For over 50 years, Bloomberg Tax’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...
Bradley Birkenfeld, the former UBS banker turned well-known whistle-blower, isn’t afraid of causing a stir.
He is known for blowing open a massive tax evasion scheme at UBS Group AG in 2007, which led to a $780 million fine, a cascade of tax treaties and information about previously secretive banking practices, and reforms in the industry. But despite earning an eye-popping reward, Birkenfeld spent nearly three years in prison for his role—and says a massive overhaul of the government’s whistle-blower program is needed to protect others who decide to come forward.
Birkenfeld, who recently published “Lucifer’s Banker,” said a German publisher is considering releasing for the first time the names of thousands of UBS clients implicated in the scheme in the German version of his tell-all book. Birkenfeld received a $104 million reward for his disclosure, the largest ever from the Internal Revenue Service.
“The truth is my defense,” he told Bloomberg BNA. “If they want to hire high-priced lawyers in New York and Beverly Hills, be my guest. I love to go to court with people—I love it. When I’m right, I know I’m right. I’m a whistle-blower, I don’t have to lie.”
Birkenfeld began working at UBS in 2001, where his main goal was to lure high-wealth clients to Switzerland to open accounts shielded under bank secrecy laws. UBS bankers were taught to help clients avoid IRS scrutiny, but in 2005 Birkenfeld learned that the bank’s procedures were illegal. He resigned in October 2005 after reading an internal document listing the prohibited behavior, and complained to UBS officials before taking his claims to the Department of Justice in 2007.
The U.S. government indicted Birkenfeld in April 2008 for conspiracy to defraud the government through his attempts to obstruct the IRS from collecting income taxes due. The IRS is barred from commenting on individual taxpayers.
As the only whistle-blower to spend time in jail for his disclosure, Birkenfeld says not only that the Department of Justice botched his case, but that he wants to see broader overhauls of the entire whistle-blower system. The problem, he said, is officials who are “just looking to make a name for themselves” rather than protecting those who come forward.
Birkenfeld “was afforded due process of law and sentenced by a federal district court after full consideration of all relevant facts and circumstances, including his admission that he advised wealthy UBS clients on how to conceal their assets from the U.S. government,” the DOJ said in a statement to Bloomberg BNA. Since 2008, the DOJ has charged more than 65 individuals with UBS accounts and nearly 50 facilitators, including 13 with connections to UBS and other banks.
Kevin Downing, a senior prosecutor in the DOJ Tax Division when Birkenfeld first brought his case, didn’t return requests for comment. Downing is now a member at Miller and Chevalier Chartered in Washington.
Eileen J. O’Connor, the assistant attorney general at the DOJ from 2001 to 2007, declined a request for comment. She is now in private practice in Washington. O’Connor served on President Donald Trump’s Treasury transition team.
Birkenfeld’s book rehashes old allegations and doesn’t represent the current state of play in Swiss banking, UBS spokesman Peter Stack told Bloomberg BNA in a March 30 statement. “UBS resolved the US cross-border issue in autumn 2010. The industry has changed dramatically since that time, with radically improved processes for tax compliance, reporting and transparency,” he said.
Stack also said Birkenfeld’s “continuing efforts to publicize his book and his often unsubstantiated recollections only benefit Mr. Birkenfeld, who has been convicted in the US for, among other things, having lied to the US authorities.” [Note: Mr. Birkenfeld was convicted of one count of conspiracy to defraud the United States.]
Sending Birkenfeld to prison shows how the DOJ didn’t understand how to properly respond to whistle-blower disclosures—a blind spot that has since improved, said Dean Zerbe, a partner at Zerbe, Fingeret, Frank and Jadav and one of Birkenfeld’s attorneys.
“Birkenfeld was a very sobering moment for everyone involved,” he said.
But Igor Olenicoff, a billionaire and real estate magnate who was one of Birkenfeld’s clients at UBS, said he feels differently. In 2001, Birkenfeld convinced Olenicoff to move his money offshore to UBS. Olenicoff pleaded guilty in 2007 to filing a false tax return and paid $52 million in back taxes, interest and penalties, and would eventually sue Birkenfeld.
Birkenfeld shouldn’t be seen as a whistle-blower, but rather as an opportunist who came forward after Olenicoff was already in talks with the DOJ and the IRS, he said. “He was at the right place at the right time,” Olenicoff said.
Olenicoff lost his suit against Birkenfeld in April 2012 when the U.S. District Court for the Central District of California dismissed the case and awarded Birkenfeld costs for the dispute.
Birkenfeld said his decisions to help whistle-blowers now, and to come forward in the first place, center around his desire to tell the truth—not hopes for a reward.
Birkenfeld—who dreams of moving to Bavaria, Germany—has been living abroad for most of his adult life. Now, he is offering pro bono guidance to governments in countries including Norway, France, Germany and Greece to “help them understand the concept behind protecting and then compensating the whistle-blower,” he said.
“I think it’s important for people to understand that they’re trying to help society, not hurt it, and the bad guys are trying to adversely affect them—that’s the problem,” he said.
While governments should embrace whistle-blowers, the whistle-blowers themselves shouldn’t rush into reporting, Birkenfeld said. Instead, future whistle-blowers should come to him first for guidance—and possibly monetary or legal assistance—at a company he is in the process of creating.
Several former whistle-blowers told Bloomberg BNA that Birkenfeld’s story resonated with them, and is a sign that change is needed.
“Whistle-blowers have to stick together because we have unique perspective on how to confront government abuses, and lesson No. 1 is don’t then entrust your complaints to the government,” said John Kiriakou, an associate fellow with the Institute for Policy Studies.
Kiriakou was the first government official to confirm in 2007 that waterboarding had been used on Al Qaeda prisoners while he was an analyst at the CIA. He pleaded guilty in 2012 to disclosing classified information and was sentenced to 30 months in prison.
For some whistle-blowers, Birkenfeld has done more than just offer advice. After Robert J. MacLean, a former air marshal, revealed a policy in the Transportation Security Administration that he thought reduced aviation security, he had to go on welfare and was nearly evicted from his apartment. But Birkenfeld sent him “a very sizable gift” to help pay his bills, MacLean said.
Birkenfeld’s experience can help other whistle-blowers avoid pitfalls, because he “personifies the contradictions” in the whistle-blower system, said Tom Devine, legal director at the Government Accountability Project, an organization focused on protecting whistle-blowers.
With assistance from Aaron E. Lorenzo.
To contact the editor responsible for this story: Meg Shreve at email@example.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)