2010, followed by a preliminary investigation and the opening of a judicial inquiry in 2012, the Swiss bank has used its last resort to try and avoid a criminal conviction for illegal bank solicitation and aggravated money laundering. The bank appealed against the decision of the Paris Court of Appeal of 13 December 2021[1], which ordered it to pay a fine of 3,750,000 euros, to pay 800 million euros in damages for the loss suffered by the French State, and confiscated 1 million euros.

In this long-awaited decision, the Cour de cassation confirms the guilt of the Swiss bank UBS but overturns the provisions relating to penalties and damages pronounced by the Court of Appeal.

By confirming the provisions of the Court of Appeal’s 2021 ruling, the Court admits that, from 2004 to 2012, UBS, via its sales representatives, placed wealthy French taxpayers’ funds in Switzerland, using a concealed modus operandi, thus constituting a illegal bank solicitation and the aggravated laundering of tax fraud committed by these French taxpayers.

However, without questioning the characterization of the offences, the Cour de cassation ordered a retrial in order to redefine the methods for calculating the financial penalty imposed on the Swiss bank. Firstly, it recalls that “no one may be punished by a penalty which is not provided for by the law” applicable at the time of the punishable acts (I). Secondly, while confirming the existence of a compensable loss suffered by the French State, the Court reconsiders the failure to characterize and assess the loss of opportunity (II).

 

I. No one may be punished by a penalty which is not imposed by the law applicable at the time of the acts punishable by the said penalty

 

In its 2021 judgment, the Paris Court of Appeal ordered UBS to forfeit 1 million euros for money laundering offences committed between 2004 and 2012, as part of the deposit paid to the Régie du Tribunal Judiciaire in July 2014 as part of the judicial investigation.

However, the possibility of confiscating the assets of legal persons as an additional penalty for money laundering has only been provided for by law since 6 December 2013[2].  In the present case, the acts of money laundering alleged against UBS were committed before the above-mentioned law became applicable.

The Cour de Cassation overturned the appeal on the basis of Article 111-3 of the French Penal Code[3], which states that “no one may be punished by a penalty not provided for by law for a felony or misdemeanor”.

Still on the subject of confiscation, the Cour de Cassation also overturned the decision of the Court of Appeal, which had held that the bail paid by UBS under judicial supervision constituted property belonging to UBS, so that the sum of 1 million euros imposed as part of the additional penalty of confiscation could be deducted from the said bail.

The Cour de Cassation thus points out that the purpose of a bail is to guarantee the payment of damages, restitution, alimony, and fines, and not the confiscation penalty.

As a result of this ruling, the Swiss bank will not be subject to confiscation at the next hearing before the Court of Appeal and the sums paid as bail can only be used to pay the fine or damages awarded to the French State, the amount of which has not yet been definitively determined.

 

II. The need to characterize and estimate the damage caused by loss of opportunity

 

Before the Cour de cassation, UBS complained that the Court of Appeal had ordered it to pay 800 million euros in damages for the losses suffered by the French State as a result of the money laundering practices.

The main criticism of the appeal was the abstract assessment of the damage. The Court of Appeal had refrained from making any assessment or estimate of the loss and had only taken into account the fact that a significant number of investigations steps and searches had been carried out by the agents of the State services, resulting in a “financial cost”.

UBS’s challenge also criticized the argument that the loss of opportunity suffered by the State was due to the acquisition of the tax statute of limitations. The Court of Appeal ordered UBS to pay compensation for a loss unrelated to the tax fraud.

The Cour de Cassation noted that this loss of opportunity and the State’s chances of success had not been established or assessed by the Court of Appeal. The Cour de Cassation considers that, in order to establish the existence of a real and certain loss of opportunity, the Court of Appeal should have characterized the possibility for the tax authorities to detect the fraud and recover the tax due before the expiry of the limitation period.

It also points out that, in the absence of any estimate of the success of the measures taken to recover the tax, it is not possible to verify whether the compensation for this loss of opportunity, i.e., 800 million euro, was proportionate to the opportunity actually lost.

On this basis, the Cour de Cassation confirmed the existence of a loss suffered by the French State as a result of the aggravated laundering of tax fraud but overturned the provisions of the Court of Appeal.

Finally, the Cour de Cassation ruled that the claim for non-pecuniary damage resulting from the “discrediting of anti-money laundering measures” was inadmissible on the grounds of novelty, as it had only been raised at the appeal stage.

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