UBS Whistle-Blower Secures $104 Million Award From IRSTom Schoenberg and David Voreacos
Bradley Birkenfeld, the former UBS AG banker who went to prison after telling the Internal Revenue Service how the bank helped thousands of Americans evade taxes, secured a whistle-blower award of $104 million, the largest individual federal payout in U.S. history.
Birkenfeld told authorities how UBS bankers came to the U.S. to woo rich Americans, managed $20 billion of their assets and helped them cheat the IRS. He pleaded guilty to conspiracy in 2008, a year after reporting the bank’s conduct to the Justice Department, U.S. Senate, IRS and Securities and Exchange Commission. He left prison on Aug. 1.
“The IRS sent 104 million messages to whistle-blowers around the world -- that there is now a safe and secure way to report tax fraud,” Birkenfeld’s attorney Stephen M. Kohn said today at a news conference in Washington. He is seeking a presidential pardon for Birkenfeld, who is under home confinement.
Birkenfeld’s disclosures preceded UBS’s decision to pay $780 million to avoid prosecution, admit it fostered tax evasion from 2000 to 2007 and turn over data on 250 Swiss accounts. UBS later agreed to provide information on another 4,450 accounts. Since then, at least 33,000 Americans have voluntarily disclosed offshore accounts to the IRS, generating more than $5 billion.
The UBS case led to an erosion of the use of Swiss bank secrecy by wealthy Americans to cheat the IRS. At least 11 banks are under criminal investigation in the U.S. Two dozen offshore bankers, lawyers and advisers, as well as 50 American taxpayers, have been charged with crimes.
“Today the IRS sent a message to every American taxpayer who still has an illegal offshore account,” Kohn said. “Turn yourself in while there is still an amnesty program. Turn yourself in before your banker does.”
The IRS confirmed the award in a statement, saying: “The whistle-blower statute provides a valuable tool to combat tax non-compliance, and this award reflects our commitment to the law.”
Birkenfeld’s brother, Douglas, attended the news conference. He wouldn’t say how his brother might use the money.
The previous highest individual award went to Cheryl D. Eckard, a former quality assurance manager for GlaxoSmithKline Plc, who was fired after pushing the company to fix manufacturing flaws at a Puerto Rican plant. She sued under the False Claims Act, which lets citizens sue on behalf of the government and share in any recovery.
“It’s an enormous reward for incredibly significant information,” said Erika Kelton, a whistle-blower attorney at Phillips & Cohen LLP in Washington. “The government acknowledged that without him or someone in his position, offshore evasion at UBS would still likely be going on.”
In prison interviews with Bloomberg News in June 2010, Birkenfeld said he should be viewed as a hero, not a criminal.
“I delivered and documented this entire scandal, the largest in U.S. history,” Birkenfeld said. “I’m the most famous whistle-blower in the history of the world. It’s a question of doing the right thing, and that’s what I did.”
A neurosurgeon’s son from Brookline, Massachusetts, Birkenfeld, 47, spent 15 year in Swiss banking, including five at Zurich-based UBS, the country’s largest bank. Birkenfeld was one of as many as 60 UBS bankers who crisscrossed the U.S. trolling for rich clients, even though they lacked required SEC licenses, he later told U.S. Senate investigators. They visited art shows, yachting regattas and golf and tennis tournaments, he said.
UBS trained bankers to avoid detection by regulators, urging them to carry encrypted laptop computers and falsely state on travel forms that they were entering the country for pleasure, not business, he said. The bank admitted it helped clients circumvent U.S. securities restrictions by referring them to outside advisers who set up sham companies in tax havens such as the British Virgin Islands, Hong Kong and Panama.
He worked at Barclays Plc before joining UBS in 2001. He persuaded his largest client, billionaire real estate developer Igor Olenicoff, to move his assets to UBS from Barclays. Birkenfeld said he sent memos to his superiors about bank compliance flaws before he resigned in October 2005.
Five months later, he wrote to Peter Kurer, then UBS’s general counsel, to say top management “actively encouraged” practices “forbidden” by the bank, according to the letter. The bank later reached a severance agreement with Birkenfeld over a disputed bonus, he said.
By 2007, he told his story to U.S. investigators. Prosecutors decided to charge him with a crime because he initially refused to describe his own role in the fraud and didn’t reveal his work with Olenicoff. The billionaire pleaded guilty in December 2007 to filing a false tax return. He got two years of probation and paid $52 million in back taxes and penalties.
In early 2008, prosecutors secured an indictment of Birkenfeld from a federal grand jury in Fort Lauderdale, Florida. He was arrested in April 2008 at Boston’s Logan International Airport as he flew from Geneva for a high school reunion and meetings with Senate investigators and the SEC.
He pleaded guilty in June 2008, saying UBS made $200 million a year handling $20 billion in undeclared assets. He said he took customer checks to deposit in European banks and bought diamonds for a client, bringing them to the U.S. in a toothpaste tube. He was sentenced in August 2008.
The IRS whistle-blower program -- revised by Congress in 2006 to boost tax revenue by giving incentives to tipsters -- stalled for five years. The program made its first award in 2011, after more than 1,300 tipsters came forward. Just three awards had been paid through June.
The slow pace drew criticism from the Government Accountability Office and U.S. Senator Charles Grassley, an Iowa Republican who pushed for the law. He noted last year that the U.S. Justice Department has collected more than $27 billion under the False Claims Act.
Grassley praised the Birkenfeld award today.
“This case provides evidence about how the whistle-blower program can be effective because the IRS is saying its work against this kind of tax fraud would not have been possible without the whistle-blower,” the senator said.
While “an award of $104 million is obviously a great deal of money,” Grassley said, “billions of dollars in taxes owed will be collected that otherwise would not have been paid as a result of the whistleblower information.”
The program hasn’t met expectations, IRS officials said in interviews earlier this year.
“It’s fair to say the whistle-blower program isn’t where we would like it yet,” said Steven T. Miller, IRS deputy commissioner for services and enforcement, who oversees the program’s office. “And I think it’s fair to say we are working hard on it.”
Kelton said the past few years discouraged tax whistle-blowers.
“This is a powerful statement that things are moving and whistle-blowers are welcome and they’re open for business,” Kelton said.
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