UBS: Corporate Rap Sheet
By Philip Mattera
UBS, the result of the 1998 marriage of two giant Swiss banks and the subsequent acquisition of the U.S. brokerage house PaineWebber, has been embroiled in a series of recent scandals involving its role in helping wealthy Americans evade taxes, its role in the manipulation of the LIBOR interest rate index and its failure to prevent one of its traders from running up more than $2 billion in losses. In 2015 it had to plead guilty to a criminal charge in the U.S.
The company dates back to the 1854 founding of Basler Bankverein, which later became the Swiss Bank Corporation. Its rival Union Bank of Switzerland was formed in 1912 through the merger of two smaller banks.
The banks had their share of earlier scandals, including a 1988 controversy over money laundering that embroiled both institutions as well as the other big Swiss bank, Credit Suisse. The banks were reported to have been used by a Turkish-Lebanese drug ring to launder some $1 billion in cash, which was said to have arrived in suitcases at Zurich airport and taken directly to the banks (see Wall Street Journal, November 7 and 9, 1988). The banks denied doing anything wrong.
During the 1980s both Union Bank and Swiss Bank Corp. also came under fire for their business activities in apartheid South Africa. And in the 1990s they found themselves at the center of new controversy over their dealings with Nazi Germany and their handling of the accounts of Holocaust victims. In 1997, shortly after the Swiss government ordered the banks to preserve relevant records amid discussions with U.S. officials of the creation of a compensation fund, it came to light that Union Bank had been destroying large quantities of those documents at its headquarters in Zurich. The destruction was halted when a security guard alerted a local Jewish organization about what was going on.
Around this time, the Swiss banks were also hit with lawsuits filed in the United States by relatives of Holocaust victims who had been unable to access assets held by the banks for decades because of a lack of documentation. There were also charges that the banks profited by receiving deposits of funds that had been looted by the Nazis. In 1998 the banks agreed to pay a total of $1.25 billion in restitution. The judge in the case later accused the banks of stonewalling in paying out the settlement.
Taking on PaineWebber and Its Legal Woes
After Swiss Bank Corp. and Union Bank completed their merger, the new UBS announced plans in 2000 to acquire PaineWebber, the largest independent U.S. brokerage house. PaineWebber had been experiencing a series of legal problems. In 1992 the New York Stock Exchange fined it $900,000 for widespread sales and trading violations. In 1996 it had to pay an estimated $200 million to settle a class action suit charging that it engaged in deceptive practices in the sale of limited partnerships.
PaineWebber also inherited the legal difficulties of Kidder Peabody, which it purchased from General Electric in 1994. Kidder had been censured by the SEC in 1986 for misusing $145 million in client securities as collateral for its own bank loans. Its takeover star Martin Siegel was implicated in the Ivan Boesky insider-trading scandal, and in 1987 Kidder itself had to pay $25 million to settle related charges against the firm. Seven years later, Kidder faced a new controversy after one of its managing directors, Joseph Jett, was accused of reporting $350 million in fictitious trading profits to cover up huge losses and inflate his bonus. An investigation of the matter cited a complete breakdown of the firm’s system of internal controls. Kidder also was the target of age and gender discrimination lawsuits.
Following its acquisition by UBS, PaineWebber agreed to pay $10.3 million to settle a lawsuit in which the city of Nashville accused the firm of charging excessive fees for managing its pension fund and understating the risks of the portfolio it had assembled.
In early 2002 UBS’s UBS Warburg unit acquired the trading unit of Enron, which later that year was revealed to be engaged in widespread accounting fraud. UBS later agreed to pay $115 million to settle litigation over the collapse of Enron.
UBS had other legal and regulatory problems. In 2003 it was one of ten major investment firms that agreed to pay a total of $1.4 billion in penalties, disgorgement and investor education costs to settle federal and state charges involving conflicts of interest between their research and investment banking activities. UBS Warburg’s share was $80 million. That same year, the SEC penalized UBS PaineWebber $500,000 for failing to properly supervise a broker who cheated his clients of more than $68 million.
In 2004 UBS agreed to pay $4.6 million to settle charges brought by the SEC and industry regulator NASD (now FINRA) of cheating mutual fund customers. Later that year, the Federal Reserve fined UBS $100 million for violating U.S. trade sanctions by engaging in currency transactions with parties in countries such as Iran and Libya.
In 2006 the New York Stock Exchange and New Jersey regulators fined UBS $49.5 million for market-timing violations. In 2007 FINRA fined UBS $370,000 for making hundreds of late disclosures about its brokers and another $250,000 the following year for supervisory failures related to improper mutual fund sales.
Bailout, Bid-Rigging and LIBOR Manipulation
In 2008 UBS agreed to pay about $282 million to settle legal claims relating to its role in financing Parmalat, the Italian dairy company that collapsed in 2003 amid charges of fraud and money laundering. That same year, UBS was hit with lawsuits filed by several U.S. state governments relating to its sale of auction-rate securities. UBS settled the actions by agreeing to pay a total of $150 million in penalties to the states and buy back more than $18 billion of the securities. Also in 2008, the Swiss government invested about $5 billion in UBS to help shore it up during the financial crisis. Swiss regulators also set up a $60 billion fund to absorb toxic assets on the books of UBS.
In 2009 the UK Financial Services Authority (FSA) fined UBS £8 million for "systems and controls failures" that enabled employees to carry out unauthorized transactions.
In 2010 UBS agreed to pay a fine of $6.6 million and buy back $200 million of auction rate securities to settle charges of deceiving investors in Texas.
In 2011 FINRA fined UBS $2.5 million and ordered it to pay $8.25 million in restitution to customers who were said to have been misled when purchasing securities known as 100% Principal-Protection Notes. That same year, UBS agreed to pay $160 million to settle federal and state charges relating to bid-rigging in the municipal securities market. A month later, UBS was sued by the Federal Housing Finance Agency in an action seeking to recover more than $900 million in losses suffered by Fannie Mae and Freddie Mac from mortgage-backed securities purchased through UBS. (In July 2013 the agency announced that UBS would pay $885 million to settle the case.)
UBS also faced criticism in 2011 after it came to light that a young trader named Kweku Adoboli working in the bank’s London offices had racked up more than $2 billion in losses. (Adoboli was later found guilty of fraud and sentenced to seven years in prison; UBS was fined £29 million by British regulators for supervisory failures.) Before the year was over, UBS was also fined $12 million by FINRA for violating short sale regulations and had to pay $8 million to settle short-sale charges brought by the SEC.
In 2012 UBS had to pay $300,000 to settle SEC charges relating to improper pricing of securities in mutual funds and then $1.5 million in FINRA penalties related to abuses in the sale of exchange-traded funds.
Later that year, UBS got caught up in the scandal over manipulation of the LIBOR interest rate. In December 2012 the Japanese securities subsidiary of UBS pleaded guilty to a charge of felony wire fraud in U.S. federal court and consented to pay about $1.5 billion in penalties and disgorgement to settle that charge and additional cases brought by other regulators in the United States, Britain and Switzerland. By negotiating to have the Japanese unit make the plea, UBS ensured that its U.S. operations would be not affected. During a subsequent hearing on the case in the British Parliament, several former UBS executives were accused of “gross negligence and incompetence.”
In 2013 UBS was fined £9.45 million by Britain's FSA for a variety of failures in connection with the sale of risky securities linked to AIG.
Later that year, the SEC announced that UBS would pay $50 million to settle charges that it misled investors during the sale of collateralized debt obligations.
In 2015 UBS had to pay $14.4 million to settle SEC allegations that it created an uneven playing field for investors inside its "dark pool" alternative trading system.
Also in 2015, the U.S. Justice Department announced that UBS was found to be in breach of its 2012 LIBOR settlement and that the parent company would plead guilty to a criminal charge, pay a fine of $203 million and go on probation for three years.
In September 2016 the SEC announced that UBS had agreed to pay more than $15 million to settle allegations that it failed to adequately educate and train its sales force about critical aspects of certain complex financial products it sold to retail investors.
Tax Evasion Controversy
In 2008 a former UBS banker named Bradley Birkenfeld was indicted in federal court in the United States for helping a wealthy American real estate developer evade taxes on some $200 million held in bank accounts in Switzerland and Liechtenstein. Birkenfeld pleaded guilty and agreed to cooperate with prosecutors by providing detailed testimony about the way UBS helped U.S. clients dodge taxes.
Based on that evidence, the U.S. Department of Justice (DOJ) got a federal court to order UBS to hand over the names of more than 200 U.S. account holders suspected of evading taxes. UBS itself also became a target, and in 2009 DOJ announced that UBS would pay $780 million in penalties and enter into a deferred prosecution agreement to settle criminal charges of having defrauded U.S. tax authorities. Supported by the Swiss government, UBS resisted a demand from DOJ that it hand over the identities and account records of some 52,000 other wealthy American clients. After months of legal and diplomatic negotiations, a deal was worked out in 2010 for UBS to hand over data on a smaller group of account holders numbering about 4,450.
After serving a reduced sentence, Birkenfeld received a $104 million whistleblower award from the U.S. Internal Revenue Service for his role in helping the federal government prosecute a slew of UBS clients for tax evasion.
In November 2014 UBS was fined $290 million by the U.S. Commodity Futures Trading Commission, $371 million by Britain's Financial Conduct Authority and $138 million by Swiss authorities as part of a settlement of charges that it and other major banks manipulated the foreign exchange market.
In May 2015 UBS was fined $342 million by the U.S. Federal Reserve for currency manipulation.
In 1994 Swiss Bank Corp. negotiated a deal with Connecticut under which it received state tax credits worth up to $120 million to move its North American headquarters from Manhattan to Stamford.
In 2005 UBS was ordered by a federal jury to pay more than $29 million in damages to a former sales executive who sued the firm for sex discrimination.
A 2010 report commissioned by the Swiss corporate accountability group Berne Declaration criticized UBS for its role in providing financing to companies involved in human rights abuses.
In 2002 a lawsuit was filed in U.S. federal court accusing UBS and numerous other companies of propping up the South African government during the apartheid era. The action, filed under the Alien Tort Statute, was dismissed by a district judge, but an appeals court allowed it to proceed. In 2008 the U.S. Supreme Court was unable to hear the matter, because four justices recused themselves due to conflicts of interest. The case was sent back to the district court, where it is still pending.
Other Information Sources
Violation Tracker summary page
Watchdog Groups and Campaigns
Key Books and Reports
Dividend Tax Abuse: How Offshore Entities Dodge Taxes on U.S. Stock Dividends (Senate Permanent Subcommittee on Investigations, September 2008).
One Step Forward, Two Steps Back: Credit Suisse, UBS and Human Rights (Berne Declaration, updated July 2011).
Solidly Swiss? Credit Suisse, UBS and the Global Oil, Mining and Gas Industry (BankTrack and the Berne Declaration, 2006).
Swiss Banks and Human Rights: A Research Paper Prepared for Berne Declaration (Profundo Research, January 2010).
Undue Diligence: How Banks Do Business with Corrupt Regimes (Global Witness, March 2009).
Last updated February 4, 2017
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