By Oliver Hirt, John O’Donnell, Stefania Spezzati and Dave Graham
ZURICH/FRANKFURT/LONDON (Reuters) -The United States is pursuing an inquiry into Russian clients that UBS took on when it bought Credit Suisse, three people familiar with the matter said, heightening scrutiny of one of the world’s biggest wealth managers.
The U.S. sanctions enforcement agency, OFAC, has written to the bank as part of this inquiry, two people familiar with the matter told Reuters. A U.S. official, asking not to be named, said the Swiss bank and the enforcer have held discussions.
OFAC, or the Office of Foreign Assets Control, the globe’s most powerful sanctions agency, wrote to UBS in recent weeks, said one of the people.
Spokespeople for UBS and OFAC declined to comment.
The review concerns Russian customers at Credit Suisse that UBS is now in charge of after rescuing the lender, two of the people said. Credit Suisse, UBS’ smaller Swiss peer, imploded in March 2023 following years of scandals from spying to laundering drug money.
UBS is seeking to contain any potential fallout from OFAC’s queries by cordoning off suspect money and decommissioning the accounts to avoid the threat of a penalty, one of those people said.
The U.S. uses sanctions as a foreign policy tool, imposing restrictions to constrain the activities of nations such as Russia and Iran.
Handling Russian money has become increasingly risky, after the U.S. and Western allies rolled out an unprecedented web of sanctions in response to Moscow’s invasion of Ukraine.
While the U.S. official praised UBS for being cooperative, one of the other sources said it was made clear that failure to deal with the problem could be punished.Regulators in Switzerland have been scrutinizing how UBS is handling Credit Suisse clients and the bank’s anti-money laundering policies as they worry the Swiss bank could end up with risky clients, Reuters has reported.
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The bank led by CEO Sergio Ermotti is going through the books of Credit Suisse, offloading unwanted clients and assets, including those related to Russia, one of the people said.
For those that fall foul of U.S. sanctions, such as a bank handling a payment for a sanctioned individual, it could levy a fine. In exceptional cases, the U.S. has cut access to the dollar, the lifeblood of international finance.
It is unclear how much problematic money of Russian origin is now at UBS. In 2022, the then-CEO of Credit Suisse revealed that 4% of the money that the bank managed was for Russian clients – equivalent to about $35 billion.
The U.S. and Switzerland have clashed over efforts to identify and sift out Russian money.
One of Washington’s chief complaints is that Switzerland has no law demanding that the real ownership of assets, such as an apartment or company, is declared. That would make it clear, for instance, when the owner is subject to sanctions, said the U.S. official.
That person said OFAC was frustrated by Switzerland’s failure to act and that there was a fear the country could be used to funnel illicit finance not just for Russia but countries like Iran as well.
The person said these concerns chiefly centered on smaller private Swiss banks, where the suspicion was that attorneys were cloaking the true identity of owners to move money around. UBS, the source said, was not seen as a culprit here.
A finance ministry spokesperson pointed to how parliament would soon debate the government’s proposals to establish registers for beneficial ownership of firms and foundations and to bind lawyers to stricter anti-money laundering rules.
The election of Donald Trump as U.S. president could herald a change of tack on Russian sanctions or Switzerland, although it is far from clear what policy he will pursue.
In its third-quarter earnings report, UBS said continuously evolving sanctions arising from the Russia–Ukraine war require constant attention. The bank is focused “on strategic enhancements to our global anti-money-laundering (AML), know-your-client (KYC) and sanctions programs,” it added.
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