UBS as Repeat Offender (7/20/12)

The investigative reporter James B. Stewart, has written another good article, UBS’s Track Record of Averting Prosecution (NYT 2012), here.

This article is prompted most immediately by the big banks roles in the LIBOR scandal, but it notes that UBS is a repeat offender of many criminal violations.  While other large banks (e.g., HSBC) are repeat offenders also, UBS "in many ways, UBS is in a league of its own given its track record for scandals."

The article discusses the DOJ guidelines for charging corporations and then provides a litany of UBS offenses:

As the Justice Department points out in its guidelines for charging a corporation with a crime: “A corporation, like a natural person, is expected to learn from its mistakes,” and “a history of similar misconduct may be probative of a corporate culture that encouraged, or at least condoned, such misdeeds, regardless of any compliance programs. Criminal prosecution of a corporation may be particularly appropriate where the corporation previously had been subject to noncriminal guidance, warnings, or sanctions.” 

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The bank’s recidivism seems rivaled only by its ability to escape prosecution: 

¶UBS obtained a deferred prosecution agreement in 2009 for conspiring to defraud the United States of tax revenue by creating more than 17,000 secret Swiss accounts for United States taxpayers who failed to declare income and committed tax fraud. UBS bankers trolled for wealthy clients susceptible to tax evasion schemes at professional tennis matches, polo tournaments and celebrity events. One UBS banker smuggled diamonds in a toothpaste tube to accommodate a client. In return for the deferred prosecution agreement, UBS agreed to pay $780 million in fines and penalties and disclose the identities of many of its United States clients. At the same time it settled Securities and Exchange Commission charges that it acted as an unregistered broker dealer and investment adviser to American clients and paid a $200 million fine. In October 2010 the government said UBS had fully complied with its obligations under the agreement and dropped the charges. 

 ¶In May 2011, UBS admitted that its employees had repeatedly conspired to rig bids in the municipal bond derivatives market over a five-year period, defrauding more than 100 municipalities and nonprofit organizations, and agreed to pay $160 million in fines and restitution. An S.E.C. official called UBS’s conduct “a ‘how to’ primer for bid-rigging and securities fraud.” UBS landed a nonprosecution agreement for that behavior, and the Justice Department lauded the bank’s “remedial efforts” to curb anticompetitive practices.

¶ In what the S.E.C. called at the time the largest settlement in its history, in 2008 UBS agreed to reimburse clients $22.7 billion to resolve charges that it defrauded customers who purchased auction rate securities, which were sold by UBS as ultrasafe cash equivalents even though top UBS executives knew the market for the securities was collapsing. Seven of UBS’s top executives were said to have dumped their own holdings, totaling $21 million, even as they told the bank’s brokers to “mobilize the troops” and unload the securities on unsuspecting clients. As Andrew M. Cuomo, who was New York’s attorney general then, put it: “While thousands of UBS customers received no warning about the auction-rate securities market’s serious distress, David Shulman — one of the company’s top executives — used insider information to take the money and run.” Besides reimbursing clients and settling with the S.E.C., UBS paid a $150 million fine to settle consumer and securities fraud charges filed by New York and other states. It again escaped prosecution. 

¶ There’s more — including UBS’s prominent role and big losses in the mortgage-backed securities debacle that helped bring on the financial crisis. The federal agency overseeing Fannie Mae and Freddie Mac sued UBS for fraud, saying it misrepresented the quality of mortgages it packaged and sold. The agency is seeking $1 billion in damages. (UBS has denied the charges and the case is pending.) UBS hasn’t been charged with any civil or criminal misconduct related to mortgage-backed securities. 

¶ In the continuing global interest rates investigations, UBS last summer revealed that it had received conditional immunity from the Justice Department and other authorities. It was shown this leniency even though the Justice Department has pointedly said that Barclays, not UBS, was the first bank to cooperate. 

¶ Among the dozen or so banks caught up in the investigation, UBS hasn’t disclosed what role, if any, it played. But its conditional immunity indicates that UBS confessed and gave evidence against others. A corporation can avoid criminal conviction and fines for antitrust crimes “by being the first to confess participation in a criminal antitrust violation, fully cooperating with the Division, and meeting other specified conditions,” according to the Justice Department. 

¶ The department’s antitrust division stresses that it makes only one grant of immunity per conspiracy, so it isn’t clear how both Barclays and UBS managed to get it. Libor is set each day based on submissions from major global banks for a variety of currencies. UBS is a member of the banking panels that determine United States dollar, British pound, euro, yen and Swiss franc Libor rates. 

¶ UBS said its antitrust immunity was tied only to yen-related rates. That means it could still be prosecuted for antitrust crimes related to other currencies. Barclays obtained antitrust immunity only for a conspiracy involving the euro interbank offered rate, suggesting that the Justice Department is treating the case as separate conspiracies. 

¶ Unlike Barclays, UBS does not have immunity or a nonprosecution agreement from the criminal division, which means it could be charged with the full range of securities and commodities fraud. 

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In the Libor scandal, UBS’s conditional immunity applies only to the company, not to individuals. While UBS seems to fit the profile for charging corporations with crime, it remains the case that individuals commit crimes, even if companies are liable for their acts. But so far, the only person from UBS to receive a jail term in connection with any of the bank’s multiple scandals and offenses is Bradley Birkenfeld, the original whistle-blower in the huge tax-evasion case. Mr. Birkenfeld pleaded guilty to conspiracy to defraud the United States and was sentenced to 40 months in prison. 

Another UBS banker, Renzo Gadola, pleaded guilty in the tax fraud case, cooperated, and was granted probation. A third was charged but hasn’t been tried and remains a fugitive. In another notorious case, British authorities charged a trader, Kweku Adoboli, with fraud and false accounting after UBS announced it had lost $2.3 billion in unauthorized trades. He pleaded not guilty and is awaiting trial. And in the municipal securities bid-rigging scandal, three former UBS bankers are facing trial and a fourth pleaded guilty but hasn’t been sentenced. 

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Is it any wonder that despite repeated apologies and promises to change, UBS and other banks keep getting in trouble?