UBS Faces U.S. Inquiry Over Russian Clients

By Oliver Hirt, John O'Donnell, Stefania Spezzati, and Dave Graham
ZURICH/FRANKFURT/LONDON (Reuters) – The United States is conducting an inquiry concerning Russian clients that UBS acquired through the purchase of Credit Suisse, raising concerns for one of the largest wealth managers worldwide.

The Office of Foreign Assets Control (OFAC), the U.S. sanctions enforcement agency, has contacted UBS regarding the inquiry, as confirmed by two individuals knowledgeable about the situation. A U.S. official, who requested anonymity, indicated ongoing discussions between the Swiss bank and the agency.

The inquiry centers on Credit Suisse's Russian customers that UBS is now managing following its rescue of the failing lender, which collapsed in March 2023 amid a series of scandals involving espionage and money laundering.

To mitigate potential repercussions from OFAC's questions, UBS is attempting to restrict questionable funds and close suspect accounts to avoid penalties, according to stakeholder reports.

The U.S. has increasingly relied on sanctions as a foreign policy measure, particularly in response to actions by nations like Russia and Iran. Accommodating Russian funds has grown increasingly precarious due to extensive sanctions imposed by the U.S. and its allies following Russia's invasion of Ukraine.

While a U.S. official has commended UBS for its cooperativeness, sources indicated that neglecting to address these issues could lead to consequences. In Switzerland, regulators are scrutinizing UBS’s management of Credit Suisse clients and its compliance with anti-money laundering regulations to prevent associations with risky clients, according to Reuters.

Handling Problematic Funds
UBS, under CEO Sergio Ermotti, is reviewing Credit Suisse's assets and clients, working to divest any questionable associations, including those linked to Russian interests.

For financial institutions that inadvertently facilitate transactions for sanctioned individuals, fines may be imposed, including access restrictions to the U.S. dollar, crucial for international finance.

The extent of problematic funds from Russian clients currently at UBS remains uncertain. In 2022, the former CEO of Credit Suisse stated that Russian clientele accounted for about 4% of the bank's assets, roughly $35 billion.

There have been tensions between the U.S. and Switzerland over identifying and managing Russian assets, with Washington expressing frustration over Swiss regulations, which do not mandate the disclosure of actual asset ownership. This opacity raises concerns about the potential for Switzerland to be a conduit for illicit financing, not only related to Russia but also to nations like Iran.

Swiss smaller private banks are often under suspicion that lawyers may obscure true ownership for the sake of financial maneuverability. However, UBS is generally not regarded as engaging in such practices.

A finance ministry spokesperson mentioned upcoming parliamentary discussions on proposals for establishing beneficial ownership registers for companies and stricter anti-money laundering obligations for lawyers.

The potential election of Donald Trump as U.S. president might shift the approach to Russian sanctions, though future policies remain uncertain.

In its third-quarter financial report, UBS acknowledged the need to continuously adapt to the shifting landscape of sanctions resulting from the Russia-Ukraine conflict, emphasizing its commitment to enhancing its global anti-money laundering (AML) and know-your-customer (KYC) initiatives.