Although the MSM has uneven coverage of this (front page in the New York Times; completely buried in the Washington Post), yesterday Bloomberg News, to its credit, revealed that the Federal Reserve Bank of New York, while led by Treasury Secretary Timothy Geithner, told bailed-out insurance giant AIG in the fall of 2008 to withhold key details from the public and the SEC about overpayments that gave billions of extra tax dollars to major Wall Street firms.
So while the New York Fed pushed AIG to keep sweetheart deals secret, Brad Birkenfeld, the UBS banker-turned-whistleblower who shattered centuries of Swiss bank secrecy, was indicted and is going to prison today. (UBS received $5 billion from AIG).
Birkenfeld had the potential to change an entire industry designed to evade U.S. taxes. Instead, the U.S. has handled UBS with velvet gloves and the MSM is giving spotty coverage to the Geithner story.
What's wrong with this picture??
UPDATE: Birkenfeld just gave a press conference and entered prison. The Reuters headline says it well: UBS Whistleblower Enters Jail. UBS Client Gets 5 Years Probation.
So, the government stopped AIG from revealing information about its bailout--likely in violation of federal securities law. Disclosure rules supposedly apply to all public companies, and when an organization is troubled, disclosures of this kind are all the more important. There's not a "too big to fail exception" for companies on federal life support.
UBS, the largest bank in Switzerland, received $5 billion from AIG. And Brad Birkenfeld, the former banker who blew the whistle on how UBS helped tens of thousands of super-rich Americans dodge taxes (and in doing so, shattered centuries of Swiss bank secrecy), is going to jail today for a single count of aiding tax evasion.
What's wrong with this picture?
Prosecutor, Kevin Downing, admitted that "but for Mr. Birkenfeld, this scheme would not have been discovered."
Why Birkenfeld, the whistleblower, is the only person going to prison out of the tens of thousands of tax dodgers and enabling bankers, is a complicated story about which multiple books are being written. Theories range from UBS being one of the biggest contributors to the political campaigns of President Obama and members of Congress, to the United States’s desire to maintain good relations with our Swiss allies, who serve as an intermediary with Iran.
But why Birkenfeld received such a harsh sentence of 40 months (not including nearly two years under house arrest), ratcheted up from what even the Justice Department sought, is a virtually unknown—though just as disturbing—story.
The most prejudicial statement made by the prosecutor at Birkenfeld’s sentencing hearing—which was inexplicably delayed four times by the government—was that he did not give the government "any details with respect to . . . one of his clients, Mr. [Igor] Olenicoff," a California billionaire. The Justice Department repeated this assertion as recently as last Sunday, when Associate Attorney General Thomas Pirelli told 60 Minutes that, "If he had come forward and told us everything that he knew, a complete and accurate picture in the summer of 2007, we think it's likely he wouldn't have been prosecuted."
But this is a lie, which the government seems to think that, if repeated enough, will transform into fact.
The truth is that, after complaining internally to UBS for two years, in June 2007 Birkenfeld voluntarily met with Justice Department prosecutors and an IRS Special Agent during three full days in which he provided unprecedented and voluminous information about UBS’s cross-border and offshore business activities, the UBS offices and private bankers that were directly involved, and the details of 19,000 UBS accounts for its American customers.
After negotiations with the Justice Department broke down over its refusal to provide Birkenfeld a "friendly subpoena," which would provide the compulsory process necessary for him to reveal client names without violating Swiss bank secrecy laws, he reached out to the U.S. Senate Permanent Subcommittee on Investigations, which was investigating tax havens and more than happy to subpoena him. Accordingly, Birkenfeld testified to the Senate on October 11 and November 13 of 2007, in which he identified Igor Olenicoff by name as one of his biggest clients. At the same time, Birkenfeld also provided substantially the same information on Olenicoff to the IRS and the SEC.
In other words, prior to Olenicoff himself being charged criminally by the Justice Department, Birkenfeld had provided sworn testimony to the Senate identifying him, described his $200 million account at UBS, and detailed his own involvement as Olenicoff’s private banker at UBS.
The innocent explanation for the Justice Department’s continued assertions about Birkenfeld holding back is poor information-sharing with other government agencies and Congress. However, Birkenfeld’s attorneys made sure that the Justice Department knew he testified before Congress, and the substance of that testimony. The more sinister explanation is that the Justice Department got upstaged by the Senate, too many powerful people have UBS connections (even Attorney General Eric Holder has recused himself from the case), we don’t want to jeopardize Swiss diplomacy, or some combination thereof. But these reasons have everything to do with politics, and should not be dressed up any sort of "justice."
Birkenfeld had the potential to change an entire industry designed to evade U.S. taxes. Instead, the U.S. has been soft on UBS: letting bank kingpin Martin Liechti go free; under-fining the bank only $780 million for a multi-billion dollar fraud; settling for only 4,500 customer names of the 52,000 our government originally sought; and setting up an amateurish amnesty program that allowed the worst offenders to avoid criminal liability by paying fines. But worse, the Justice Department’s treatment of Birkenfeld is chilling would-be financial whistleblowers from coming forward, and will continue to do so for decades, to the detriment of the U.S. economy and all taxpayers—something that should be inconceivable during a global financial crisis.
Action: Send a letter to the Justice Department about investigating the Birkenfeld case, and give your thoughts on investigating Geithner: http://www.capwiz.com/...
A visual of this sad day for whistleblowers can be found here: