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 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 multi-billion-dollar international tax fraud conspiracy. Birkenfeld’s information let the US 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 (IRS) 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 (CEO) 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.
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.
US District Judge William Zloch offered no explanation why he rejected the defence 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.
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 makes 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’ 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.
Birkenfeld went to the US 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 gave them the keys to the kingdom,” Zerbe says.
Birkenfeld went to the Securities and Exchange Commission. And the information he gave Congress sparked a probe. 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 US government to hand over thousands of names of American clients of Swiss banks.
(Ann Woolner is a Bloomberg News columnist. The opinions expressed are her own.)
