June 26, 2009

BY MARTHA BRANNIGAN

In the latest display of the United States government’s concerted assault on Swiss banking secrecy, a wealthy Boca Raton accountant who hid money at Swiss banking giant UBS pleaded guilty Thursday to filing a false tax return.

Steven Michael Rubinstein, an accountant for a Coral Springs yacht company, is the first U.S. citizen to face criminal charges stemming from UBS records obtained by the federal government as part of a groundbreaking deferred prosecution agreement with the Zurich-based bank.

Rubinstein admitted to the felony charge in federal court in Miami. According to court papers, he hid money in a UBS Swiss account under the name of Hybridge International Ltd., a sham company in the British Virgin Islands, and failed to pay income taxes on it.

Mark Arena, a spokesman for UBS — the main sponsor for Art Basel Miami Beach — declined to comment on the case against Rubinstein, who was one of 250 to 300 UBS customers whose account details were turned over to the United States as part of the agreement.

As the Obama administration steps up pressure on offshore tax evaders, the case serves as a shot across the bow for thousands of others who hold secret offshore bank accounts.

”More prosecutions are expected to follow, as we continue to hold accountable those who conceal money and assets in an effort to avoid their income tax obligations,” Jeffrey H. Sloman, the acting U.S. attorney for Miami, said in a statement.

Many people with secret offshore accounts at UBS and elsewhere have been rushing to make voluntary disclosures to the IRS and paying back taxes, interest and civil fines to deflect criminal charges, tax experts say.

”Word has gotten out from the publicity surrounding the UBS case and people are coming forward,” said Alan L. Weisberg, a tax attorney with the Miami firm of WEISBERG KAINEN MARK, PL, which represents clients from UBS and other banks in making voluntary disclosures to the IRS. “The government has the carrot and the stick.”

According to court records, Rubinstein met with UBS bankers to discuss his Swiss account at the swank Art Basel Miami Beach, at various South Florida restaurants, and at his Boca Raton home, which prosecutors said was built and paid for with funds he repatriated from his offshore UBS account.

That entailed transferring more than $3 million from his UBS account to a bank account at HSBC in Monaco and then to a bank account in the name of Duroc Ventures Ltd. at HSBC bank in New York, the government said.

According to the complaint, from 2001 through 2007, Rubinstein dealt with UBS bankers to buy and sell securities worth more than 4.5 million Swiss francs, or about $4 million; to convert investments from dollars to British pounds, and to deposit and transfer funds into and out of the UBS account.

The government also alleged that Rubinstein deposited and sold more than $2 million in South African Krugerrands through his UBS account.

Robert E. Panoff, an attorney for Rubinstein, could not immediately be reached for comment.

Rubinstein is slated to be sentenced Sept. 30 before U.S. District Judge Marcia G. Cooke. He faces up to three years in prison and a maximum fine of $250,000.

He also agreed to pay a penalty amounting to 50 percent of the top value of his bank account for failing to disclose he had an offshore account with more than $10,000, as required by U.S. law. That penalty could cost millions of dollars.

When he was arrested in April, Rubinstein had to turn over his passport. He has been wearing an ankle bracelet and must stay home at night. He also had to turn over the keys to his boat. He remains free on $12 million bail.

UBS is in the process of closing all offshore accounts with U.S. clients. That, combined with the IRS’s recent clarification of guidelines for making voluntary settlements related to offshore bank accounts, is fueling a rush to fess up to tax violations.

”We’re seeing a huge spike in the number of people coming forward to make voluntary disclosures,” said William M. Sharp, a tax attorney with Sharp & Associates in Tampa.

In UBS’s deferred prosecution agreement with the U.S. government, the bank admitted to helping U.S. taxpayers hide accounts from the IRS and agreed to pay $780 million to the U.S. government. And in a stunning blow to Switzerland’s time-honored insistence on bank secrecy, UBS agreed to provide the United States with the names and account information of the 250 to 300 U.S. customers.

To comply with Swiss law, UBS provided information on those clients to Swiss banking authorities, who, in turn, decided it could be released to the United States because those account holders appeared to have committed U.S. tax fraud under Swiss legal guidelines.

However, the IRS is pressing forward in a civil suit against UBS that seeks to force the bank to disclose the identities of 52,000 additional U.S. customers of UBS with Swiss accounts totaling $14.8 billion. UBS is fighting that broader effort.

A federal trial is set for July 13 to 15 to hear testimony from UBS and the federal government to decide whether the bank must turn over the additional records. UBS has said doing so would violate the laws of its own country.

Switzerland agreed in a new tax treaty in June to broaden the circumstances under which it will share tax information with the United States, bolstering the Obama administration’s efforts to crack down on offshore tax cheats.

The veil on UBS private banking operations began to lift in May 2008 when federal prosecutors in Fort Lauderdale unsealed an indictment against former UBS banker Bradley Birkenfeld.