When Sergio Ermotti got the call to return to UBS as chief executive to oversee the emergency takeover of Credit Suisse in 2023, it’s unlikely he thought about how the Swiss banks would have to reconcile their decades of financial crimes.
Yet the stakes could not have been higher in mid-January this year, when the U.S. Department of Labor quietly granted UBS a renewed license to manage billions in U.S. private pension assets — following a protracted tussle over the banks’ shared history of tax fraud, a LIBOR scandal, currency scams, and money laundering.
The investigation had proved particularly onerous for DOL, as it meant sifting through the banks’ criminal convictions on a global scale, even as the merged bank sought approval to continue managing U.S. retirement assets. These include 401(k)s, individual retirement accounts, and corporate pensions.
Ermotti has made no secret of the fact that the bank will be relying heavily on its Americas wealth business to hit growth targets, stating earlier this month, “It’s almost impossible to be a successful global player without having a strong presence in that part of the world.” In other words, UBS, which estimates more than 50 percent of its nearly $6 trillion of assets under management is tied to its U.S. businesses, will need to play extra nice with U.S. regulators.
DOL’s role in gatekeeping an estimated $40 trillion of U.S. private pension assets is a bit of a regulatory tic, tracing back to the 1980s when the savings and loan crisis saw millions of American employees, teachers, police, and other workers take a bath on their pensions after more than a thousand banks went under.
To protect U.S. employees, DOL since then has held veto power over which firms are allowed to manage private pension funds (the legal term for defined-contribution plans, IRAs, and corporate defined-benefit plans). When a financial institution is caught engaging in what DOL calls “prohibited misconduct,” it can be barred from managing pension assets for ten years — unless DOL grants it a “qualified professional asset manager” exemption.
UBS’s hard-won QPAM exemption, filed on January 15 by DOL’s Office of Exemption Determinations, came after loads of impassioned letters were sent by some of Wall Street’s top financial firms and asset managers — most of which did not want DOL to change its practice of granting waivers to even the worst-behaving banks.
BlackRock noted in its letter of support that the QPAM has become the “most commonly used” exemption for what would otherwise be prohibited transactions for private pensions. Two-thirds of BlackRock’s assets are retirement-related, spanning both private and public pensions, the firm wrote.
There are so many QPAM exemptions floating around that the asset management industry is now heavily reliant on them. BlackRock noted that “large plans may have several” exemptions.
In hundreds of pages of legal letters last year, UBS told DOL the bank needed a QPAM exemption to continue managing more than $11 billion of private pension fund assets. “Without the exemption, many clients would leave UBS, and UBS likely would be forced to exit the plan asset management business,” the bank wrote in a letter reviewed by Institutional Investor.
Over the past decade, however, a rising chorus of investors and financial experts — including a global coalition of economists, lawyers, academics, and fraud investigators — have strongly opposed what they believe is an overly permissive regulatory system that fails to rein in big banks.
“UBS and Credit Suisse are egregious, serial criminal offenders,” says James Henry, a member of the coalition, a Yale global justice fellow, and former chief economist at McKinsey, who writes extensively about financial crime. “While there are laws in place, there’s not a lot of incentive to penalize these big banks, which keep getting away with it,” he tells II. Henry’s coalition, United Against Money Laundering, includes members from the U.S., the U.K., Australia, Germany, South Africa, and Kenya.
William Black, who is a scholar-in-residence for financial regulation at the University of Minnesota Law School, a former U.S. bank regulator, and an expert in white-collar crime, says pension funds tend to be easy targets because they are often eager to invest in complex products that can be risky and “because they have a ton of money.”
DOL isn’t a focus only for firms jockeying for QPAM exemptions — it’s also a target of Elon Musk’s Department of Government Efficiency, which hasn’t yet made clear its plans for DOL but is taking a scalpel to multiple agency budgets.
The public tug-of-war over DOL contrasts with the private correspondence between the agency and banks like UBS, but both show DOL officials under pressure. In the lead-up to the bank’s receiving a QPAM exemption last month, UBS repeatedly asked for private, in-person meetings with DOL officials to make its case, according to 509 pages of documents obtained through a Freedom of Information Act request by Henry’s coalition and reviewed by Institutional Investor.
In one email, a UBS lawyer wrote to DOL regulators, “We’re wondering if you would be amenable to us coming over to DOL in person. We think it would be worthwhile to do an ‘old school’ meeting where we can all get around a table.” DOL declined the offer.
The exchanges also show that UBS wanted to “pre-emptively request relief” for an exemption ahead of a “potential” criminal conviction, as the bank wanted to avoid “doing this all over again” if it lost its case in France. (UBS was, indeed, convicted there in a case continuing to this day, and DOL did grant it exemptive relief.)
The private negotiations and implied “coziness” of the relationship between UBS and DOL raises alarm bells, says another UAML coalition member, Paul Morjanoff, who investigates sophisticated bank crime and complex fraud as head of Financial Recovery and Consulting Services in Australia.
As part of the QPAM exemption granted to UBS, DOL stated it had already issued “several temporary individual prohibited-transaction exemptions over several years” to the bank. UBS declined to comment on how many QPAM exemptions it now holds. Nor did it make any public acknowledgement of the latest one, which covers the merged bank.
UBS’s exemptive relief, which expires in June 2029, comes despite a litany of financial crimes committed by both UBS and Credit Suisse entities going back more than two decades. Among them, DOL noted frauds linked to LIBOR and other benchmark rates spanning nearly ten years, for which UBS was fined a combined $1.5 billion by the U.S., the U.K., and Switzerland. It also cited tax fraud by Credit Suisse leading to a $2.6 billion settlement in the U.S., and the aggravated laundering of the proceeds of tax fraud by UBS, resulting in the 2019 conviction in France and extended legal battles.
One of the more formidable quagmires inherited by UBS in the Credit Suisse merger was the infamous $1.5 billion “tuna bond” scandal in Mozambique, which violated the Foreign Corrupt Practices Act and defrauded countless investors — including Americans — of “substantial amounts,” according to the U.S. Department of Justice. UBS and 11 other financial institutions reached an out-of-court settlement in October 2023 over the scheme, but did not admit wrongdoing.
Henry says the Mozambique scandal shows how easy it is for corruption on another continent to create losses for U.S. investors. In a July 2024 comment letter to DOL, his coalition warned that the agency seemed unaware of numerous additional infractions involving UBS, Credit Suisse, and their global affiliates in Europe, the Middle East, Africa, and Asia.
“The key point is: Lax regulations by Swiss and U.S. authorities — including but not limited to DOL — bear much of the responsibility for this entirely foreseeable debacle,” the letter says. The coalition noted it has been alerting DOL to the banks’ issues since 2015.
Another comment letter, anonymously signed “Pissed Off Investor,” fumed: “There are American citizens sitting in jail for theft that is magnitudes smaller than the trillions of dollars and billions of dollars that have been provably stolen from the American public. Why do we have regulatory bodies? Why aren’t they doing their job?”
Proponents of the QPAM exemption, including UBS, argue that without it, pension plans would suffer disruptions, inconveniences, and losses and would miss out on valuable investment opportunities.
The nonpartisan American Retirement Association, which represents 35,000 retirement professionals, wrote to DOL that tightening its exemptions could result in an “increase in plan expenses without providing any material safeguards or value to plan participants.” Henry says he would like to see DOL use its protective powers to shield investors from losses by imposing the ten-year ban on repeat, serious offenders.
“I think the bottom line is that this current system is not working, and levying these heavy penalties, fines, and settlements on banks just gets passed along to customers,” Henry says. “I don’t even think the pension fund beneficiaries know what they’re tolerating.”
DOL did not respond to repeat queries from II about whether it has ever imposed a ten-year ban in its four decades of issuing QPAM exemptions. DOL officials declined to be interviewed for this story.
UBS’s exemptions notwithstanding, Henry says there has been some progress. Until recently, DOL did not know which firms were using QPAM exemptions. That meant that if U.S. investors were affected by a global financial crime, there wasn’t necessarily a way to trace it back to the QPAM-exempt entity managing their funds or seek redress.
In September, for the first time, DOL published a list of firms claiming QPAM exemptions. It relies on self-reporting, but it’s a start.
Looking ahead, Henry’s coalition is examining legal options to challenge the DOL’s QPAM decision-making. One surprising opening may be the U.S. Supreme Court’s overturning last year of the Chevron doctrine, which reined in the power of federal agencies to exert legal powers. That doctrine previously allowed U.S. agencies to interpret and apply congressional statutes as long as it was done in a “reasonable manner.” With the court’s recent decision, that call no longer rests with the agencies but lies with the courts — which means DOL exemptions could legally be overturned.
In the meantime, UBS, which reported 2024 earnings of $5.1 billion for the fully merged bank, says it hopes to expand its wealth management footprint in the U.S. over the next several years, targeting investors with assets of $500,000 to $50 million.
The bank also reaffirmed this month that it’s “working toward” becoming a fully chartered U.S. bank — although the U.S. Treasury Department’s Office of the Comptroller of the Currency told Institutional Investorthat UBS has yet to file an application.
“They’ve been talking about this U.S. bank charter for months,” says Henry, who is hopeful for an open and transparent process, with time for public comment. When contacted by II, UBS had no comment on the status of its bank charter and declined to comment for this story.
In remarks following the bank’s latest earnings release, UBS’s Ermotti predicted that the Trump administration would be “unlikely” to beef up its regulatory practices, “which for the banking industry is already an achievement.”
Even so, the regulatory environment in UBS’s home base of Switzerland is growing stricter, according to the Financial Times, which could not only have an outsize impact on the bank, but could also make its fondness for the U.S. all the stronger.
