- On May 14, 2008, New York Times writer Lynnley Browning
headlined, "Ex-Banker from UBS Is Indicted in Tax Case," saying:
- "The one-count conspiracy indictment, unsealed in
federal court, accuses the former banker, Bradley Birkenfeld, of helping
(a wealthy American real estate developer) evade taxes on $200 million
held in bank accounts in Switzerland and Liechtenstein."
- According to the indictment, "fictitious trusts
and bogus corporations (were created) to conceal the ownership and control
of offshore assets. They also advised clients to destroy bank records and
helped them file false tax returns...."
- National Whistleblowers Center (NWC) covers his case
on whistleblowers.org, saying:
- "Bradley Birkenfeld commenced serving a three-year
and four-month sentence in federal prison on January 8, 2010, a direct
result of blowing the whistle on one of the largest tax fraud schemes in
- On April 15, he filed an appeal for clemency.
- Interviewed by Steve Kroft on CBS' 60 Minutes in January
2009, Birkenfeld said he's the first insider ever to explain the secretive
world of Swiss banking. "It never happened before in history. I'm
the first" to do it. Asked what percent of American accounts tried
to evade taxes, he said among his own clients, "90%."
- Senior bank officials went along for the profits. As
for Birkenfeld, "I gave (the IRS) the biggest tax fraud case in the
world. I exposed 19,000 international criminals (with accounts worth over
$19 billion). And I'm going to jail for that?"
- One of his clients was Igor Olenicoff, a billionaire
on the Forbes 400 list with an estimated $1.7 billion net worth. He cooperated,
paid $52 million in back taxes and fines, and got off with no jail.
- On August 22, 2009, Wall Street Journal writer Brent
Kendall headlined, "Ex-UBS Banker's Jail Time: 40 Months," saying:
- "A key government informant in the US tax investigation
of UBS AG was sentenced today....for helping the Swiss bank's American
clients cheat on their taxes."
- On January 8, 2010, Birkenfeld voluntarily surrendered
to begin serving his sentence.
- On August 18, 2009, the Justice Department said:
- "Defendant Birkenfeld('s)....substantial assistance
has been timely, significant, useful, truthful, complete and reliable.
(Without his help, the UBS) scheme would not have been discovered by the
- Yet they indicted, convicted, and imprisoned him.
- An international banker employed by Switzerland's UBS
bank, he "blew the whistle on secret offshore accounts (after discovering
in 2005 that) bank managers were encouraging breaches of UBS' own written
policies in helping American clients evade federal taxes."
- Initially, he lodged complaints with UBS's Legal and
Compliance departments. When ignored, he resigned, came to America, and
informed the Justice Department (DOJ), IRS, SEC, and US Senate.
- Because of his disclosures, UBS' tax fraud scheme was
made public, and billions of dollars recovered. Birkenfeld's reward - 40
months hard time in federal prison for confronting a powerful bank, one
of the world's leading financial firms and second largest European bank.
- Thus far, he's the only UBS employee or client to receive
a long prison sentence. He also spent over 19 months under electronically
monitored home confinement, with curfew and travel restrictions, prior
- Others got minor sentences (maximum three months), including
probation, fines, and community service. Martin Liechti, head of the entire
UBS program, wasn't charged and returned to Switzerland a free man.
- For his part, the Justice Department (DOJ) accused Birkenfeld
of withholding information about his largest client, a Russian emigre and
California real estate developer, convicted for avoiding taxes on $200
- Birkenfeld, however, provided full disclosure to other
government agencies that protected him from criminally violating Swiss
bank secrecy laws. Despite repeated requests, DOJ refused, instead charged
him with a single offense to which he pled guilty.
- US Treasury Cites Deficiencies in Whistleblower Protections
- On August 20, 2009, the Treasury's Inspector General
for Tax Administration issued a report titled, "Deficiencies Exist
in the Control and Timely Resolution of Whistleblower Claims," after
assessing the IRS' progress in establishing a Whistleblower Program able
potentially to recover "billions of dollars in taxes, penalties, and
interest based on information provided by informants."
- The 2006 Tax Relief and Health Care Act amended the IRS
Code "to provide increased awards to individuals for information that
leads to the detection and punishment of persons guilty of violating, or
conspiring to violate, internal revenue laws." Since the law's passage,
tens of billions in unreported income have been disclosed thanks to whistleblower-provided
- However, legal deficiencies need correcting, including
whistleblower protection against employer retaliation. Unmentioned was
immunity from US agency or foreign government prosecutions.
- The Treasury only recommended legislation "to ensure
that informants are protected against retaliation by their employers and
to provide relief to informants who are retaliated against....IRS management
agreed with all of our recommendations."
- Key Facts
- Whistleblower.org's Bradley Birkenfeld Fact Sheet covers
- (1) Did he serve the public interest?
- After his disclosures, UBS paid $780 million in fines
and penalties, and agreed to an IRS amnesty program under which 14,700
clients admitted to illegal, secret accounts. As a result, billions of
dollars were recovered and the entire program was shut. According to the
New York Daily News, "Bradley Birkenfeld deserves a statue on Wall
Street, not a prison sentence."
- (2) What did Birkenfeld do?
- From June 2005, he compiled internal email and correspondence
documentation, discovered fraud, told his superiors in good faith, followed
bank compliance procedures, and reported his findings up the chain of command.
On May 24, 2006, UBS' general counsel closed the investigation without
action. As a result, Birkenfeld resigned. UBS insisted he keep his information
secret. He retained counsel and, in 2007, informed the DOJ, IRS, SEC, and
Senate. Prior to its indictment, DOJ stonewalled him.
- (3) The Importance of His Disclosures
- Under Section 15 to Exhibit C of Deferred Prosecution
Agreement, bank officials could have resolved the matter on their own.
Failing to do so shows the importance of his actions. The IRS, SEC and
Senate wrote letters affirming it.
- (4) Does His Participation in Illegal Activity Disqualify
- No, as whistleblower protection laws apply to everyone
making disclosures, even those guilty of wrongdoing. An old Civil War law
was based on the idea that "setting a rogue to catch a rogue is the
safest and most expeditious way I have discovered of bringing rogues to
justice," according to the law's leading sponsor, Senator Jacob M.
- Since then, thousands of whistleblowers have come forward,
many of whom participated in fraud. As far as known, none were prosecuted.
DOJ's action is unprecedented. It also undermines anti-fraud laws and makes
it less likely others will come forward like Birkenfeld. Along with the
National Whistleblowers Center, 20 anti-corruption groups back a clemency
campaign to free him, including a presidential pardon or commutation for
- (5) Was DOJ Truthful in Arguing for a Prison Term?
- When sentenced, DOJ's prosecutor, Kevin Downing, said
if Birkenfeld had turned in his former client, Igor Olenicoff, he wouldn't
have been criminally indicted. In fact, prior to being indicted, he made
full disclosure to the Senate Subcommittee on Investigations, the IRS and
SEC, including about Olenicoff.
- (6) Why DOJ's Treatment Is Unjust
- UBS officials got off scot-free. Guilty bank clients
got slaps on the wrist. Birkenfeld is the only one sentenced to hard time
in prison, a shocking and unprecedented act.
- Global Tax Havens
- They're either a nation (generally small), city, state,
or zone, officially called a "jurisdiction," offering low or
no taxes, and, most often, none on foreign earned income. High net worth
individuals use them to offshore their wealth or create shell companies,
subject to jurisdiction taxes, but none to their home country.
- Their main characteristics include:
- -- no or low taxes on income and capital;
- -- bank and commercial secrecy or confidentiality;
- -- absence of exchange controls for companies treated
- -- the reliance on banking, providing low or no taxes
- -- good infrastructure, including communications and
- -- accessibility to competent lawyers, accountants and
other advisors; and
- -- political and economic stability.
- In 2004, some OECD listed ones include:
- -- Albania
- -- Andorra (in the Pyrenees between France and Catalonia
(one of 17 Spanish Autonomous Communities)
- -- Anguilla
- -- Antigua and Barbuda
- -- Aruba
- -- Bahamas
- -- Bahrain
- -- Belize
- -- Bermuda
- -- Cayman Islands
- -- Costa Rica
- -- Cyprus
- -- Liechtenstein
- -- Luxembourg
- -- Montserrat
- -- Monaco
- -- Samoa
- -- Seychelles
- -- Saint Lucia and
- -- Saint Kitts and Nevis; among others.
- In a 1998 report, the OECD said tax havens were "expanding
at an exponential rate."
- However, they're not for everyone. Much depends on residency
status (domicile), individual circumstances, and, of course, personal wealth.
According to some, they hold over $5 trillion in high net-worth accounts,
free from home country scrutiny and taxes. A US congressional committee
estimated that private banks manage $15.5 trillion in assets, much of it
hidden offshore. For US residents, foreign accounts are legal, but must
be disclosed on tax returns. Not doing so is a crime.
- Nonetheless, secrecy makes hiding wealth easy, and according
to the Federal Reserve, establishing and managing offshore accounts has
become big business for major global banks and other financial institutions
- better still because the IRS does little to locate offshore tax cheats
even though they fully understand the problem. Being rich and having good
advisers are essential to take advantage. Also an inclination to cheat
the tax man and get away with it, hoping no one like Birkenfeld will blow
- Stephen Lendman lives in Chicago and can be reached at
Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge
discussions with distinguished guests on the Progressive Radio News Hour
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