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Whistleblower payoff


Birkenfeld reward may tempt other bankers




UBS whistleblower Bradley Birkenfeld was released from US prison last month. (Keystone)

UBS whistleblower Bradley Birkenfeld was released from US prison last month.

(Keystone)

The record $104 million (SFr97.6 million) given by the United States to a whistleblower in a tax fraud case against the Swiss bank UBS is another defeat for Switzerland and may entice other bankers to follow suit, the Swiss papers agree.

Whistleblower Bradley Birkenfeld is credited with exposing widespread tax evasion at Swiss bank UBS. Birkenfeld served two-and-a-half years in prison for a fraud conspiracy conviction related to the case, which resulted in a $780 million fine against the bank and an unprecedented agreement requiring UBS to turn over thousands of names of suspected American tax dodgers to the Internal Revenue Service.

On Tuesday many Swiss papers led with stories about the size of Birkenfeld’s reward and its potential impact for Switzerland.

“Rich picking for a thief,” headlined the Basler Zeitung.

“Bradley Birkenfeld hits the jackpot in the United States,” said the French-speaking 24Heures newspaper.

The Blick tabloid newspaper said the case was not contradictory but showed “it’s possible to be both a perpetrator and a witness. More importantly, it proves how ruthlessly US officials are pursuing tax evaders and how determined they are to dry up tax havens.”

Zurich’s Tages-Anzeiger went further describing it as a “seductive offer for bankers”.

“This enormous reward show how the US are raising the stakes in their tax fight with Switzerland…in promising such high compensation the IRS are hoping that more incriminating material is handed over,” Zurich’s Tages-Anzeiger wrote.

The French-speaking daily Le Temps agreed that Birkenfeld’s huge reward could encourage other bank employees to follow his example.

“Those Swiss bank employees whose names were handed over to the US authorities by their banks now know how generous the US tax services can be to those who help them hunt tax cheats,” it wrote.

Whistleblowing habits “may be changing”

Eleven Swiss banks are currently under investigation by US authorities looking into allegations the banks helped Americans evade taxes.

Some 10,000 files have been relayed to the US Department of Justice containing written correspondence and notes of telephone calls made between bank staff and US clients. Some of this data has been used to identify specific bank staff.
 
Swiss bank employees, fearful of how the decision to hand over data could affect them, have begun legal proceedings against banks and the government.

Whistleblowing is not part of Swiss culture, Le Temps declared, but the bad feeling among the bank employees affected is such that habits “may be changing”.

The French-speaking daily said the reward was clearly another a defeat for the Swiss banking industry.

“It weakens the already uncomfortable position of the eleven banks that are trying to escape the clutches of the US justice and tax authorities…and limit the fine that they will inevitably have to pay,” it declared.

Tide turns for transparency

After several affairs involving CDs of stolen bank data bought by Germany, the nine-figure reward shows to what extent “tax transparency is not an option but a necessity for the entire finance industry”.

“Birkenfeld was a blessing for the Swiss financial industry,” the Blick commented. “He only sped up what was to come anyway – a transition from “dirty” to “clean” money. Bank secrecy has run its course for tax evaders, but it is worthy of protection for an open society that wishes to provide financial privacy for honest customers.”

Tages-Anzeiger concluded that the move to grant such huge compensation was “completely in line with the Obama administration’s strategy against international tax evasion and its use of Switzerland in its election campaign as an example of a dubious tax location”.

“If Obama is re-elected the Swiss government should brace itself for the US to become even less open to compromise,” it declared.

The Basler Zeitung was more critical: “Clearly Switzerland is being made to understand that the tried-and-tested practice of investigations, threats and blackmail will continue like before.”

The paper advised the government to break off ongoing tax discussions with the US and “at the worst allow things to develop into a confrontation. Maybe then the US justice or foreign ministries will bring the IRS to terms.”

The NZZ newspaper was equally critical of what it saw as “absurd methods” to track tax dodgers whereby a "crook out for revenge steals vast amounts of protected data for money" and is finally rewarded with $104 million as a hero.

The state thus turns into a “receiver of stolen goods and incites its citizens into illegal activities and betrayal” and in so doing “the rule of law and above all morals” are left on the sidelines, it concluded.

The American Reaction

American politicians and legal experts generally reacted to the news of Birkenfeld's massive reward with praise and encouraged further such payouts in the future.

Charles E. Grassley, a US Republican senator from the state of Iowa who helped write the strict whistleblower law that allowed for Birkenfeld's reward from the American Internal Revenue Service (IRS), said more quick action was necessary in future whistleblower cases.

"If the IRS is serious about encouraging future whistleblowers, it needs to continue to honor the spirit and the intent of the law and issue awards in a timely manner,” Grassley said in a statement.

Michael A. Sullivan, a former federal prosecutor who has represented whistleblowers under the IRS law, told the New York Times that “It heartens those who deal with whistle-blowers daily to see the IRS simply follow the law and reward a whistle-blower who meets the law’s requirements.” 

Birkenfeld and UBS

Bradley Birkenfeld was recruited by UBS in 2001 and resigned in 2005 amid concerns about the legality of some of the bank’s activities with certain American accounts and transactions.

He blew the whistle in 2005 and alerted US authorities about the bank’s efforts to allegedly help wealthy Americans hide assets from US tax collectors.

His actions resulted in American justice authorities fining UBS $780 million and forcing the bank to hand over the names of 4,450 wealthy American clients to the Internal Revenue Service, a ruling that conflicts with Switzerland’s tradition of banking secrecy.

After a lengthy debate, Swiss parliamentarians voted to follow through with the agreement, and most of the names were transferred to the US government in 2010. A few hundred of the clients named appealed the action in Swiss courts on the grounds of a breach of banking secrecy.

In 2009 Birkenfeld was sentenced to jail for not cooperating enough with investigators looking into the case of American UBS client Igor Olenicoff, a real estate developer who filed tax returns that failed to declare his offshore accounts. 

Birkenfeld asked President Barack Obama for a pardon in April 2010. He did not receive it but was released from prison last month.

US tax fraud investigators have said Birkenfeld’s information has been crucial to mounting their case.

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