According to the Financial Times, UBS AG’s (UBS) Luxembourg unit is facing a forgery probe over the way it managed funds associated with convicted felon Bernie Madoff. The initial investigations are being carried by the Luxembourg police, which could lead to criminal charges against the bank.

The funds in question now are the LuxAlpha and LuxInvest funds for which UBS AG acted as the custodian. These funds suffered a loss of around $2 billion to Madoff, who has been convicted of fraud over $60 billion related to a worldwide Ponzi scheme.

However, according to UBS AG, both UBS (Luxembourg) SA and its employees are not subject to any Luxembourg criminal investigation related to the funds invested with Madoff.

The fund documentation had an explicit waiver according to which UBS (Luxembourg) SA is not accountable for the safekeeping of the assets. In turn, the investors as well as the authorities involved had knowledge about the association of Madoff with these funds. However, employees may be summoned to testify in the initial investigations, the bank said.

Earlier this week, Switzerland’s lower house voted against a deal that would have allowed the sharing of the banking data of over 4,000 clients of UBS AG with the U.S. government. The clients are alleged to have evaded American taxes.

This rejection is a blow to the deal that was agreed upon in August last year between Switzerland and the U.S. for data transfer of around 4,450 American clients of UBS AG. The details of these clients were supposed to have been handed over to the U.S. Internal Revenue Service by August this year.

Global economic turmoil has severely hurt the Swiss banking major’s balance sheet, when the subprime crisis led to record losses. The company faced significant credit write-downs.

Additionally, issues emanating from the alleged tax evasion investigation and the dilution of Swiss banking secrecy significantly impacted the company’s performance over the past several quarters. However, in an effort to rebound, the company has taken a number of restructuring initiatives which we believe should support results.
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