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Imprisoning A Courageous Whistleblower: The Case of Bradley Birkenfeld
Wednesday, 21 April 2010
Because of his disclosures, UBS' tax fraud scheme was made public, and billions of dollars recovered. Birkenfeld's reward - 40 months hard time in federal prison for confronting a powerful bank.
On May 14, 2008, New York Times writer Lynnley Browning headlined, "Ex-Banker from UBS Is Indicted in Tax Case," saying:
National Whistleblowers Center (NWC) covers his case on whistleblowers.org, saying:
On April 15, he filed an appeal for clemency.
Interviewed by Steve Kroft on CBS' 60 Minutes in January 2009, Birkenfeld said he's the first insider ever to explain the secretive world of Swiss banking. "It never happened before in history. I'm the first" to do it. Asked what percent of American accounts tried to evade taxes, he said among his own clients, "90%."
Senior bank officials went along for the profits. As for Birkenfeld, "I gave (the IRS) the biggest tax fraud case in the world. I exposed 19,000 international criminals (with accounts worth over $19 billion). And I'm going to jail for that?"
One of his clients was Igor Olenicoff, a billionaire on the Forbes 400 list with an estimated $1.7 billion net worth. He cooperated, paid $52 million in back taxes and fines, and got off with no jail.
On August 22, 2009, Wall Street Journal writer Brent Kendall headlined, "Ex-UBS Banker's Jail Time: 40 Months," saying:
On January 8, 2010, Birkenfeld voluntarily surrendered to begin serving his sentence.
On August 18, 2009, the Justice Department said:
Yet they indicted, convicted, and imprisoned him.
An international banker employed by Switzerland's UBS bank, he "blew the whistle on secret offshore accounts (after discovering in 2005 that) bank managers were encouraging breaches of UBS' own written policies in helping American clients evade federal taxes."
Initially, he lodged complaints with UBS's Legal and Compliance departments. When ignored, he resigned, came to America, and informed the Justice Department (DOJ), IRS, SEC, and US Senate.
Because of his disclosures, UBS' tax fraud scheme was made public, and billions of dollars recovered. Birkenfeld's reward - 40 months hard time in federal prison for confronting a powerful bank, one of the world's leading financial firms and second largest European bank.
Thus far, he's the only UBS employee or client to receive a long prison sentence. He also spent over 19 months under electronically monitored home confinement, with curfew and travel restrictions, prior to incarceration.
Others got minor sentences (maximum three months), including probation, fines, and community service. Martin Liechti, head of the entire UBS program, wasn't charged and returned to Switzerland a free man.
For his part, the Justice Department (DOJ) accused Birkenfeld of withholding information about his largest client, a Russian emigre and California real estate developer, convicted for avoiding taxes on $200 million.
Birkenfeld, however, provided full disclosure to other government agencies that protected him from criminally violating Swiss bank secrecy laws. Despite repeated requests, DOJ refused, instead charged him with a single offense to which he pled guilty.
US Treasury Cites Deficiencies in Whistleblower Protections
On August 20, 2009, the Treasury's Inspector General for Tax Administration issued a report titled, "Deficiencies Exist in the Control and Timely Resolution of Whistleblower Claims," after assessing the IRS' progress in establishing a Whistleblower Program able potentially to recover "billions of dollars in taxes, penalties, and interest based on information provided by informants."
The 2006 Tax Relief and Health Care Act amended the IRS Code "to provide increased awards to individuals for information that leads to the detection and punishment of persons guilty of violating, or conspiring to violate, internal revenue laws." Since the law's passage, tens of billions in unreported income have been disclosed thanks to whistleblower-provided information.
Legal deficiencies need correcting, including whistleblower protection against employer retaliation. Unmentioned was immunity from US agency or foreign government prosecutions.
However, legal deficiencies need correcting, including whistleblower protection against employer retaliation. Unmentioned was immunity from US agency or foreign government prosecutions.
The Treasury only recommended legislation "to ensure that informants are protected against retaliation by their employers and to provide relief to informants who are retaliated against....IRS management agreed with all of our recommendations."
Whistleblower.org's Bradley Birkenfeld Fact Sheet covers the following:
Global Tax Havens
They're either a nation (generally small), city, state, or zone, officially called a "jurisdiction," offering low or no taxes, and, most often, none on foreign earned income. High net worth individuals use them to offshore their wealth or create shell companies, subject to jurisdiction taxes, but none to their home country.
Their main characteristics include:
In 2004, some OECD listed ones include:
In a 1998 report, the OECD said tax havens were "expanding at an exponential rate."
However, they're not for everyone. Much depends on residency status (domicile), individual circumstances, and, of course, personal wealth. According to some, they hold over $5 trillion in high net-worth accounts, free from home country scrutiny and taxes. A US congressional committee estimated that private banks manage $15.5 trillion in assets, much of it hidden offshore. For US residents, foreign accounts are legal, but must be disclosed on tax returns. Not doing so is a crime.
According to the Federal Reserve, establishing and managing offshore accounts has become big business for major global banks and other financial institutions - better still because the IRS does little to locate offshore tax cheats. Being rich and having good advisers are essential to take advantage.
Nonetheless, secrecy makes hiding wealth easy, and according to the Federal Reserve, establishing and managing offshore accounts has become big business for major global banks and other financial institutions - better still because the IRS does little to locate offshore tax cheats even though they fully understand the problem. Being rich and having good advisers are essential to take advantage. Also an inclination to cheat the tax man and get away with it, hoping no one like Birkenfeld will blow the whistle.
Listen to Lendman's cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.
Mr. Lendman's stories are republished in the Baltimore Chronicle with permission of the author.
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Baltimore News Network, Inc., sponsor of this web site, is a nonprofit organization and does not make political endorsements. The opinions expressed in stories posted on this web site are the authors' own.This story was published on April 21, 2010.