UBS whistle-blower nets USD104-million payback

13 September 2012

Bradley Birkenfeld, the UBS employee who exposed the bank’s activities in helping US clients evade taxes, has received a USD104 million reward from the US Internal Revenue Service (IRS).

Until 2006, Birkenfeld worked as director of UBS’s wealth management division in the US. When he left, he took the precaution of taking with him a mass of files on American taxpayers for whom he had hidden assets in UBS offshore structures. In 2007, fearing prosecution for abetting tax evasion, he handed these files to the US Department of Justice (DoJ).

In February 2009, the DoJ used this information to bring a criminal prosecution against UBS. Later that year, the bank paid the DoJ some USD780 million to drop the charges, and it had to name thousands of its American clients. Since then the DoJ has successfully prosecuted dozens of them (as well as Birkenfeld himself).

In November 2009 Birkenfeld requested a reward of several billions of dollars from the US government, calculated as a percentage of the amount of tax recovered by the IRS from UBS and its clients. A US law enacted in 2006 offers tax informants 15 to 30 per cent of the taxes and penalties collected by the IRS as a result of the informer’s assistance.

Birkenfeld’s claim is based on turning in not only UBS’s clients but also the 14,700 Americans who were frightened into disclosing their offshore accounts under the IRS’s tax amnesty.

So, despite the record size of Birkenfeld’s payoff, he has some reason to be dissatisfied with the amount – especially as he was fined USD30,000 and received a 40-month prison sentence for his own tax-planning activities while at UBS. This was generally regarded as harsh; even his prosecutors had only suggested a 30-month sentence. It is rare for the justice department to indict a valuable informant, and there are also special laws protecting tax whistle-blowers.

However, Reuters calculates that Birkenfeld earned about USD46,000 for each day he spent in prison (he is now out of jail but confined to his own home). Swiss newspapers were agreed that the USD100-million reward could tempt other bank employees to follow his example. According to Geneva’s Le Temps, the reward represents ‘a defeat for Switzerland’.

Eleven other Swiss banks are being investigated by the US Department of Justice for allegedly abetting tax evaders.

Birkenfeld’s claim was negotiated by lawyers Stephen Kohn and Dean Zerbe, who said his revelations brought the IRS some USD5 billion from Swiss banks and their clients.

Sources

Swissinfo

Reuters

Toronto Globe and Mail

Telegraph

Global Post (Birkenfeld’s own story, published 2010)


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