By Walter Hamilton and Stuart Pfeifer
12:11 PM PDT, September 11, 2012
It pays to rat out your tax-dodging clients.
A former banker who helped wealthy Americans illegally evade taxes, and later confessed his transgressions and cooperated with the government, has been awarded $104 million in what appears to be the largest-ever whistleblower case.
Bradley Birkenfeld, a globe-trotting financier at Swiss banking giant UBS, helped rich Americans set up phony companies to conceal secret Swiss bank accounts. He gave them credit cards to access their hidden cash. He once converted a U.S. client's money into diamonds, then smuggled the gems across the Atlantic in a toothpaste tube.
Birkenfeld eventually changed his stripes, and gave the IRS detailed information about the inner workings of an extensive effort by UBS to lure Americans who were seeking to avoid taxes.
In 2007, he told the Justice Department something that it had suspected for years: UBS' private bank in Switzerland had helped Americans hide billions of dollars from the IRS. All told, prosecutors would later allege, UBS' private bank had $20 billion in deposits from U.S. clients.
“The comprehensive information provided by the whistleblower was exceptional in both its breadth and depth,” the IRS said in a whistleblower award document made public by Birkenfeld’s lawyers.
The bank’s extensive tax-avoidance program began unwinding in 2007 and the IRS eventually conducted an amnesty program in which several thousand Americans voluntarily disclosed their overseas accounts. To avoid prosecution, UBS paid a $780-million fine and agreed to disclose the names of 4,450 U.S. clients.
But the case also underscored the gray areas that often are inherent in whistleblower cases.
Birkenfeld himself pleaded guilty to conspiracy related to the case in 2008 and went to a federal prison in January 2010. His sentence was reduced for good behavior and he was released last month.
“The IRS today sent 104 million messages to whistleblowers around the world -- that there is now a safe and secure way to report tax fraud and that the IRS is now paying awards," his lawyers, Stephen M. Kohn and Dean A. Zerbe, said in a statement. “The IRS also sent 104 million messages to banks around the world -- stop enabling tax cheats or you will get caught.”
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