ZURICH, SWITZERLAND – Bradley Birkenfeld, released on good behaviour from a US prison 1 August (the Swiss national holiday) after 2.5 years of his 40-month sentence for failing to disclose his part in tax fraud (conspiracy to defraud) crimes, has been awarded $104 million for blowing the whistle on US clients of bank UBS.
Birkenfeld’s award was announced by the US National Whistleblower Center Tuesday 11 September.
The US Justice Department has not announced it, nor has the IRS Whistleblower programme.
The variable cost of defrauding
The DOJ does include a stern warning to would-be fraudsters Tuesday in announcing, in an unrelated case, that a former US Airways pilot has been sentenced to 10 years in prison and told to settle a little over half a million dollars in unpaid taxes:
“Those who flout the tax laws by filing fraudulent tax returns, hiding assets, and obstructing the IRS risk criminal prosecution resulting in conviction and imprisonment, as well as being required to pay the taxes owed, with interest and penalties,” said Kathryn Keneally, Assistant Attorney General of the Justice Department’s Tax Division.
Another whistleblower-protection group, the Government Accountability Project (ed. note: it is not a government agency, but a private non-profit operation in the US), in celebrating Birkenfeld’s award, the largst-ever under the IRS Whistleblower programme, calls Birkenfeld’s “an unusually harsh sentence” and credits him with “shattering Swiss banking secrecy”.
Birkenfeld’s role exaggerated, with other factors influencing Americans to disclose offshore accounts
The Whistleblower Center provided the former UBS manager with lawyers and has been arguing for monetary compensation for his role in providing the IRS with information that ultimately forced UBS to hand over data on 4,700 clients under a US-Swiss treaty drawn up in 2009. Birkenfeld has claimed the number is far higher, 19,000.
The centre’s “sister” legal organization incorrectly gives him credit for bringing $5 billion into the IRS coffers, in addition to gently inflating numbers provided by the IRS, information repeated by a number of US media Tuesday. The $5b figure is the amount some 33,000 Americans with offshore accounts have voluntarily announced to the IRS, according to the tax agency’s own press release earlier this year.
The IRS 2011 Offshore Voluntry Disclosure Act and two others, under which most of the money has come in, have nothing to do with Birkenfeld. While his whistleblowing and the US-Swiss treaty in 2009 may have encouraged many offshore account holders to come forward, other factors have played a role, such as the US clamping down on declarations of assets abroad under 2002 FBAR anti-terrorist legislation.
The $5 billion figure also includes back taxes owed by some Americans abroad, whose accounts are not offshore but in their place of residence. The complexity of the US tax system and double taxation requirements by the US, the only major country in the world with to demand this, are frequently cited by Americans outside the country for not filing US tax forms in a timely manner.
Reuters reported in June 2012:
“There are between 5 million and 6 million Americans living abroad. The FBAR (Report of Foreign Bank and Financial Accounts) form is required of any U.S. person who has a financial interest or signature authority over foreign financial accounts whose value topped $10,000 at any time during the calendar year. The forms are complicated, and compliance was so low, that the government started a crackdown in 2009.”
Next: a presidential pardon, please
Birkenfeld is also seeking a presidential pardon from US President Barack Obama.
Birkenfeld may be benefiting from a clause in the US False Claims Act that provides for a reward of up to 30 percent of what the government can recuperate thanks to his information. Potentially this is worth millions to him. According to his lawyer, Dean Zerbe, Birkenfeld is entitled to a part of the $780 million settlement that UBS paid the IRS in February 2009, as well as the money previously hidden offshore by wealthy Americans and being declared to the IRS since UBS was forced to reveal names of clients to the US tax authority.
It is unclear what the tax situation is for earnings from whistleblower reward monies.