Earlier this month, Senator Chuck Grassley (R-IA) - a longtime supporter of whistleblower rights - objected to two Treasury Department nominees due to his concerns about the implementation (or lack thereof) of the IRS whistleblower reward program in the Dodd-Frank financial reform law. Grassley said in a floor statement:
My support for the final confirmation of these nominees will depend on both Treasury and Internal Revenue Service responses to questions I have posed regarding their implementation of the tax whistleblower program. I rewrote the statute in 2006 to encourage whistleblowing on big-dollar tax cheats. However, nearly six years since those changes were enacted, Treasury has yet to issue much needed regulations and IRS has paid less than a half dozen awards under the new program.The much-needed whistleblower-reward program has instead been used against whistleblowers instead of in favor of them. Meanwhile, UBS whistleblower Bradley Birkenfeld is set to be released from prison next week after an usually harsh sentence. Despite the fact that Birkenfeld shattered decades of Swiss bank secrecy when he approached investigators about a UBS tax evasion scandal involving thousands of illegal offshore accounts and billions of U.S. dollars. Instead of targeting UBS "kingpin" Martin Liechti, the Justice Department turned on Birkenfeld.
I wrote extensively about Birkenfeld's case at the time of his sentencing. (here, here, here, and here). 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.
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.
Now, as Senator Grassley points out, the Treasury Department and IRS are refusing to adequately implement the reforms intended to encourage whistleblowers in the world of secret financial transactions - an area where wrongdoers are rarely held accountable and the public desperately needs more whistleblowers and more transparency. The Treasury Department ought to heed Grassley's advice because the Dodd-Frank reforms should be more than a cosmetic fix and should be used to encourage not entrap whistleblowers.