PARIS: A 1.1 billion euro ($1.5bn) guarantee payment demanded by French judges of Swiss bank UBS reflects the size of the fine it could pay if found guilty of helping wealthy French customers avoid tax, the French prosecutor’s office said on Thursday.

In a major escalation of a 15-month inquiry, the Zurich-based bank was put under formal investigation on Wednesday on allegations it laundered the proceeds of tax evasion and was ordered to make what it called an “unprecedented and unwarranted” guarantee payment.

France’s Socialist government has taken a tough stance on tax evasion and has recovered just over 1bn euros so far this year from taxpayers coming clean on their hidden assets, of which 80 per cent are in Switzerland.

A $9bn fine levied by US officials against BNP Paribas for sanctions violations earlier this month – a stinging rebuke for the grand dame of French banking – appears to have complicated UBS’s settlement talks, taking place at the same time.

French officials feared a backlash if they settled with UBS for a “paltry” sum of less than 100 million euros, which had been on the negotiating table until BNP’s fine emerged, a source familiar with the matter told Reuters.

However, French officials denied that version of events.

A Finance Ministry source told Reuters the government had refused all approaches to negotiate an out-of-court settlement.

Authorities in France, one of the few countries to levy deposit guarantees from corporations in criminal cases, defended the surety for UBS, which is also in the crosshairs in Germany and Belgium for how it dealt with wealthy clients and tax.

“It was by assessing the fine that is potentially applicable that the level of the surety was fixed,” an official in the prosecutor’s office said, adding that if guilty, UBS would pay a fine equivalent to half the value of the transactions involved.

UBS has already paid a much smaller 2.875m eur o guarantee in the case.

Published in Dawn, July 25th , 2014