(MENAFN- Swissinfo) What began as a series of subpoenas sent to a range of banks early this year has developed into a full-scale investigation focusing on Credit Suisse, said the people, who requested anonymity to speak about an ongoing inquiry. The DOJ has briefed US-based lawyers for UBS about Credit Suisse's alleged exposure to sanctions violations since UBS acquired its smaller rival in June, the people said. The DOJ is also looking into possible compliance failures at UBS, one of them said.
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The probe is still at an early stage and may not result in charges or a settlement, the people said. Still, it comes at a delicate time for the Zurich-based bank, which is absorbing thousands of employees from Credit Suisse. Along with Credit Suisse's business, which boosted its wealth management business by almost a third to over $4 trillion, UBS also inherited Credit Suisse's legal woes, the main cause of its collapse in March.
The DOJ has asked for information about how the banks handled the accounts of sanctioned clients over the past several years but has not requested interviews with executives or staff yet, one of the people said. The probe covers both restrictions imposed after Russia's invasion of Ukraine in 2022 and previous rounds put in place following its 2014 annexation of Crimea, another person said. More than a thousand wealthy Russians have been blacklisted by the US over the last decade.
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UBS shares were down 3.4% as of 1.26 p.m. in Zurich, having initially declined 7.9%, the most since March.
“The initial share price reaction seemed excessive; however, this probe illustrates the contingent liabilities risks that UBS is exposed to after its acquisition of Credit Suisse,” Nicolas Payen, a Kepler Chevreux analyst, wrote in a note. He rates UBS a hold.
A spokesperson for UBS declined to comment. A spokesperson for the Department of Justice declined to comment.
Internally, DOJ officials saw the takeover as an opportunity to advance the Credit Suisse investigation, two of the people said.
Investigators have taken requests for information to UBS directly, rather than routing through official diplomatic channels, which can be slower, according to two other people familiar with the case. Formally, any requests for help from foreign prosecutors must be funnelled through the Swiss Federal Office of Justice, except in rare cases of cooperation such as the joint US-Swiss raids on FIFA in 2015. The FOJ says that to date it's received no requests related to Credit Suisse, UBS and Russian sanctions.
Privately, US officials have expressed frustration at what they see as Switzerland not doing enough to enforce sanctions on Russia and combat money laundering that's helping the Kremlin keep its economy humming despite the restrictions imposed by the US and its allies over its invasion of Ukraine.
The US points to Switzerland's refusal to join a multilateral task force chasing illicit Russian holdings and the earlier decision to unfreeze some assets in a high-profile corruption case with links to the Kremlin.
Before the invasion of Ukraine, Credit Suisse was well known for catering to wealthy Russians, managing more than $60 billion of their assets at its peak. By the time of the invasion in February 2022, that number had fallen to $33 billion, still 50% more than UBS, despite the latter's larger wealth management business. UBS retained Credit Suisse's top banker for the Russian business, Babak Dastmaltschi, even as it let other senior executives go in the takeover.
Kepler Chevreux's Payen estimates that if one assumes“UBS kept all the Russian assets during the merger, total combined Russian assets could amount to circa $39 billion” and represent about 1.1% of UBS wealth division's assets under management.
US investigations into sanctions violations have in the past resulted in large fines. In 2014, BNP Paribas SA in 2014 pleaded guilty to US sanctions violations related to Sudan and agreed to pay $8.97 billion.
The current probe is only the latest in the US involving Credit Suisse. The Justice Department is still investigating whether the bank continued to help US clients hide assets from authorities, eight years after the bank paid a $2.6 billion tax-evasion settlement.
In March, the Senate Finance Committee said it had uncovered“major violations” of that deal by Credit Suisse. UBS said it's actively cooperating with investigators.
The sanctions inquiry comes amid growing scrutiny in Washington of Switzerland's alleged role in facilitating the flow of dirty money out of Russia.
“We consistently see a pattern here in which Switzerland's banking arrangements have facilitated the corrupt practices of people that have robbed their country of their wealth,” Senator Ben Cardin said at a hearing on the issue in July.
The US, he said, needs to“make sure that the sanctions that are imposed are not being evaded by a country like Switzerland.”
Swiss banks held more than $200 billion of Russian wealth, an industry group estimated in March 2022. But by the end of last year, Switzerland said it had frozen only about CHF7.5 billion ($8.4 billion) worth of Russian assets.
--With assistance from Marion Halftermeyer and David Voreacos.
(Updates with analyst's comments in sixth and 13th paragraphs)
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