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UBS slapped with huge fines for FX ‘rigging’

Financial authorities in Switzerland, the US and the UK on Wednesday announced they had slapped Swiss banking giant UBS with penalties totalling 774 million francs ($802 million) to settle allegations of foreign exchange rigging.

Published: 12 November 2014 14:14 CET
UBS slapped with huge fines for FX 'rigging'
Photo: Martin Abegglen

Switzerland’s largest bank was among five major international banks fined a total of more than $3 billion for rigging FX markets over a five-year period from January 2008 to October 2013.

Other banks penalized included the publicly controlled Royal Bank of Scotland, HSBC, Citibank and JP Morgan.

UBS received the biggest penalty handed out by Britain’s Financial Conduct Authority (359 million francs), while the US Commodity Futures Trading Commission exacted a $290-million sum.

FINMA, Switzerland’s financial market regulator ordered UBS to “disgorge” an additional 134 million francs.

The Swiss regulator said it has also initiated enforcement proceedings against 11 persons involved in the case.

FINMA found that over an extended period of time UBS employees in Zurich “at least attempted to manipulate foreign exchange benchmarks”.

Employees of the bank also acted against the interests of their clients, the regulator said.

“Risk management, controls and compliance in foreign exchange trading were insufficient,” FINMA said.

“By breaching control requirements and owing to the misconduct of its employees, UBS severely violated the requirements for proper business conduct.”

Financial authorities in the US and the UK made similar findings.

In the UK, the FCA regulator said it fined the five banks for “failing to control business practices in their foreign exchange trading operations”.

In the US, the The CFTC said these banks were being punished for “attempted manipulation of, and for aiding and abetting other banks' attempts to manipulate, global foreign exchange benchmark rates to benefit the positions of certain traders.”

American authorities issued partial transcripts of “chatroom sessions” between traders from UBS and other banks showing efforts to manipulate currency rates.

For UBS, the latest financial blow follows penalties the bank has faced for Libor rigging and aiding tax evasion.

The bank issued a statement referring to the penalties as the “resolution of an industry-wide investigation into irregularities in foreign exchange (FX) markets”.

The statement quoted bank CEO Sergio Ermotti saying: “Today's resolutions are an important step in our transformation process and towards closing this industry-wide matter for UBS.”

Ermotti added that the bank is continuing to cooperate with “related ongoing investigations”.

In its defence, UBS said it was the first bank to “self-report potential misconduct and cooperate fully with authorities in their review of FX and related markets”.

The bank said it also took “appropriate disciplinary action” against employees involved in the matter without specifying what that action was.

UBS added that it has improved controls of its FX business and the entire firm.

The company said it has made provisions for the financial cost of the penalties for the third quarter of 2014.

'The most serious case of market manipulation seen'

FINMA director Mark Branson told Swiss media the FX case at UBS was “the most serious case of market manipulation that we have ever seen”.

The authority outlined the following examples of wrongdoing by the bank's foreign exchange dealers: 

Manipulation of benchmarks: The bank's foreign exchange traders repeatedly, and over extended periods of time, attempted to manipulate foreign exchange benchmarks so as to generate profits either for the bank or third parties. In this context, there was also collusion with other banks.

Acting against the interests of clients and counterparties: Foreign exchange traders acted unacceptably frequently against the interests of their clients and counterparties. This conduct was partly coordinated with other banks.

Several foreign exchange traders: 

– actively triggered client stop-loss orders to the advantage of the bank

– engaged in front-running

– engaged in risk-free speculation at the clients' expense when making partial fills, where at least part of clients' profitable foreign exchange transactions were credited to the bank

– disclosed confidential client identifying information to third parties

– in individual cases engaged in deception regarding sales mark-ups and excessive mark-ups associated with an internal product of the bank.

FINMA slammed UBS for having insufficient risk assessment and controls to prevent this kind of activity, as well as a lack of proper compliance controls.

Fo more on the authority's ruling, click here.

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FRANCE

Switzerland’s UBS faces €3.7-billion fine as crucial court ruling looms

A Paris court will rule Wednesday on whether Swiss banking giant UBS illegally tried to convince French clients to hide billions of euros in Switzerland, charges which prompted prosecutors to seek a record €3.7-billion fine.

Published: 19 February 2019 09:10 CET
Switzerland's UBS faces €3.7-billion fine as crucial court ruling looms
UBS denies charges it helped French clients evade tax and says it will defend itself "vigorously". Photo: AFP

The trial opened last autumn after seven years of investigations, launched when several former employees came forward with claims of unlawful conduct. 

The move came as authorities across Europe cracked down on tax evasion and dubious banking practices in the wake of the global financial crisis which erupted in 2007.

The pressure eventually forced Switzerland to effectively end its tradition of ironclad bank secrecy, by joining more than 90 countries which agreed to automatically share more client account information among each other.

In the UBS case, French authorities determined that more than €10 billion had been kept from the eyes of tax officials between 2004 and 2012.

The National Financial Prosecutor's office urged a €3.7-billion ($4.2 billion) fine, the largest ever sought in France, saying the bank and its directors “were perfectly aware that they were breaking French law” by unlawfully soliciting clients and helping them evade French taxes.

They also sought a €15 million fine for UBS's French subsidiary, and fines of up to €500,000 for six top executives, including Raoul Weil, the former third-in-command at UBS, and Patrick de Fayet, formerly the second-ranking executive for its French operations.

In addition, lawyers for the French state, which is a plaintiff in the case, asked for €1.6 billion in damages.

UBS, which was ordered to post €1.1 billion in bail, has denied the charges and said its operations complied with Swiss law.

It also says that it was “unaware” that some French clients had failed to declare assets in Switzerland, and that prosecutors have not produced any proof, such as client names or account numbers, to back up their fraud claims.

The case is being closely watched by industry executives at a time when Paris and other European capitals are hoping to lure multinational banks from London as Brexit looms.

'Milk tickets'

UBS is accused of organising or inviting prospective clients to prestigious outings such as the French Open or luxury hunting retreats, where UBS's Swiss bankers would meet their “prospects” — something they were not allowed to do under French law.

UBS France directors then used notes called “milk tickets” to keep track of how many “milk cans” – amounts of money – were transferred to Swiss accounts.

They say the system was merely a way to balance out bonuses due to French bankers who were effectively losing a client to their Swiss peers, and the notes were later destroyed.

But investigators claim the “milk tickets” were proof that UBS had a parallel accounting system for keeping the transfers off its official books.

Only one “milk ticket” was found during the inquiry, prompting defence lawyers to argue there was no proof to justify claims of a massive fraud.

Yet prosecutors pointed to the roughly 3,700 French UBS clients who later took advantage of an amnesty offer to regularise their tax declarations with the French authorities.

UBS has been embroiled in a series of similar cases, most notably in the United States, where the authorities said the bank used Switzerland's banking secrecy laws to help rich clients avoid taxes.

In 2009 it paid $780 million to settle charges it helped thousands of American citizens hide money from the Internal Revenue Service, and agreed to turn over information on hundreds of clients, severely denting Switzerland's long tradition of shielding banking clients and their operations from prying eyes.

That case was also prompted by a former American UBS employee turned whistleblower, Bradley Birkenfeld, whose book “Lucifer's Banker: The Untold Story of How I Destroyed Swiss Bank Secrecy” was published in 2016.

Last November UBS was again sued by US authorities, who accuse the bank of misleading investors over the sale of mortgage-backed securities in 2006 and 2007, just before the financial crisis struck.

UBS has denied the charges and said it will defend itself “vigorously”.