This is the first part in a two part series of posts explaining the saga of an IRS whistleblower from UBS who spent years fighting his former employer before recently receiving a major reward for all his trouble.
To start the story, let's go back in time almost two years. In October of 2010, the U.S. Justice Department decided to dismiss a major criminal case against UBS AG, the largest bank in Switzerland, saying it had complied with an agreement to defer prosecution. The bank had been charged with conspiring to defraud the U.S. government by helping nearly 20,000 American taxpayers hide money from the Internal Revenue Service in secretive Swiss bank accounts.
In an attempt to avoid prosecution, UBS agreed to pay $780 million in fines, admit to aiding in tax evasion and hand over account information for nearly 4,500 accounts. UBS held up its end of the bargain and, as a result, the DOJ agreed to drop the charges against the big bank, saying since UBS met its obligations dismissal was appropriate.
The criminal investigation was started in 2007 after a former private banker for UBS, Bradley Birkenfeld, told U.S. authorities how he and others from the bank had come to the U.S. to attract American clients and help them shield their assets from the IRS. Birkenfeld revealed that as many as 60 Swiss-based private bankers came to the U.S. each year to woo clients and help them set up fake offshore companies in tax havens including Panama, Hong Kong and the British Virgin Islands. 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. Birkenfeld ended up pleading guilty to charges related to this tax evasion and was sentenced to 40 months in prison in 2008.
The case was an important one given that it led to charges being filed against dozens of UBS clients for tax evasion. The case was also seen as a watershed moment that ended a long period of total bank secrecy in Switzerland. Despite this seeming success, the victory could have been much sweeter had the government been more aggressive with the bank. It was revealed by Bloomberg News that the government originally attempted to get information concerning some 50,000 Swiss bank accounts, but eventually agreed to settle for data on only 4,500.
Birkenfeld's attorney released a statement after the decision was announced decrying the failure on the part of the DOJ to aggressively prosecute the wrongdoers, saying: "The DOJ should demand that UBS produce all 19,000 tax violators, not just 4,450, shut down all UBS business in the United States until there is full compliance, and reopen an active criminal investigation into the American and Swiss bankers who conspired to commit these crimes. It is an insult to every honest taxpayer that while the whistleblower is in jail, UBS and its American clients are getting away with hiding billions of dollars of taxable income."
What all happened in the two years since the DOJ debacle? Read part two of the story which will be coming soon to find out.
Sources:
UBS Tax-Fraud Charge Is Dropped by U.S. Prosecutors by David Voreacos, published at Bloomberg.com, October 22, 2010.
Swiss Parliament Rejects UBS DOJ Deal published at Whistleblowers.org, June 8, 2010
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Whistleblowers and the IRS
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