UBS Client Is First to Be Charged in U.S. Tax Probe

UBS Client Is First to Be Charged in U.S. Tax Probe

April 2 (Bloomberg) -- A Florida accountant became the first U.S. taxpayer accused of hiding money in a UBS AG account since the Swiss bank provided U.S. authorities with information about some account holders.

The Justice Department accused Steven Michael Rubinstein of Boca Raton, Florida, of using a UBS account to hide his offshore assets and income from the Internal Revenue Service. Prosecutors said Rubinstein filed a false 2007 income tax return that failed to disclose his account, set up under the name of Hybridge International Ltd.

“We expect that this prosecution is the just the first of the prosecutions that will be brought,” said John A. DiCicco, acting assistant attorney general of the Justice Department’s Tax Division. “The Tax Division is committed to helping the IRS to ferret out and hold accountable taxpayers who are hiding assets in undisclosed foreign accounts.”

UBS, the largest Swiss bank, on Feb. 18 avoided U.S. prosecution by admitting that it helped taxpayers hide money in Swiss accounts to avoid paying U.S. taxes. UBS also agreed to make reforms and pay $780 million in fines and penalties.

Rubinstein made an initial appearance this morning before U.S. Magistrate Judge Barry S. Seltzer in Fort Lauderdale, Florida. Seltzer ordered him detained until a bond hearing on April 7, according to the Justice Department. His lawyer, Robert Panoff, didn’t immediately return a call seeking comment.

Sham Offshore Companies

As part of its agreement, UBS admitted that from 2000 to 2007, its Swiss private bankers helped wealthy Americans evade U.S. taxes by setting up sham offshore companies in tax havens like Panama, Hong Kong and the British Virgin Islands. UBS said it created misleading forms saying those offshore companies, not the taxpayers, were the beneficial owners of the accounts.

UBS also admitted that its private bankers marketed securities and banking services in the U.S., even though it didn’t have the required license from the Securities and Exchange Commission. Those bankers, UBS admitted, met with clients in the U.S. and communicated with them regularly as they traded securities in their accounts or transferred assets.

On Feb. 19, the U.S. government sued UBS to try to force disclosure of the identities of as many as 52,000 American account holders who allegedly hid their secret Swiss accounts from U.S. tax authorities.

The IRS has encouraged taxpayers to avoid criminal prosecution by coming forward and voluntarily disclosing their offshore UBS accounts.

‘Immediately Come In’

“Anyone in this situation needs to immediately come in through our voluntary disclosure process before it’s too late,” IRS Commissioner Doug Shulman said in a statement. “It’s better to come clean now instead of waiting and facing a heavier price later.”

In the Rubinstein case, the Justice Department said UBS knew he owned his accounts in the name of Hybridge, a British Virgin Islands corporation. For identification, Rubinstein provided only his South African passport, according to the complaint. He has worked since 1994 for an international company that helps clients build, buy and sell yachts, it said.

Over seven years, Rubinstein communicated with UBS bankers via e-mail, telephone and in person about buying and selling securities worth 4.5 million Swiss francs, the complaint said. He also met with his bankers at an art show that UBS sponsored in Miami, at his home and various Florida restaurants, it said.

He is accused of transferring $3 million from his Swiss UBS account to a Monaco account and then to a U.S. account to buy property and build a home in Boca Raton, according to the complaint. The government said he also deposited more than $2 million worth of South African Krugerrands in the accounts and sold them.

BLOOMBERG