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12 October, 2012

On Bradley Birkenfeld’s $104 Million Whistleblower Award

October 12, 2012 by Dan Reeves

I first met Bradley Birkenfeld on October 12, 2007.  By law, the only thing I can say about that meeting and what followed is what has been included in the declarations I filed in federal court in support of the IRS petition seeking permission to issue a John Doe summons to UBS AG of Switzerland and the subsequent petition seeking a court order to enforce the summons.

Since that day, much has changed in the world of offshore financial secrecy and Swiss bank secrecy in particular.  What was once thought of as an impenetrable wall of financial secrecy has been pierced and is now quickly beginning to crumble under it’s own weight like a ruptured dam.  The parallel investigations of UBS conducted by IRS and the Department of Justice culminated with UBS entering into a deferred prosecution agreement on charges of conspiring to defraud the United States, paying a $780 million fine, agreeing to exit the business of providing cross-border banking services to U.S. clients with undeclared accounts and turning over the identities and account records of nearly 5,000 high wealth U.S. clients.

Since then, IRS and the Department of Justice have expanded their investigations into the offshore tax evasion industry to include a number of other offshore banks and financial service providers.  John Doe summonses have been issued to HSBC and the Stanford Financial Group for their records of U.S. persons with secret offshore bank accounts and criminal charges have been filed by the Department of Justice against Wegelin Bank of Switzerland as well as numerous bankers, attorneys and financial advisors who allegedly facilitated offshore tax evasion.

IRS has conducted three offshore voluntary disclosure programs for U.S. taxpayers who want to self-disclose undeclared offshore bank accounts and agree to pay significant penalties in exchange for avoiding criminal prosecution.  To date, more than 33,000 persons have filed disclosures and the IRS has collected more than $5 billion in back taxes and penalties with still more expected.  Possibly even more importantly, these 33,000 taxpayers are now back in the system and will be paying their taxes for years to come.

Recently, I watched the news conference conducted by Mr. Birkenfeld’s attorneys and read many of the news reports and commentaries announcing that IRS had awarded him $104 million for his cooperation and the information he provided.   How the size of the award was determined was not disclosed, but there can be no denying that the amount is huge and unprecedented.  Some questioned how the IRS could award Mr. Birkenfeld so much money when he admitted in court that he was a part of the conspiracy himself.  After all, in 2008 Mr. Birkenfeld pleaded guilty to a criminal charge of conspiracy to defraud the United States in connection with a secret UBS account he managed for one of his U.S. clients and was sentenced to 40 months in prison.   Of course, one has to wonder who they think would be able to provide specific details about a conspiracy cloaked in secrecy other than someone on the inside.

Mr. Birkenfeld’s lawyers released a summary of the award provided by the IRS that said, “The comprehensive information provided by the whistleblower was exceptional in both its breadth and depth.”  The summary went on to state, “While the IRS was aware of tax compliance issues related to secret bank accounts in Switzerland and elsewhere, the information provided by the whistleblower formed the basis for unprecedented actions against UBS AG, with collateral impact on other enforcement activities and a continuing impact on future compliance by UBS AG.”

So does Mr. Birkenfeld deserve the award of $104 million … in my humble opinion … every penny.  While it would significantly stretch credulity to claim that he is personally responsible for all the progress that has been made in addressing offshore tax evasion and that every penny of “offshore” tax that has come into the U.S. Treasury since that October day in 2007 is because of him, there can be no denying that he set into motion a series of events that brought clarity to the size and scope of the offshore tax evasion problem, refocused the efforts of the government to address it and dramatically changed the landscape of offshore financial secrecy forever.  In addition, he has accepted responsibility for his own involvement, served his sentence while earning an early release for good conduct and is now moving on with his life.

As a private citizen of the United States who pays his taxes, I thank him for coming forward, thank him for the information he provided, congratulate him on his unprecedented award and wish him and his family well.

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