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UBS whistleblower Bradley Birkenfeld voluntarily came forward as a whistleblower and handed the government the biggest tax fraud scandal in history on a silver platter. As I wrote yesterday, it is fitting that the most important tax whistleblower in history, who shattered 75 years of Swiss bank secrecy, should receive the first award under the Internal Revenue Services (IRS) whistleblower reward program - $104 million.

It's great that at the U.S. has recovered billions in fines and fees as a result of Birkenfeld's information. However, the history of Birkenfeld's case still includes a sad demonstration in missed opportunities to recoup unpaid taxes and punish tax dodgers.

Birkenfeld is the only official to face jail time as a result of the scandal he revealed - not the fate a whistleblower deserves. The IRS whistleblower reward law recognizes that participants in wrongdoing are eligible under the statute for an award. The law is intended to encourage whistleblowers - even those who participated in schemes - to come forward. It should not be used to entrap whistleblowers into criminal prosecutions.    

It's worth noting that Birkenfeld did not "get caught." He blew the whistle internally at UBS before going to government investigators.

[Birkenfeld] . . . learned in 2005 that the bank’s advice to clients was illegal, and after reporting it to the UBS compliance office to no avail, he decided to become a government informant.
When UBS ignored his concerns, Birkenfeld voluntarily gave the Treasury, Justice Department, IRS, SEC and Senate their entire tax evasion case against UBS.  During multiple meetings in 2007, Birkenfeld met with and provided extensive documentation and intricate testimony to Daniel Reeves (a lead IRS agent in the UBS case), John McDougal (an IRS special trial attorney) and Robert Roach (counsel and chief investigator of the U.S. Senate Permanent Subcommittee on Investigations).  He cooperated fully in the prosecution of Lichtenstein banker Mario Staggl and billionaire real estate developer Igor Olenicoff, who evaded U.S. taxes on $200 million in assets hidden offshore.

Here is where UBS kingpin, Martin Liechti, who knows where all the bodies are buried, testified before the Senate, took the Fifth, and got released back to Switzerland, where he is living large.  Three months later, the government indicted Raoul Weil, who ran UBS’ wealth-management business, in a show maneuver, knowing it could not extradite him.  Staggl returned to Lichtenstein where he lives life as normal.  Olenicoff pleaded guilty to filing a tax return, paid $52 million, and walked.  The U.S. settled possible criminal charges against UBS by allowing UBS to pay a $780 million fine and provide information on a couple hundred account-holders (out of more than 50,000) whose names were discovered in the investigation.  The government then filed a civil lawsuit seeking the names of all U.S. citizens and residents with secret UBS accounts, vowing to settle for nothing less than full disclosure. And it prosecuted Brad Birkenfeld.

Despite U.S officials’ insistence that they were going to trial in the civil suit against UBS, the U.S. government settled the case in exchange for the names of about 5,000 U.S. account-holders (a mere fraction of those sought).  The Justice Department let some 45,000 American tax dodgers off the hook.

Next, while over 35,000 taxpayers participated in an "amnesty" program, which the Justice Department set up, to voluntarily repatriate their illegal offshore accounts, Birkenfeld received no such amnesty. And the amnesty program, as much money as it brought in, left many high-level offshore account holders completely unaccountable.  

The government missed a huge opportunity to go after the big fish from the minute Birkenfeld brought them the biggest tax evasion scandal in history. Instead, UBS and many of the biggest tax dodgers got off easy compared to the financial ruin in the rest of the country - and compared to the prison time Birkenfeld had to serve.

The IRS award to Birkenfeld sends an encouraging message to potential financial whistleblowers, and the rest of the government should follow suit by aggressively prosecuting tax dodgers and the bankers that assist them.

Originally posted to Jesselyn Radack on Wed Sep 12, 2012 at 06:25 AM PDT.

Also republished by Whistleblowers Round Table.

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