UBS' French unit placed under formal investigation in tax probe

ZURICH (Reuters) - The French division of Swiss bank UBS AG (UBSN.VX) has been placed under formal investigation by French authorities and been asked to pay a 40 million euro (29 million pound) bail, UBS said on Friday, in an escalation of a long-running probe into allegations the bank helped clients avoid taxes.

UBS said it would challenge the investigators' decision.

"After three years of investigation with our full cooperation, we consider there to be no criminal wrongdoing in the file," UBS said in an emailed statement.

"We find it astounding that we are subject to a bail, which we interpret as a penalty."

Up to now, investigators had declared the French division of the bank to be a "witness with legal assistance" in the probe, which is less serious than being formally investigated.

The probe regards the alleged laundering of the proceeds of tax fraud, according to UBS' annual report.

The formal investigation focuses on the years 2004 to 2008, not the entire period of the probe, which runs from 2004 to 2012, the bank said.

In July, in a related case concerning the entire Zurich-based UBS group, investigating judges forced the bank to put aside 1.1 billion euros in bail and put the bank under formal investigation. The bank also strongly condemned that decision and vowed to appeal.

(Reporting by Thomas Atkins)