UBS tax evader jailed despite "Holocaust" plea

MIAMI Sat Apr 24, 2010 2:45am IST

The logo of Swiss bank UBS can be seen outside its New York office August 12, 2009. REUTERS/Lucas Jackson/Files

The logo of Swiss bank UBS can be seen outside its New York office August 12, 2009.

Credit: Reuters/Lucas Jackson/Files

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MIAMI (Reuters) - A Florida watchmaker who tried to dodge prison by arguing that "survival behavior" learned from the Holocaust influenced his attempt to hide funds from U.S. tax authorities in Swiss UBS bank accounts was jailed for 10 months on Friday.

Miami federal Judge Adalberto Jordan ordered Jack Barouh, 65, who had owned Michele Watches, a business he sold in 2004, to surrender to the custody of U.S. Marshals by June 25.

The judge imprisoned Barouh, who pleaded guilty in February to filing a false tax return, despite his request for a lenient home detention sentence. But the 10-month prison sentence was lighter than the 20 months originally sought by prosecutors.

In requesting leniency, Barouh and his lawyers had argued that "lessons and survival behavior" learned from his Jewish parents who survived the Holocaust had contributed to Barouh's actions in maintaining the undeclared overseas bank accounts.

In his plea deal, Barouh admitted hiding about $10 million in bank accounts he controlled from 2002 to 2008 in Switzerland and Hong Kong, using names of sham companies allegedly domiciled in Panama, Hong Kong and the British Virgin Islands.

As part of the plea agreement, he agreed to pay a 50 percent penalty for the one year with the highest balance in his offshore accounts -- this highest balance was just over $10 million, prosecutors said. He also must pay any additional taxes, interest, and penalties he may owe.

Barouh's lawyers had cited a report by Dr. Jerald Ratner, who treated their client, which said that Barouh, whose parents survived the killing of Jews in Europe by the Nazis during World War II, had experienced discrimination and abuse for being Jewish as a child in Colombia.

"HIDE AND HOARD BEHAVIOR"

The report said Barouh's actions were motivated by fears of possible persecution and sudden loss, and by a "hide and hoard" behavior adopted by Holocaust survivors and their children.

"These beliefs cause a person to compulsively and almost obsessively, want to establish a secret nest egg," the lawyers' memorandum said, in asking for a home detention sentence.

One organization representing Holocaust survivors in the United States criticized the argument used by Barouh.

"Holocaust survivors and their families reject the demeaning assertion that 'survival behavior' learned from the Holocaust could justify illegal evasion of taxes," Elan Steinberg, vice president of the American Gathering of Holocaust Survivors and their Descendants, said in a statement sent to Reuters.

According to a statement of facts that accompanied his guilty plea, Barouh admitted skimming income from his watch business into the UBS accounts, with the help of several unnamed Swiss money managers and lawyers.

Keeping money in overseas accounts is not illegal, but failing to report that money to U.S. tax authorities is.

Barouh's case is one of a string of guilty pleas secured by the U.S. government from U.S. citizens after UBS AG last year settled a criminal probe for $780 million, admitting it had helped Americans hide money in offshore accounts.

To settle the criminal case, UBS gave the United States nearly 300 account names, and prosecutors have been steadily bringing cases against them. Under a separate civil agreement, UBS agreed to reveal 4,450 client accounts to Switzerland, which would eventually hand them over to the U.S. government.

But that process may be stalled after a Swiss Court stipulated earlier this year that a UBS client's failure to file a tax form does not constitute tax fraud.

Steinberg said it was "particularly unseemly that UBS was used as an illegal tax haven since it and the other major Swiss banks were exposed in the 1990s as having denied Holocaust survivors access to their accounts after World War II."

Steinberg added that in 1998, a court settlement required Swiss banks to pay back $1.25 billion.

(Reporting by Pascal Fletcher; Editing by Gerald E. McCormick and Tim Dobbyn)

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