UBS faces hearing over future of US business after activists lobby SEC
UBS faces the prospect of a public hearing to determine whether the bank can continue doing business with some of its most important US clients, after an activist group filed a request asking regulators to enforce what should – in theory – be an automatic ban following a guilty plea settlement last month.
The United Against Money Laundering coalition, a group of activists including veteran campaigner, author and former US presidential candidate Ralph Nader, has written to the Securities and Exchange Commission in recent days to request a public hearing on the matter.
The request comes in response to an application from UBS to be granted a waiver to continue doing business in the US following its US$510.6m settlement in May with the Department of Justice over a years-long tax fraud committed by Credit Suisse, which UBS acquired in 2023.
UAML argues that the request should be denied on the basis that UBS – and Credit Suisse – are serial offenders. It says that, at a time when Donald Trump's administration is coming down hard on immigrants who commit even small, technical breaches of the law, it should do the same with foreign banks.
“To grant [the waiver] would represent a horrendous abuse of compliance and yet another in a long series of missed opportunities to deter financial crime and prevent financial instability – and also to encourage honest banking right here at home,” the group wrote in its application, which was seen by IFR.
Automatic ban
Under the Investment Management Act of 1940, any person or company convicted of a felony or misdemeanour linked to their underwriting, dealing, broking or advisory work is subject to an automatic ban on conducting any such activity in future.
However, in practice, banks can apply for a waiver – and such waivers are usually granted. The SEC has granted more than 50 waivers since the global financial crisis, most recently for TD Bank in January linked to historic money laundering breaches that were settled in October for US$3bn.
Applications for waivers are considered by the SEC’s five commissioners. Deliberations are usually done in private and are seen as a formality though dissent occasionally surfaces: in 2015, one commissioner opposed the decision to grant Deutsche Bank a waiver for rigging Libor.
UAML hopes that, by holding a hearing in the public arena, it will heap pressure on commissioners to enforce the letter of the law against a serial offender. “A public hearing would expose the house of cards and the sheer incredibility of this pock-filled application,” it said.
A public hearing would be unprecedented, according to Paul Morjanoff, chief investigator at Financial Recovery and Consulting Services and one of the signatories. The SEC declined to comment on the case or whether a public hearing was indeed unprecedented.
Public interest
In its application for a waiver, UBS states that a ban would be “against the public interest and protection of investors” and also “unduly and disproportionately severe” for the bank to be punished for Credit Suisse’s actions. It says clients might face “significant hardships” as a result.
The bank said it does business with 79 registered investment companies in the US with more than US$125bn in assets between them. Without a waiver, UBS would “lose a significant part of their business”, the Swiss bank said in its application.
“This is frankly the baldest assertion of a kind of ‘too big and important to penalise’ privilege we have ever seen,” UAML responded. “This is precisely the kind of purblind arrogance that caused the last financial crisis and the total collapse of Credit Suisse, and will doubtless contribute mightily to the next crisis.”
UBS also said that any former Credit Suisse employees identified as having taken part in the tax fraud have either left or been dismissed. UAML said that a public hearing would be an ideal opportunity to probe exactly how the bank has improved its risk controls in recent years.
When asked about the challenge from UAML, UBS declined to comment.
Precedents
The activist group has tried similar tactics before. In 2014, it forced the Department of Labor, which approves which banks are allowed to advise workplace pension schemes, into holding a public hearing into a waiver application from Credit Suisse following a guilty plea for tax evasion.
That hearing ultimately proved unsuccessful, with the Department of Labor granting Credit Suisse a qualified professional asset managers exemption. UBS and Credit Suisse account for a third of all the QPAM exemptions granted since they were introduced in the 1980s.
The coalition also asked the Department of Labour for a public hearing last year, when UBS applied to extend waivers following its merger with Credit Suisse. The proposal for a public hearing was rejected because there were no new offences and UBS was granted the QPAM exemptions in January.
But the new guilty plea last month means the SEC won't be able to use that same argument.
“Bank regulatory agencies ... are always driving while looking in the rear-view mirror,” the group wrote in its most recent request. “In our experience, they spend relatively little effort trying to identify institutional problems before they arise.
“DOL failed to act on our warnings regarding the illegal processes that pervaded Credit Suisse before its collapse. That collapse put the world’s financial system at risk of severe instability, yet the propensities were there for all to see.”