For American Who Blew Whistle, Only Reward May Be a Jail Sentence
Thursday, August 20, 2009
In March 2006, an American employee of UBS, Switzerland's largest bank, sent a confidential letter to a top executive.
"I wish to invoke my rights listed under the UBS Whistleblowing Protection for Employees" policy, he wrote.
With that, Bradley C. Birkenfeld fired the first shot in the historic and devastating assault on Swiss bank secrecy that reached a new milestone Wednesday. Under a legal settlement signed in Washington, Switzerland is expected to turn over the names of thousands of Americans who used secret accounts to dodge taxes, U.S. officials said.
Birkenfeld's tale reads like a pulp thriller, complete with the international smuggling of diamonds stashed in a toothpaste tube.
Long-running U.S. federal probes of UBS had already driven the bank to accept a $780 million settlement, admit that it helped Americans hide money from the Internal Revenue Service and, under orders from a Swiss regulator, turn over the names of 200 to 300 American depositors, many of whom are now under criminal investigation.
Now in Switzerland, where secrecy is the bedrock of a lucrative global banking industry, there are widespread fears that business will never be the same. The IRS said on Wednesday that its probe of American offshore tax dodgers will not stop with UBS.
All of that is attributable in large part to Birkenfeld, the 44-year-old son of a Massachusetts neurosurgeon, who approached U.S. authorities in 2007 and provided an extraordinary inside account of the bank's conduct, according to court papers filed Tuesday.
Birkenfeld, who pleaded guilty to a criminal charge last year for participating in UBS's illicit cross-border business, is scheduled to be sentenced Friday in Florida. Although he faces a maximum of five years in prison, the Justice Department asked the court to cut that in half in a filing Tuesday.
The jail time could be tempered by the possibility of financial reward. Under IRS regulations, people who blow the whistle on tax cheaters can be eligible for rewards of up to 30 percent of any money the IRS recoups. However, an IRS notice says the agency will refuse to pay a reward if the whistleblower "is convicted of criminal conduct arising from his or her role in planning and initiating" the tax evasion.
Birkenfeld filed a claim for a whistleblower reward with the IRS in 2007, near the outset of his discussions with federal authorities, according to Dean A. Zerbe, a former tax counsel to the Senate Finance Committee who is now affiliated with the National Whistleblowers Center and who has advised Birkenfeld informally.
Zerbe, who helped lawmakers write the whistleblower law, said Birkenfeld is clearly entitled to a reward that at a minimum would total tens of millions of dollars, including portions of the $780 million UBS agreed to pay the government and of the sums the IRS recoups from UBS depositors who turn themselves in as a result of the highly publicized UBS probe.
The U.S. government would send potential whistleblowers precisely the wrong message if it sends Birkenfeld to prison, "killing the goose that laid the golden egg," Zerbe said.