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Human Rights Alert

09-08-25 UBS-AG Whistle-Blower Birkenfeld Imprisoned

UBS Whistleblower Gets Rewarded With Prison Time
Commentary by Ann Woolner - August 25, 2009 21:00 EDT

UBS-AG Whistle Blower Bradley Birkenfeld

Aug. 26 (Bloomberg) -- If he had kept his mouth shut and his head low, Bradley Birkenfeld would be a free man today. He didn’t, so now the former UBS AG banker wears an electronic bracelet on his ankle and, beginning in January, will spend three years and four months in a federal penitentiary. He’s headed for prison even though he blew the whistle on a multibillion-dollar international tax fraud conspiracy. Birkenfeld’s information let the U.S. pierce Swiss bank secrecy laws as never before possible. “We will be receiving an unprecedented amount of information on taxpayers who have evaded their tax obligation by hiding money offshore at UBS,” Internal Revenue Service Commissioner Doug Shulman said in a statement last week. Because of Birkenfeld, the feds are now going after hundreds, possibly thousands, of tax evaders. They have collected a $780 million fine from UBS and forced the bank’s cooperation in finding previously secret customers. The list of those so far charged in the scheme numbers nine, led by Raoul Weil, the former chief executive officer of global wealth management for UBS. So why is the man who blew the whistle on a mammoth tax fraud facing prison time? The feds will tell you it’s because he played a role in the conspiracy, a fact he failed to mention when he first stepped forward. So far he has gotten rougher treatment than those who were content to hide in the shadows. Birkenfeld’s biggest ex- customer, California billionaire Igor Olenicoff, got only probation (and only two years of that!) for hiding as much as $200 million from the IRS. He also paid the government $52 million in back taxes, interest and penalties, thanks to Birkenfeld. Return to Switzerland Birkenfeld’s ex-boss, who ran the global tax-fraud business, made out even better than Olenicoff. Held as a material witness for some months in 2008, Martin Liechti pleaded the Fifth Amendment when called before Congress and was allowed to return to Switzerland, a free man, charged with no crime.

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January 18, 2011

Birkenfeld got slammed because, for all the good he did, he didn’t tell on himself. So prosecutors sought a 30-month prison term for him, and a federal judge in Fort Lauderdale, Florida, ratcheted it up to 40 months at sentencing last week. U.S. District Judge William Zloch offered no explanation why he rejected the defense plea for home detention and bumped up even the prosecution’s recommendation for prison time. But Zloch clearly considers Birkenfeld a bad guy. “You’re not going to have boy scouts in the room” when illegal activity is planned, says Dean Zerbe, special counsel to the National Whistleblowers Center. Grand Larceny “In the pantheon of tax crimes, he’s subject to a charge of jaywalking, and he’s brought in people charged with grand larceny,” Zerbe says. Home confinement and a long probation would have been plenty under the circumstances. What you don’t want is to scare off other insiders considering blowing the whistle. If you’re looking to ferret out waste, fraud and abuse, that notorious trio of government parasites, there is nothing like an insider. That is why Congress has for years passed laws encouraging whistleblowers by offering job protection to government employees and a cut of any funds recovered because of their informing. The Birkenfeld sentence stands as an insult to any claim that the government wants whistleblowers to step up. Fear of retaliation and career suicide make it hard enough to rat on your boss. Now you can add the possibility of prison time as payment for your effort. Private Banker Birkenfeld joined UBS as a Geneva-based private banker in 2001. Four years later he spotted an internal legal document that barred some of the very practices that UBS was using. It looked like the bank’s recruitment of wealthy Americans wanting wealth-hiding services wasn’t entirely on the level. So he notified his supervisors, to no avail. Then he formally took it to higher-ups within UBS’s compliance and legal offices. When that produced no clarification, he left the bank, only to begin receiving “threatening letters reminding him” he could be prosecuted if he violated client confidentiality, his lawyers wrote in a court brief. UBS withheld a promised bonus. Birkenfeld went to the U.S. government in early 2007, with his lawyers seeking full immunity from prosecution for him. He didn’t get it, but he told the IRS and the Justice Department what UBS had been up to, anyway. He spent three full days talking to agents and prosecutors, giving them documents and suggesting strategies for uncovering UBS’s gigantic tax fraud scheme. Big Picture He gave them the big picture and the details, including the names of bankers involved and clients. He handed over internal documents, e-mail and presentations. “He gave them the keys to the kingdom,” Zerbe says.

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January 18, 2011

Birkenfeld went to the Securities and Exchange Commission. And the information he gave Congress sparked an investigation there, where Zerbe was working as tax counsel at the Senate Finance Committee. Nonetheless, believing he hadn’t been forthcoming about his own crime, prosecutors got an indictment against him in April 2008 for tax evasion conspiracy. He quickly pleaded guilty and continued cooperating with the government. Beyond the resulting indictments of others, there were resignations, too. UBS Chairman Peter Kurer stepped down, and so did Liechti. Finally, the Swiss government agreed to ease bank secrecy and this month struck a deal with the U.S. government to hand over thousands of names of American clients of Swiss banks. More than Snipes And yet, Birkenfeld’s 40-month sentence is longer than the three years actor Wesley Snipes got for failing to pay $15.6 million in taxes. And Snipes has yet to admit he did it, much less cooperate. In fact, he berated a government employee for finding that his $4 million tax refund claim was frivolous. Nonetheless he was allowed to travel to England and Thailand for filming while his conviction is on appeal, even as Birkenfeld has a curfew and ankle bracelet to confine him. Now the government is claiming bragging rights for forcing the Swiss government to relent, at least a bit, on secrecy for U.S. tax evaders. Prosecutors better hope that Birkenfeld’s tips will last them a very long time. They shouldn’t expect more whistleblowers to show up any time soon. (Ann Woolner is a Bloomberg News columnist. The opinions expressed are her own.) To contact the writer of this column: Ann Woolner in Atlanta at awoolner@bloomberg.net. To contact the editor responsible for this column: James Greiff at jgreiff@bloomberg.net.

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