Judge Sentences Barouh to 10 Months for Unreported Off-Shore Accounts
Jack Barouh earned the dubious honor of becoming the seventh former UBS AG client to be sentenced by a US federal judge on criminal tax charges. Barouh, the former owner of luxury watch company Tempus International Corporation, admitted to skimming profits from his company since the late 1970s and depositing them in off-shore accounts with Swiss bank UBS. Barouh did not report the UBS accounts or any interest he made off of them to the IRS, as required under federal tax law.
In late April, a federal judge sentenced Barouh to 10 months in prison in addition to ordering him to pay interest and other penalties on his unpaid tax debt, making it the most severe sentence handed down yet to a former UBS client. Prior to Barouh, the longest jail term given to an individual found guilty of hiding money in an off-shore UBS account was two months.
What makes the Barouh case unique from the others brought against former UBS clients is the reason he gave for failing to disclose the more than $10 million in off-shore accounts to the US government. Barouh claimed that as a child of Holocaust survivors, he had a compulsion to "hide and hoard" money and to create a secret nest egg in case there ever was another attempt to exterminate Jews. During World War II, Barouh's parents fled Nazi persecution and settled down in Bogota, Columbia, where Barouh was born. Barouh also said that he was harassed as a Jewish child living in Columbia and again in the US for being a Jew with a Columbian accent.
The court, while sympathetic with Barouh's family's personal history, did not agree that his connection to the Holocaust completely excused his behavior or his crime. Even so, the judge ultimately sentenced Barouh to less time than the three year maximum available under law and the 20 months requested by the prosecution, mostly due to his cooperation with authorities.
Barouh first pled guilty to tax evasion and other criminal tax charges in February 2010. He provided the prosecution with important information about two UBS money managers and one Swiss attorney who were involved in not only helping him hide his assets from the US government, but also in helping other UBS clients achieve the same goals.
The Swiss attorney had advised Barouh in 2007 to move his money from the UBS account into a Hong Kong account, rather than moving the funds into the US, as Barouh wanted. The attorney also talked Barouh into paying himself a consulting fee out of the money kept in the Hong Kong account until all the money was brought into the US, despite the fact that Barouh was not acting as a consultant in any capacity.
Barouh's UBS accounts were estimated to be worth over $10 million. In failing to pay federal income taxes on the accounts, Barouh cost the federal government more than $730,000 in lost revenue. In addition to his UBS accounts, Barouh also had several other off-shore accounts with different financial institutions.
UBS Settlement, IRS Amnesty Program
Under federal law, it is not illegal for US taxpayers to keep their assets in off-shore accounts. However, it is illegal when US taxpayers do not report their ownership of these accounts and the interest they have made off of assets held in these accounts as part of their annual federal income tax reporting.
UBS AG admitted to helping American citizens hide more than $20 billion in assets from the IRS. As part of the settlement agreement the Swiss bank reached with the US government, UBS agreed to turn over the names of US taxpayers who failed to report their off-shore accounts. Initially, this amounted to 285 names. However, UBS entered into a second agreement with the US government last summer, which requires the bank to turn over thousands of additional names.
The IRS offered a brief amnesty program to US taxpayers who may have hidden assets in a UBS or other off-shore account. Those who voluntarily disclosed the accounts and their values still had to pay income taxes, penalties and fees on the amounts, but do not face criminal prosecution for their acts. An estimated 7500 people took advantage of the amnesty program.
Once the amnesty period ended, the IRS began bringing federal criminal tax charges against those whose names were released by UBS. The first person to be charged and convicted was Steven Michael Rubinstein, a Florida-based accountant. He was eventually sentenced to three years probation, one year home detention and a $40,000 fine for filing a false tax return in connection to his failure to disclose more than $2 million kept in a UBS account.
If you have failed to disclose an off-shore account or are under investigation for tax evasion, filing a false tax return or other criminal charges related to your holdings in an off-shore account, contact an experienced tax attorney today. Federal criminal tax charges carry very serious penalties, including jail time. An attorney knowledgeable in federal income tax law can help you determine the best course of action to take.
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