USA: whistleblower gets $104 million

Wall Street Journal, updated September 11, 2012, 7:24 p.m. ET (part of an article)

Whistleblower Gets $104 Million
Now a Felon, Former Banker Told U.S. About Tax-Evasion Tactics by UBS and Its Wealthy Clients by Laura Saunders and Robin Seidel.
A former UBS AG banker who helped the U.S. government unleash an international crackdown on tax evasion was awarded $104 million in what is believed to be the largest-ever whistleblower payout to an individual.

Bradley Birkenfeld, 47 years old, began cooperating with U.S. authorities in 2007, while still at UBS. He provided prosecutors with detailed descriptions of the bank’s efforts to promote tax evasion and confessed to running errands for rich clients, including one instance when he sneaked diamonds into the U.S. in a toothpaste tube.

The case lifted the veil of Swiss bank secrecy that for decades had allowed wealthy people world-wide to evade taxes. UBS in 2009 agreed to turn over the names of more than 4,000 account holders who were U.S. taxpayers and pay $780 million to resolve a criminal case involving secret offshore accounts. Since then, more than 33,000 U.S. taxpayers have confessed to holding undeclared overseas accounts and paid more than $5 billion in taxes and penalties. Mr. Birkenfeld also was implicated. He pleaded guilty in 2008 to one count of conspiracy to defraud the U.S., a felony, and was given a 40-month sentence. He currently is in New Hampshire finishing his sentence in home confinement.

Under a 2006 law, the Internal Revenue Service can pay whistleblower awards of up to 30% of the collected proceeds. The massive award, paid out last week to a felon still serving time, shows the lengths the agency now is willing to go to collect unpaid taxes, experts said. “If Brad Birkenfeld can get an award, then many company insiders will have no problem getting one,” said Scott Knott, an attorney in Washington who specializes in tax whistleblower lawsuits. The law doesn’t preclude paying money to convicted felons, as long as they didn’t plan or initiate the evasion. “The IRS encourages courageous actions,” said Sen. Charles Grassley (R., Iowa), who sponsored the law. “An award of $104 million is obviously a great deal of money, but billions of dollars in taxes owed will be collected that otherwise would not have been paid as a result of the whistleblower information.” Mr. Birkenfeld’s lawyers acknowledged their client wasn’t above reproach. “As Brad has shown, encouraging knowledgeable insiders to stick their necks out is often the only way we can ever find out about tax cheating by the fat cats,” said his lawyer, Dean Zerbe, in a news conference.

The award was paid out last week. Mr. Zerbe said Tuesday that corrections officials wouldn’t let Mr. Birkenfeld comment. The IRS doesn’t announce whistleblower awards, but an agency spokesman confirmed the payment, adding that Mr. Birkenfeld signed a disclosure waiver. Experts who track whistleblowers said Mr. Birkenfeld’s payment is the largest ever. The award could also persuade other whistleblowers to come forward under a broader corporate whistleblower rule revised in 2009 and 2010. There already have been large payments made under that statute. In 2010 the U.S. government paid $96 million to Cheryl Eckard, a former quality-assurance manager at GlaxoSmithKline who helped the government win a guilty plea and a $750 million payment from the drug company to settle an investigation of manufacturing deficiencies.

The global crackdown on tax evasion isn’t yet over. Earlier this year, Switzerland’s oldest bank, Wegelin AG, ceased doing business under that name after the U.S. indicted the bank and several of its employees. In July, German authorities raided the homes of clients who were suspected of evading taxes. That case centers on about 5,000 clients who might have bought insurance policies at a unit of the Swiss bank as a way to earn tax-free interest on savings.

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A version of this article appeared September 12, 2012, on page C1 in the U.S. edition of The Wall Street Journal, with the headline: Whistleblower Gets $104 Million.

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