An ex-banker and convicted tax cheat who told the IRS how his employer, UBS, helped thousands of wealthy clients duck U.S. taxes has just been awarded $104 million by the U.S. government, a sum his lawyers say is the largest payout ever for a whistleblower.
Bradley Birkenfeld, who was released from federal prison six weeks ago, pleaded guilty in 2008 to helping American clients avoid paying federal income and other taxes to the IRS. As part of his plea, Birkenfeld confessed to helping businessman Igor Olenicoff conceal $200 million in assets and evade paying $7.2 million in taxes.
But while Birkenfeld was confessing his own sins, he also provided testimony that allowed the Justice Department to punish his employer, forcing UBS to admit that it had allowed its clients to evade taxes by hiding their assets offshore. In February 2009, under a deferred prosecution agreement, the company agreed to pay $780 million in criminal fines for offering tax haven accounts for U.S. clients. UBS agreed to release data on almost 5,000 client accounts.
Birkenfeld's lawyers, Stephen M. Kohn and Dean A. Zerbe, of the Washington-based National Whistleblowers Center, said that because of Birkenfeld the IRS has been able to recover $5 billion in revenue from 33,000 U.S. citizens who have voluntarily disclosed their offshore accounts.
"The IRS sent 104 million messages to whistle-blowers around the world -- that there is now a safe and secure way to report tax fraud," said the National Whistleblowers Center in a statement. "The IRS also sent 104 million messages to banks around the world – stop enabling tax cheats or you will get caught."
According to Kohn and Zerbe, the $104 million award is the largest award to an individual whistleblower to date, and the first awarded to an IRS whistleblower.
The IRS report disclosing Birkenfeld's award said that "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."
Birkenfeld began serving a 40-month prison sentence in January 2010. According to the federal Bureau of Prisons inmate locator, Birkenfeld was released on August 1 and is serving the remainder of his sentence in a community corrections center in the Philadelphia area.
Sen. Charles Grassley, R.-Iowa, who authored the whistleblower laws for tax fraud, said in a statement, "This case provides evidence about how the whistleblower program can be effective because the IRS is saying its work against this kind of tax fraud would not have been possible without the whistleblower. By paying an award as the law allows, the IRS encourages courageous actions by others against such big-dollar tax cheating."
A spokesman for the IRS declined to say how much money has been collected from tax evaders using Swiss bank accounts in recent years. In 2009 The Justice Department and IRS reached an agreement with Switzerland to obtain information from UBS AG to identify information on up to thousands of accounts held by the Swiss banking giant. Justice Department and IRS officials believed as much as $18 billion could be located in those accounts.
"The IRS believes that the whistleblower statute provides a valuable tool to combat tax non-compliance, and this award reflects our commitment to the law," said Michelle Eldridge, an IRS spokeswoman.
Birkenfeld, now 47, worked at UBS for five years. He sought immunity from prosecution when he came forward as a whistleblower, but the DOJ elected to arrest and prosecute him. Under U.S. whistleblower laws, he was allowed to seek 30 percent of the taxes recovered by the IRS via the information he provided.