Tuesday, Oct. 06, 2009
Why Is the UBS Whistle-Blower Headed to Prison?
By Ken Stier, TIME magazine
LINK

No one, including himself, would argue that Bradley Birkenfeld, 44, is a saint. The former UBS private-banking executive hasn't hidden the fact that he once bought diamonds with illicit money in Europe and then spirited them to California stuffed in a toothpaste tube, all part of an effort to conceal $200 million in assets on which his client — the Russia-born, California-based real estate mogul Igor Olenicoff — owed $7.2 million in U.S. taxes. But at the same time, almost no one in the U.S. government would deny that Birkenfeld was absolutely essential to its landmark tax-evasion case against Swiss banking giant UBS. The former UBS employee turned whistle-blower exposed the previously hidden world of offshore tax shelters, which cheats the Treasury out of about $100 billion a year. Thanks to his insider information, UBS was fined $780 million, and it promised to "exit entirely" from the U.S. tax-shelter business and to provide the names of thousands of American tax dodgers, from which hundreds of millions of dollars still might be collected. It also led to new tax treaties with the Swiss that should provide unprecedented tax information in civil cases and better access to such data in criminal cases.

"I have no reason to believe," says Kevin Downing, a senior Justice Department tax trial lawyer, "that we would have had any other means to have disclosed what was going on but for an insider in that scheme providing detailed information, which Mr. Birkenfeld did." (Read "Calling All Whistle-Blowers! The SEC Wants You.")

Considering Birkenfeld's help, many observers wonder why the Justice Department decided to arrest and prosecute him. In the end, he pleaded guilty to a single fraud conspiracy count; he was sentenced on Aug. 21 in a federal courtroom in Fort Lauderdale, Fla., to 40 months in a federal penitentiary (to start Jan. 8). Many critics believe the decision to prosecute Birkenfeld, whom some consider the most important whistle-blower in years, sends the worst possible message to other financial-industry insiders who might be considering coming forward. The Government Accountability Project (GAP), a Washington watchdog organization that has extensive whistle-blower experience, says a chilling effect is already apparent: a senior executive at a European bank that offers similar U.S. tax shelters is having second thoughts about going public because of the Birkenfeld case.

"No wonder nobody has ever come forward to blow the whistle on the Swiss banks before — and with this mind-set, the government is guaranteeing that nobody will come forward again and disclose information about tax fraud on this scale," says Dean Zerbe, a tax attorney representing Birkenfeld in his dealings with the IRS. Zerbe also served as tax counsel for the Senate Finance Committee; in 2006 it revised the tax code to include whistle-blower protections.

Birkenfeld voluntarily approached U.S. authorities in May 2007 offering details on the illegal tax shelters run by UBS, where he had worked since 2001. When he realized that actual practices were violating stated bank policy, he raised his concerns internally; after being rebuffed and later finding himself in a dispute over a bonus payment, he decided to expose the wrongdoing. After talking with the IRS, Justice and the Securities and Exchange Commission and appearing before the Senate — and being told on at least one occasion by DOJ officials that they were not looking to prosecute him — Birkenfeld was arrested in June 2008 as he returned from Switzerland, where he had been living for the past 13 years, to his native Boston for a high school reunion.

The story of how he ended up headed for federal prison is still mired in sharply conflicting accounts. Justice officials claim that Birkenfeld was not completely forthcoming about his own dealings with particular clients, especially his biggest, the billionaire Olenicoff. Even as he was talking to the feds, they say, Birkenfeld was secretly advising the real estate mogul to move his money from UBS to Liechtenstein banks. (Olenicoff eventually settled for $53 million in tax and penalties.)

Birkenfeld's lawyers deny this, saying he was merely trying to avoid any suspicion that he was cooperating with the government. Also, to reveal more about his clients, they say, Birkenfeld needed some legal cover — like a subpoena, which Justice did not offer — because he would be violating strict bank-secrecy laws in Switzerland, where he was living.

What is clear is that Justice was playing hardball. It refused to grant Birkenfeld a cooperating witness agreement — at which point some lawyers would have advised their client to cease cooperation — and instead offered a temporary, so-called queen for a day agreement, giving him much less protection for what he voluntarily disclosed. At one point they even dismissed Birkenfeld as a mere tipster, not a whistle-blower. "Those who seek to be treated as true whistle-blowers need to know they must come in early and give complete and truthful disclosures, with no dissembling or holding back or spinning," said John A. DiCicco, Justice's top tax lawyer, in an e-mail to TIME.

It sounds simple. But that view not only contradicts Justice's own statement supporting a sentence reduction — Birkenfeld faced a possible five-year sentence for his work on behalf of Olenicoff — it's also flat-out wrong, says Stephen Kohn, executive director of the National Whistleblowers Center, who has been involved with hundreds of whistle-blower cases. After all, he notes, it would be a serious disincentive if whistle-blowers could be tripped up by inadvertently leaving out some information the government might come across later.

Unfortunately, this "gotcha" reflex runs deep in the government, says Jesselyn Radack, a former Justice Department attorney who was forced out of the DOJ after she blew the whistle on the department's destruction of e-mails related to the Bush Administration's prosecution of John Walker Lindh, the "American Taliban." "Basically, the government doesn't like whistle-blowers, and they have demonstrated time and again mountainous bad faith — as in this case, turning a perfectly good whistle-blower-incentive law into virtual entrapment," says Radack, who is the homeland security director of the GAP.

There is no doubt that dealing with whistle-blowers can be disagreeable. Some have tainted pasts, and in certain cases some stand to make millions from their cooperation, since they have a claim of up to 30% of funds recovered by the government. (This helps compensate for what can amount to their professional suicide.) There is nothing in whistle-blower-protection statutes that enjoins the government from prosecuting them for any fraud they participated in, but this option, intended for those who masterminded a fraud, is supposed to be balanced with a competing policy to encourage whistle-blowers to come forward.

That's not the only potential conflict at play. While the Justice Department has already decided that Birkenfeld isn't a true whistle-blower, the IRS has yet to make its own determination. An adverse ruling "may make more sense legally than it does from a policy standpoint," says former IRS commissioner Margaret Richardson. But if the IRS comes to a different conclusion from the DOJ — and under a new law, Birkenfeld can challenge the IRS decision in court — the UBS whistle-blower could end up collecting the first of millions of dollars from the government even as he sits in one of its federal penitentiaries.

Ex-UBS banker pleads guilty to hiding assets
By James Quinn, Wall Street Correspondent, 21 Jun 2008
LINK

A former UBS banker has admitted he was part of a team that hid more than $20bn (£10bn) in assets from US tax authorities on behalf of clients.

Bradley Birkenfeld, pleading guilty to helping a billionaire hide $200m in assets from the Internal Revenue Service, said that the Swiss bank's offshore private banking arm helped to conceal the monies on behalf of wealthy Americans.

Mr Birkenfeld, who admitted that he once smuggled a clients diamonds into the US stuffed inside a tube of toothpaste, changed his plea on tax evasion charges after having previously protested his innocence.

The US Department of Justice is hoping the former UBS banker will help it to crack the wider case into the activities of the bank's US offshore unit from 2000-2007, which it suspects helped US citizens dodge taxes.

* More on banking

Unlike citizens of other countries, such as the UK, US citizens are required to pay tax to the IRS on their earnings around the world, not just in the US, and so placing money and assets in offshore accounts is breaking the law.

A delegation of Swiss legal and tax officials yesterday arrived in Washington to discuss the situation with US authorities, with the Swiss federal office of justice saying it was simply responding to an American request for assistance.

There have been reports in the Swiss press that the UBS is considering whether to hand over the names of up to 20,000 wealthy American clients who may be caught up in the tax investigation.

On this subject, Swiss Foreign Minister Micheline Calmy-Rey said yesterday: "The Swiss administration is in close contact with the American administration in order to find a solution in line with existing Swiss legal and administrative dispositions."

Friday, Aug. 21, 2009
Ex-Wives Eagerly Await UBS Tax-Cheater List
By Stephen Gandel, TIME magazine
LINK

It's not just the U.S. government that wants to get its hands on the list of Americans who hold secretive Swiss bank accounts. Ex-wives, creditors and former business partners are also salivating over the idea that a settlement between the U.S., the Swiss government and a Swiss bank may lead to the public disclosure of as many as 4,450 U.S. individuals that used the foreign bank accounts to hide money. Prominent New York City divorce lawyer Raoul Lionel Felder says he is already getting calls from clients who want to know what they can do to get their portion of the money they always suspected their ex–loved one had tucked away overseas.

"You see allegations of Swiss bank accounts in divorce proceedings all the time," says Felder, whose clients have included Rudy Giuliani, Robin Givens and the former Mrs. Martin Scorsese. "A lot of divorces are going to get opened up." (See the top 10 tax dodgers.)

Tax evasion may only be the beginning of the legal problems facing holders of secret UBS accounts. On Aug. 19, UBS, Switzerland's second largest bank, agreed to hand over the names of thousands of American clients suspected by the IRS of evading taxes. The settlement comes after well over a year of investigation by the U.S. government into allegations of tax fraud at the Swiss bank. Should the names become public, lawyers say a raft of lawsuits could hit the account holders from creditors and business partners who may have long believed that the individuals using the accounts were hiding money that wasn't rightfully theirs.

One lawyer for UBS account holders says he has at least one case in which a client used a Swiss bank account to hide assets from creditors in bankruptcy proceedings. Lying in bankruptcy court can result in jail time, though the statute of limitations on bankruptcy proceedings is generally six years. Divorce proceedings, however, have no statute of limitations in most states in the country. So no matter when the divorce happened, a divorce settlement could be thrown out if it is disclosed that an ex-spouse used one of the UBS accounts to shield a portion of their assets. What's more, the new settlement is likely to be harsher toward the party that lied during the original divorce proceedings. (Read "U.S. vs. UBS: A Fight over Secret Swiss Bank Accounts.")

Lawyers for UBS clients, though, say the stiffest penalties for using the UBS accounts will still probably come from the IRS. The accounts that the U.S. government is getting access to hold an average of $4 million each. Account holders found guilty of tax fraud could have to hand over as much as 50% of the money in the accounts, and many will likely receive prison time. Of the 2,144 individuals convicted of U.S. tax evasion in 2008, 1,957, or 91%, were sentenced to some form of incarceration. Some may have served that time at home with an ankle bracelet or in a halfway house, but most went to prison. According to Steve Johnson, a law professor at the University of Nevada, Las Vegas, the average prison sentence over the past 10 years for tax evasion has been 25 months.

Still, it's not clear how many of the UBS account holders will be made public. The IRS is giving account holders who have cheated on their taxes a period of clemency that lasts until Sept. 23. If they turn themselves in by then, the IRS says in most cases the agency will waive jail time, and is likely to impose a smaller fine. Most disclosures made to the IRS are subject to confidentiality, so other creditors might not ever find out about the hidden accounts.

But if a UBS client used the Swiss bank account to defraud a bankruptcy court, or others, it is not clear the IRS will allow them to enter the clemency program. Lying in divorce proceedings, though, may not be enough to get someone kicked out of the clemency program, but ex-spouses could still find out about the accounts. Attorney Charles Falk of Porzio, Bromberg & Newman says he had a situation a year ago in which a husband had filed joint tax returns before his divorce. So when the client made a voluntary disclosure to the IRS that he had used a Swiss bank account to evade taxes, his ex-wife was notified of the disclosure as well. She had technically violated tax laws as well because her name was on the income filings, even though she never knew the account existed. A new divorce settlement was reached with the man handing over more money to his ex-wife.

"People hid money in Swiss bank accounts not just to avoid the IRS, but other creditors as well," says Martin Press, a lawyer representing a number of UBS clients. "If these names become public, we are going to see a number of cases of bankruptcy fraud, corporate fraud and divorce fraud."rview audio with UBS whistleblower's lawyer
LINK

Former UBS employee Bradley Birkenfeld will claim perhaps tens of millions of dollars in reward money for blowing the lid on the SwUBS employee Bradley Birkenfeldiss bank's covert activities in the United States.

He could claim reward money of up to 30% of the tax recouped as a result of Birkenfeld giving the US government detailed information about tax fraud and evasion.

Birkenfeld was sentenced to more than three years in prison in August for his part in the scheme, but his jailing has been delayed while he continues to assist Uncle Sam.

Go to link for the radio interview.

Bradley C. Birkenfeld Goes To Prison After Blowing The Whistle On USB, the Swiss Bank's Secrecy and Fraud

Real Estate Developer Igor Olenicoff Pleads Guilty to Filing a False Tax Return and Fails to Disclose Foreign Bank Accounts to IRS
December 12, 2007

Prepared by: Special Agent Angeline Ortanez, Public Information Officer
Office: (619) 615-9036
Mobile: (619) 770-9310
Facsimile: (619) 615-3710
Email: angie.ortanez@ci.irs.gov

SANTA ANA, CALIF. — Igor Olenicoff, the president and owner of Olen Properties Corporation, pleaded guilty today in the Central District of California to filing a false tax return for tax year 2002 related to foreign bank accounts he failed to disclose to the IRS. Olenicoff is a resident of Laguna Beach, California.

According to Olenicoff’s plea agreement, during the years 1992 through 2004, Olenicoff owned, controlled and had signatory authority over financial accounts outside of the United States. As early as August 1997, Olenicoff listed himself as chairman of Sovereign Bancorp LTD and President and Director of National Depository Corporation, Ltd on signature cards for Barclays Bank in the Bahamas, which also listed Olenicoff as an authorized signatory on these accounts. During this period, Olenicoff also had signatory authority and controlled several financial accounts with Solomon Smith Barney, which were held in the London, England, office of Solomon Smith Barney. Olenicoff’s accounts in the England offices of Solomon Smith Barney were held in the names of Sovereign Bancorp, Ltd., National Depository Corporation, Ltd., Guardian Guarantee Company, Ltd, Continental Realty Funding Corporation, and Swiss Finance Corporation. Olenicoff opened several accounts at UBS (formerly known as Union Bank of Switzerland), in Switzerland, in which Olenicoff had signatory authority and listed himself as Vice President and Director of accounts under the name of Guardian Guarantee Company Ltd. and New Guardian Bancorp APS. In addition, Olenicoff also had signatory authority and control over several financial accounts at Neue Bank in Liechtenstein, including an account in the name New Guardian Bancorp APS.

According to the plea agreement, Olenicoff directed and authorized the transactions from his offshore financial accounts. On or about March 9, 1992, Olenicoff transferred approximately $61,000,000 from an Olen Properties Corporation account at First Interstate Bank in Newport Beach, California, to a Bank of Montreal account in Canada under the name National Depository Corporation, Ltd. On or about October 5, 1998, Olenicoff directed Solomon Smith Barney to transfer approximately $40,000,000 from a Sovereign Bancorp Ltd. account at Solomon Smith Barney (England) to a Sovereign Bancorp Ltd. at Barclay’s Bank (Bahamas). On or about June 4, 2001, Olenicoff directed Solomon Smith Barney to transfer approximately $17,000,000; $43,000,000; and $58,000,000 from Continental Realty Funding Corporation, National Depository Corporation, Ltd., and Sovereign Bancorp Ltd. accounts, respectively, at Solomon Smith Barney (England) to National Depository Corporation and Sovereign Bancorp Ltd. accounts at Barclay’s Bank (Bahamas). On or about December 10, 2001, Olenicoff directed Barclay’s Bank to transfer approximately $89,000,000 from a Guardian Guarantee Company, Ltd. account at Barclay’s Bank (Bahamas) to open the Guardian Guarantee Company, Ltd. account at UBS (Switzerland). On or about February 27, 2002, Olenicoff directed Solomon Smith Barney to transfer approximately $38,000,000 from Continental Realty Funding Corporation, National Depository Corporation, and Continental Realty Funding Corporation accounts at Solomon Smith Barney (England) to a Guardian Guarantee Company Ltd. account at Barclay’s Bank (Bahamas).

According to the plea agreement, for calendar years 1998 through 2004, Olenicoff filed his United States Individual Income Tax Returns (Form 1040) with the Internal Revenue Service for the respective tax years. Olenicoff signed his 1998, 1999, 2000, 2001, 2002, 2003, and 2004 Forms 1040 for tax years 1998 through 2004. Attached to each Form 1040 Olenicoff filed for tax years 1998 through 2004, were Schedules B, Part III that asked on Line 7a, “At any time during [calendar year], did you have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account?” Line 7b stated, “If ‘yes,’ enter the name of the foreign country.” Lines 7a and 7b of Part III of Schedule B attached to the Forms 1040 called for material information in that the requested information is necessary for a correct computation of the tax due and owing and has a natural tendency to influence or impede the Internal Revenue Service in ascertaining the correctness of the tax due and owing of the taxpayer. On each of the 1998 through 2004 Forms 1040, Olenicoff falsely answered “no” to line 7a and left the space blank next to line 7b, even though, as he then well knew and understood, he had an interest in, signatory authority, and other authority over financial accounts in foreign countries during these years.

As provided in the plea agreement, on or about April 15, 2003, in the Central District of California and elsewhere, Olenicoff , a resident of Laguna Beach, California, did willfully make and subscribe a 2002 U.S. Individual Income Tax Return, Form 1040, which was verified by a written declaration that it was made under the penalties of perjury and was filed with the Internal Revenue Service, which Olenicoff did not believe this 2002 U.S. Individual Income Tax Return to be true and correct as to every material matter in that Schedule B Part III, Foreign Accounts and Trusts, Line 7a asked “At any time during 2002, did you have an interest in or a signature or other authority over financial account in a foreign country, such as a bank account, securities account, or other financial account?” to which said return falsely stated “NO,” whereas, as Olenicoff then and there well knew and believed, was a false statement, as defendant had ownership, control, and signatory authority over financial account in England, Switzerland, the Bahamas, and Liechtenstein. When Olenicoff signed his 2002 Form 1040, he knew that is contained false information as to a material matter, and in filing the false 2002 Form 1040, he acted willfully.

During today’s plea hearing, the prosecutor stated that Olenicoff previously paid $52,018,460 to the IRS for Olenicoff’s six years of back taxes, penalties and interest.

“Today’s guilty plea serves as a reminder to individuals who have an interest or ownership of foreign financial and securities accounts, that they must accurately report their foreign financial accounts to the IRS, said Catherine D. Tucker, Acting Special Agent in Charge, Los Angeles Field Office. IRS Special Agents possess unique financial skills and expertise that enable them to actively and aggressively investigate leads, whether domestic or international, and expose potential criminal tax violations.”

Olenicoff faces up to three years imprisonment for filing a false tax return in violation of Title 26, United States Code, Section 7206(1).

Olenicoff is scheduled to be sentenced on April 14, 2008 at 10:00AM before Judge Cormac J. Carney.