Government Lies, Corruption and Mismanagement
Bradley C. Birkenfeld Goes To Prison After Blowing The Whistle On UBS, Switzerland's Largest Bank
In March 2006, an American employee of UBS, Switzerland's largest bank, sent a confidential letter to a top executive. "I wish to invoke my rights listed under the UBS Whistleblowing Protection for Employees" policy, he wrote. With that, Bradley C. Birkenfeld fired the first shot in the historic and devastating assault on Swiss bank secrecy that reached a new milestone Wednesday. Under a legal settlement signed in Washington, Switzerland is expected to turn over the names of thousands of Americans who used secret accounts to dodge taxes, U.S. officials said.
UBS Whistleblower Gets Rewarded With Prison Time: Ann Woolner
Commentary by Ann Woolner, Bloomberg.net
Aug. 26 (Bloomberg) -- If he had kept his mouth shut and his head low, Bradley Birkenfeld would be a free man today. He didn’t, so now the former UBS AG banker wears an electronic bracelet on his ankle and, beginning in January, will spend three years and four months in a federal penitentiary.
He’s headed for prison even though he blew the whistle on a multibillion-dollar international tax fraud conspiracy. Birkenfeld’s information let the U.S. pierce Swiss bank secrecy laws as never before possible.
“We will be receiving an unprecedented amount of information on taxpayers who have evaded their tax obligation by hiding money offshore at UBS,” Internal Revenue Service Commissioner Doug Shulman said in a statement last week.
Because of Birkenfeld, the feds are now going after hundreds, possibly thousands, of tax evaders. They have collected a $780 million fine from UBS and forced the bank’s cooperation in finding previously secret customers.
The list of those so far charged in the scheme numbers nine, led by Raoul Weil, the former chief executive officer of global wealth management for UBS.
So why is the man who blew the whistle on a mammoth tax fraud facing prison time? The feds will tell you it’s because he played a role in the conspiracy, a fact he failed to mention when he first stepped forward.
So far he has gotten rougher treatment than those who were content to hide in the shadows. Birkenfeld’s biggest ex- customer, California billionaire Igor Olenicoff, got only probation (and only two years of that!) for hiding as much as $200 million from the IRS. He also paid the government $52 million in back taxes, interest and penalties, thanks to Birkenfeld.
Return to Switzerland
Birkenfeld’s ex-boss, who ran the global tax-fraud business, made out even better than Olenicoff. Held as a material witness for some months in 2008, Martin Liechti pleaded the Fifth Amendment when called before Congress and was allowed to return to Switzerland, a free man, charged with no crime.
Birkenfeld got slammed because, for all the good he did, he didn’t tell on himself. So prosecutors sought a 30-month prison term for him, and a federal judge in Fort Lauderdale, Florida, ratcheted it up to 40 months at sentencing last week.
U.S. District Judge William Zloch offered no explanation why he rejected the defense plea for home detention and bumped up even the prosecution’s recommendation for prison time. But Zloch clearly considers Birkenfeld a bad guy.
“You’re not going to have boy scouts in the room” when illegal activity is planned, says Dean Zerbe, special counsel to the National Whistleblowers Center.
“In the pantheon of tax crimes, he’s subject to a charge of jaywalking, and he’s brought in people charged with grand larceny,” Zerbe says.
Home confinement and a long probation would have been plenty under the circumstances. What you don’t want is to scare off other insiders considering blowing the whistle.
If you’re looking to ferret out waste, fraud and abuse, that notorious trio of government parasites, there is nothing like an insider.
That is why Congress has for years passed laws encouraging whistleblowers by offering job protection to government employees and a cut of any funds recovered because of their informing.
The Birkenfeld sentence stands as an insult to any claim that the government wants whistleblowers to step up. Fear of retaliation and career suicide make it hard enough to rat on your boss. Now you can add the possibility of prison time as payment for your effort.
Birkenfeld joined UBS as a Geneva-based private banker in 2001. Four years later he spotted an internal legal document that barred some of the very practices that UBS was using. It looked like the bank’s recruitment of wealthy Americans wanting wealth-hiding services wasn’t entirely on the level.
So he notified his supervisors, to no avail. Then he formally took it to higher-ups within UBS’s compliance and legal offices.
When that produced no clarification, he left the bank, only to begin receiving “threatening letters reminding him” he could be prosecuted if he violated client confidentiality, his lawyers wrote in a court brief.
UBS withheld a promised bonus.
Birkenfeld went to the U.S. government in early 2007, with his lawyers seeking full immunity from prosecution for him. He didn’t get it, but he told the IRS and the Justice Department what UBS had been up to, anyway.
He spent three full days talking to agents and prosecutors, giving them documents and suggesting strategies for uncovering UBS’s gigantic tax fraud scheme.
He gave them the big picture and the details, including the names of bankers involved and clients. He handed over internal documents, e-mail and presentations.
“He gave them the keys to the kingdom,” Zerbe says.
Birkenfeld went to the Securities and Exchange Commission. And the information he gave Congress sparked an investigation there, where Zerbe was working as tax counsel at the Senate Finance Committee.
Nonetheless, believing he hadn’t been forthcoming about his own crime, prosecutors got an indictment against him in April 2008 for tax evasion conspiracy. He quickly pleaded guilty and continued cooperating with the government.
Beyond the resulting indictments of others, there were resignations, too. UBS Chairman Peter Kurer stepped down, and so did Liechti.
Finally, the Swiss government agreed to ease bank secrecy and this month struck a deal with the U.S. government to hand over thousands of names of American clients of Swiss banks.
More than Snipes
And yet, Birkenfeld’s 40-month sentence is longer than the three years actor Wesley Snipes got for failing to pay $15.6 million in taxes. And Snipes has yet to admit he did it, much less cooperate.
In fact, he berated a government employee for finding that his $4 million tax refund claim was frivolous. Nonetheless he was allowed to travel to England and Thailand for filming while his conviction is on appeal, even as Birkenfeld has a curfew and ankle bracelet to confine him.
Now the government is claiming bragging rights for forcing the Swiss government to relent, at least a bit, on secrecy for U.S. tax evaders.
Prosecutors better hope that Birkenfeld’s tips will last them a very long time. They shouldn’t expect more whistleblowers to show up any time soon.
(Ann Woolner is a Bloomberg News columnist. The opinions expressed are her own.)
To contact the writer of this column: Ann Woolner in Atlanta at email@example.com.
Last Updated: August 25, 2009 21:00 EDT
For American Who Blew Whistle, Only Reward May Be a Jail Sentence
By David S. Hilzenrath, Washington Post Staff Writer, Thursday, August 20, 2009
In March 2006, an American employee of UBS, Switzerland's largest bank, sent a confidential letter to a top executive.
"I wish to invoke my rights listed under the UBS Whistleblowing Protection for Employees" policy, he wrote.
With that, Bradley C. Birkenfeld fired the first shot in the historic and devastating assault on Swiss bank secrecy that reached a new milestone Wednesday. Under a legal settlement signed in Washington, Switzerland is expected to turn over the names of thousands of Americans who used secret accounts to dodge taxes, U.S. officials said.
Birkenfeld's tale reads like a pulp thriller, complete with the international smuggling of diamonds stashed in a toothpaste tube.
Long-running U.S. federal probes of UBS had already driven the bank to accept a $780 million settlement, admit that it helped Americans hide money from the Internal Revenue Service and, under orders from a Swiss regulator, turn over the names of 200 to 300 American depositors, many of whom are now under criminal investigation.
Now in Switzerland, where secrecy is the bedrock of a lucrative global banking industry, there are widespread fears that business will never be the same. The IRS said on Wednesday that its probe of American offshore tax dodgers will not stop with UBS.
All of that is attributable in large part to Birkenfeld, the 44-year-old son of a Massachusetts neurosurgeon, who approached U.S. authorities in 2007 and provided an extraordinary inside account of the bank's conduct, according to court papers filed Tuesday.
Birkenfeld, who pleaded guilty to a criminal charge last year for participating in UBS's illicit cross-border business, is scheduled to be sentenced Friday in Florida. Although he faces a maximum of five years in prison, the Justice Department asked the court to cut that in half in a filing Tuesday.
The jail time could be tempered by the possibility of financial reward. Under IRS regulations, people who blow the whistle on tax cheaters can be eligible for rewards of up to 30 percent of any money the IRS recoups. However, an IRS notice says the agency will refuse to pay a reward if the whistleblower "is convicted of criminal conduct arising from his or her role in planning and initiating" the tax evasion.
Birkenfeld filed a claim for a whistleblower reward with the IRS in 2007, near the outset of his discussions with federal authorities, according to Dean A. Zerbe, a former tax counsel to the Senate Finance Committee who is now affiliated with the National Whistleblowers Center and who has advised Birkenfeld informally.
Zerbe, who helped lawmakers write the whistleblower law, said Birkenfeld is clearly entitled to a reward that at a minimum would total tens of millions of dollars, including portions of the $780 million UBS agreed to pay the government and of the sums the IRS recoups from UBS depositors who turn themselves in as a result of the highly publicized UBS probe.
The U.S. government would send potential whistleblowers precisely the wrong message if it sends Birkenfeld to prison, "killing the goose that laid the golden egg," Zerbe said.
Zerbe said Birkenfeld has reason to fear for his life.
"There's a lot of very wealthy people who are very unhappy about what he did," Zerbe said.
Birkenfeld has been living with a family member since his guilty plea, his movements restricted and monitored with an ankle bracelet.
He attended Norwich Military Academy in Vermont and later studied business in Switzerland. He went on to join a team of UBS private bankers who stealthily marketed Swiss accounts to wealthy Americans, and then helped them disguise their ownership of the accounts through the use of offshore shell corporations. According to a court document, he once smuggled diamonds into the United States for a client by hiding them in a toothpaste tube.
He had an apartment in Geneva and a million-dollar home in Zermatt, Switzerland, and drove a BMW, according to court records.
In a sentencing memorandum, Birkenfeld's attorneys say that in May 2005, he saw a document on a UBS internal computer network that set him on a new course. The document misrepresented the way UBS was conducting its cross-border business.
Birkenfeld raised the issue with legal and compliance officials at the bank but got no response, according to the memorandum. In October 2005, he resigned from the bank.
In early 2006, when the bank refused to pay a bonus he was owed, he invoked whistleblower status "in response to the apparent retaliation against him," the memorandum said.
Birkenfeld wrote a March 2006 letter to a top executive saying the document on the company intranet, "which professed to outline what business practices were forbidden by UBS, ran directly contrary to the actual UBS practices which were actively encouraged by UBS senior management."
The bank investigated and changed its practices. It also settled the dispute over the bonus. But in early 2007, while the dispute was pending, Birkenfeld reached out to the IRS and the Justice Department and met with U.S. officials, according to the sentencing memorandum. In November 2007, he contacted the Securities and Exchange Commission and a Senate investigative panel, setting more investigations in motion, according to the memo.
He tried unsuccessfully to negotiate immunity from prosecution. In a court filing Tuesday, the Justice Department said that when Birkenfeld approached the government in 2007, he refused to discuss his own participation in the scheme.
In May 2008, when he flew from Switzerland to Boston, he was arrested. He was on his way to a high school reunion -- and to meetings with SEC and Senate personnel, according to the memo.
Second Florida Yachting Exec Charged In UBS Tax Shelter Probe
By Moe Tkacik - April 15, 2009, 12:07PM
Another rich client of UBS has been charged with using Swiss banking secrecy laws to evade taxes: it's Robert Moran, who failed to declare a $3.7 million account with the bank on his 2007 tax return.
Like Steven Michael Rubinstein, who earlier this month became the first UBS client charged in the investigation, Moran is a Florida yacht dealer charged with a single count of tax fraud. The Times specifies that the two are "not connected" except inasmuch as theirs were two of the 285 names the ailing Swiss bank, which today announced it would cut another 7,500 jobs after posting a $1.8 billion loss, handed over to the IRS earlier this year as part of a $780 million settlement into its tax evasion business.
Yachts were a "fertile recruiting ground" for UBS, according to Bradley Birkenfeld, the former UBS private banker whose "statement of facts" in the criminal probe of his role in the bank's tax evasion business provided the basis for much of the larger investigation. And Moran is a resident of Lighthouse Point, Florida -- also an address used by Birkenfeld's most famous client Igor Olenicoff, the billionaire real estate developer for whom Birkenfeld once laundered cash by traveling to the United States with a toothpaste tube full of diamonds. Birkenfeld's statement confesses to "numerous overt acts [of tax fraud] in Broward County," where both Rubinstein and Moran reside. Both men appear to be cooperating in the investigation.
So who boarded those fancy yachts, one of which can be chartered for the reasonable price of a million dollars a week plus expenses?
Tantalizingly, the Times reports that Moran chartered yachts for "Kuwaiti royals, Russian oligarchs and other global jet-setters" -- many of whom are presumably not subject to American tax laws. But the story is far from over. Any bank that can afford million dollar a week fees to charter yachts in which to lure prospective clients is probably hiding many more millions from the IRS. A source tells the paper:
The authorities have opened more than 100 criminal investigations of UBS clients, some of whom are notable names on Wall Street, according to a person briefed on the issue who requested anonymity while discussing criminal inquiries.
April 15, 2009
UBS Client Pleads Guilty in Tax Case
By LYNNLEY BROWNING, NY TIMES
A wealthy UBS private banking client whose yacht company caters to Russian oligarchs, Kuwaiti royals and other global jet-setters, pleaded guilty on Tuesday to tax fraud, the second American caught in a widening investigation of the Swiss banking giant.
The client, Robert Moran, 57, of Lighthouse Point, Fla., pleaded guilty in Federal District Court in Fort Lauderdale, Fla., to a single count of filing a false tax return, according to court papers.
Mr. Moran is the chief executive of Moran Yacht and Ship, one of the world’s leading players in the yachting world, which was until recently a fertile recruiting ground for wealth management clients for UBS, the world’s largest private bank. Moran Yacht and Ship, which is run out of Fort Lauderdale and Moscow, builds, charters, buys, sells and manages yachts, some costing hundreds of millions of dollars.
William B. McCarthy, a lawyer for Mr. Moran, declined Tuesday to comment on his client.
Mr. Moran was released on a $6 million bond; sentencing has been scheduled for June 26. He is the second UBS client to be swept up in the Justice Department’s crackdown. Earlier this month, federal authorities arrested another UBS client, Steven Michael Rubinstein, an accountant in Boca Raton, Fla., and charged him with filing a false and fraudulent tax return.
In court filings, prosecutors accused Mr. Moran of evading taxes on at least $3.7 million hidden in a UBS account controlled through an offshore entity he had set up in Panama.
The authorities have opened more than 100 criminal investigations of UBS clients, some of whom are notable names on Wall Street, according to a person briefed on the issue who requested anonymity while discussing criminal inquiries. In February, UBS paid $780 million to settle charges that it helped wealthy Americans evade taxes on nearly $20 billion hidden in offshore accounts. The bank remains under investigation.
UBS routinely courted clients at gatherings like the Palm Beach Boat Show, Art Basel Miami and other events that attracted a moneyed crowd.
Mr. Moran, a one-time deckhand and sea captain, founded Moran Yacht and Ship in 1988 with several family members, according to the corporate Web site. The company’s yachts routinely ferry Hollywood personalities to events like the Monaco Grand Prix and Cannes Film Festival.
The Web site extols the glossy world of yachts, the longest at 500 feet, and their owners. “So personal, like choosing the soubriquet for a beloved pet, is naming a yacht,” it says. “Whether intentionally or no, the result artfully tells something about the owner, something cherished, perhaps; some hidden dream, or personality quirk, even something outlandish, for some.”
Some of the yachts are called Amnesia, Romance, Nirvana, Battered Bull and Galactica. One, the Madsummer, a 257-foot Lürssen craft that carries 12 passengers and 25 crew members, costs $1 million a week, plus expenses, for chartering in the Caribbean. The Rapture, a 166-foot craft, is for sale at about $29.7 million. The salon of one megayacht, the Kismet, has a Persian theme, with honey-toned linen panels featuring hand-embroidered passionflower motifs created from gold thread, glass beads and freshwater pearls, according to the Web site.
As part of his deal to waive indictment, Mr. Moran agreed to cooperate with the Internal Revenue Service and to pay any taxes, penalties or interest.
Mr. Rubinstein, the first UBS client to be charged, is also involved in the yacht business, though he is not connected to Mr. Moran. Both Mr. Moran’s and Mr. Rubinstein’s names were among 285 that UBS turned over as part of its settlement.