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UBS whistleblower gets $104M from IRS for helping in Swiss bank probe

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The Internal Revenue Service awarded $104 million to a banker-turned-whistleblower who helped the government uncover a massive scheme in which Switzerland’s largest bank helped its American clients dodge taxes.

The award, confirmed by the IRS on Tuesday, was announced by the legal team representing Bradley Birkenfeld. The former UBS banker gave federal investigators a detailed account of what was happening inside the bank, but he ended up serving nearly three years in prison after he pleaded guilty in 2008 to helping one of his clients evade taxes.

Birkenfeld’s attorneys said they think the reward was the largest ever granted to a single whistleblower in the United States. Several legal experts said the sum dwarfs the few other payouts made public by the IRS since 2006, when the agency beefed up its whistleblower program.

The agency explained its decision to award the money by citing Birkenfeld’s “exceptional cooperation” and the “breadth and depth” of the information he provided, all of which led to “unprecedented actions” against UBS, according to an IRS document provided by Birkenfeld’s attorneys.

The government used that ­information to negotiate a $780 million settlement with UBS in 2009. Under that deal, UBS admitted to helping U.S. clients cheat on their taxes. The bank later turned over the names of nearly 5,000 U.S. clients suspected of tax evasion. IRS amnesty programs have since collected $5 billion from people who participated in UBS’s illegal scheme, Birkenfeld’s attorneys said.

“The IRS today sent 104 million messages to whistleblowers around the world — that there is now a safe and secure way to report tax fraud and that the IRS is now paying awards,” the attorneys, Stephen M. Kohn and Dean A. Zerbe, said in a statement.

But the legal team also said the reward does not give Birkenfeld back the 31 months he served in prison. Birkenfeld, released last month, is serving the final nine months of his sentence under home confinement in New Hampshire. He was, therefore, unable to speak for himself at the briefing his attorneys held Monday at the National Press Club.

Birkenfeld, a Massachusetts native who lived in Switzerland, approached the Justice Department in 2007 to unload what he knew about the tax-fraud scheme. But when the government’s lawyers would not grant him immunity from prosecution, he took his information to Congress and other agencies. When he returned to the United States in 2008 to speak to those regulators and attend a high school reunion, he was arrested,The Washington Post reported two years ago. The Justice Department said he withheld information about his role in the scheme.

Justice officials declined to comment on the IRS decision.

Birkenfeld’s attorneys said their client’s legal battle was fraught with confusion about the legal protections granted to whistle­blowers. Such laws are designed to induce insiders who are close to the “kingpins” to come forward, they said. It’s understood that those insiders’ hands won’t be clean, and these whistleblowers should not have to fear prosecution for turning over evidence, they argued.

They plan to seek a presidential pardon for Birkenfeld.

Michael A. Sullivan, a lawyer at Finch McCranie who represents whistleblowers, said Birkenfeld deserves the award just as he apparently deserved incarceration.

“You have to apply the law as it’s written, and you can’t make up exceptions as you go along,” Sullivan said. “It would have set up a terrible example not to prosecute him. But if Birkenfeld satisfied the elements of the whistleblower program, then he deserves the award.”

The IRS payout program allows whistleblowers to collect up to 30 percent of the proceeds in cases where the amount in dispute totals more than $2 million. Birkenfeld’s negotiations with the IRS yielded less than the maximum amount, but he is satisfied with the outcome and does not plan to appeal, his attorneys said.

Some say the IRS needs to move more quickly on such cases, including Sen. Charles E. Grassley (R-Iowa), who steered the effort to expand the IRS whistleblower program in 2006. “If the IRS is serious about encouraging future whistleblowers, it needs to continue to honor the spirit and the intent of the law and issue awards in a timely manner,” Grassley said in a statement.

Birkenfeld’s attorneys declined to disclose how much of the award he would pocket after legal fees and taxes.

© The Washington Post Company