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Brad Birkenfeld is an American banker who formerly worked for UBS, Switzerland's largest bank.

He is the first person ever to expose what has become a multi-billion dollar international tax fraud scandal over Swiss private banking. Despite his unprecedented, extensive and voluntary cooperation, and registering as an IRS whistleblower, Birkenfeld is the only U.S. citizen to be sentenced to jail.

Background

In October 2001, Birkenfeld began working at UBS in Geneva, Switzerland, handling private banking, primarily for clients located in the United States. In 2005, he learned that UBS's secret dealings with American customers violated an agreement the bank had reached with the IRS.

He resigned from UBS in October 2005 and provided written whistleblower complaints to Peter Kurer, Head Counsel for UBS, and other UBS senior executives regarding the illegal practices of U.S. cross-border business. When UBS's internal investigation found no irregularities, Birkenfeld went to the United States and registered as an IRS whistleblower in June 2007 to expose this international scandal to the authorities. The Justice Department later found that UBS's internal probe into Birkenfeld's allegations that bank managers were encouraging breaches of UBS's own written policies did not examine or follow up on available evidence.

Over the next three years, Birkenfeld voluntarily undertook affirmative actions to initiate contact with and to provide sensitive, detailed information about the misconduct to the U.S. Internal Revenue Service (IRS), Securities and Exchange Commission (SEC), and to the Department of Justice (DOJ), and U.S. Senate.

Results

In February 2009 -- following the issuance of a "John Doe" summons that was based in significant part upon the information that Birkenfeld provided to the IRS in June 2007 -- UBS entered into an historic Deferred Prosecution Agreement with the Government to avoid indictment on criminal charges of aiding tax evasion. The Agreement entailed UBS paying $780 million in fines and turning over the names of about 250 clients.

All the major players, including the UBS senior executive in charge of offshore business in the United States, have paid fines, been put on probation, or been set free. In fact, Martin Liechti, the kingpin of the the illegal offshore operation, was detained for 4 months by U.S. authorities, invoked the Fifth Amendment in front of the U.S. Senate in July 2008, and was released back to Switzerland in August 2008, never to be charged.

Birkenfeld's plea and sentencing

Although on at least one occasion Justice Department officials told Birkenfeld they were not looking to prosecute him, they arrested him in 2008 and he promptly pleaded guilty to a single fraud conspiracy count.

Birkenfeld's sentencing was originally set for August 15, 2008, but was delayed four times as the Justice Department, citing his cooperation in the UBS investigation, repeatedly asked for more time. This is belied by the fact that June 10, 2008 is the last time the Justice Department asked Birkenfeld for any information regarding UBS, Swiss private banking, or his former U.S. clients.

On August 21, 2009, he was sentenced to 40 months in jail (ratcheted up from the 30-month prison term prosecutors sought).

Although he had already been under house arrest for a year and a half (none of which counted towards his sentence), the Justice Department said that it intended to continue using Birkenfeld in conducting investigations, deferring the sentence until January 8, 2010. Accordingly, Birkenfeld reached out to the Justice Department multiple times, which has indicated no interest in speaking with him and has failed to ask him a single question during this time.

"Whistleblower" status

Birkenfeld initially came forward in 2005 under UBS's policy on "Whistleblowing Protection for Employees." When he went to the U.S. government in 2007, he registered with the IRS's Whistleblower Reward Program, but Justice Department tax prosecutor Kevin Downing told him that it "does not, in any way, participate in the Program. The Program is exclusively within the jurisdiction and control of the Internal Revenue Service."

At a March 4, 2009 Hearing before the Permanent Subcommittee on Investigations of the Senate Committee on Homeland Security and Governmental Affairs, Senator Claire McCaskill asked, "Was there a whistleblower in this case?" IRS Commissioner Doug Shulman deferred the question to John DiCicco, a senior trial attorney in the Justice Department's Tax Division, who answered, "Mr. Birkenfeld...."

Six months later, DiCicco told TIME magazine, "With regard to whistleblowers: those who seek to be treated as true whistleblowers need to know they must come in early and give complete and truthful disclosures.... Mr. Birkenfeld did not come in and give complete and truthful disclosures. Therefore, he is not entitled to whistleblower status."

Chilling Whistleblowers and Prosecutorial Misconduct

On October 22, 2009, whistleblower advocacy groups sent a letter to U.S. Attorney General Eric Holder, urging him to conduct an independent review of Birkenfeld's case because of the chilling effect it is having on potential financial whistleblowers.

On December 7, 2009, Birkenfeld's attorneys sent a letter to Holder detailing alleged misleading statements by the prosecutor, which were the most prejudicial to Birkenfeld's harsh sentence, and filed a motion with the judge regarding the same. The judge denied the motion on January 4, 2010 without hearing.

Tax Analysts' "Person of the Year"

Attorney Dean Zerbe, who helped write the 2006 IRS whistleblower law when he served as tax counsel to the Senate Finance Committee, called Birkenfeld "the most important tax whistleblower ever."

On January 1, 2010, Tax Analysts, a non-profit which encourages transparency in tax laws, named Birkenfeld "Person of the Year." On January 3, 2010, Birkenfeld's case was the lead story on the 2010 inaugural episode of 60 Minutes.

References

1. Swiss, U.S. May Have Deal on Banks, The Washington Post, 1 August 2009
2. UBS on Trial: The End of Secret Banking?, Business Week, 10 July 2009
3. UBS Whistleblower Gets Rewarded with Prison Time, Bloomberg, 26 August 2009
4. One Man Puts a Dent in Tax Evasions, L.A. Times, 26 October 2009
5. Justice Dept. Chastises UBS Chairman Over IRS Fraud Probe, Investment News, 3 March 2009
6. UBS Strikes Deal with US Over Tax, UK Telegraph, 3 August 2009
7. Why is the UBS Whistleblower Headed to Prison?, TIME Magazine, 6 October 2009
8. Prosecution of UBS Informant Seen Backfiring on U.S., Reuters, 9 October 2009
9. The White House and the Justice Department: Different Approaches to UBS, Harpers, 24 August 2009
10. "Why is the UBS Whistleblower Headed to Prison?", Time Magazine, 6 October 2009
11. Key UBS Informant Headed to Jail, Wall Street Journal, 15 October 2009
12. "Birkenfeld is Tax Analysts Person of the Year", Federal Tax Crimes, 1 January 2010

External links

• 60 Minutes profile, January 3, 2010

• Articles created via the Article Wizard
• Living people
• American whistleblowers
• Economy of Switzerland
• Tax evasion