Prosecution of UBS Informant Seen Backfiring on U.S.

MIAMI (Reuters) - The key informant in the U.S. tax evasion case against Swiss bank UBS AG faces prison next year, but his harsher-than-expected treatment by the U.S. Justice Department will undermine efforts to expose secretive offshore tax havens, lawyers and whistle-blower advocates say.

Bradley Birkenfeld, a 44-year-old U.S. citizen, has been hailed by his attorneys and prosecutors alike as pivotal to the tax case against UBS , his former employer.

The case centered on UBS's private banking business and on wealthy Americans who used their Swiss accounts to hide money overseas to evade taxes. In August, UBS agreed to turn over 4,450 names of American clients with undisclosed offshore accounts to settle a civil suit by the U.S. government.

By coming forward in the summer of 2007 and volunteering insider information to the Justice Department, Birkenfeld exposed a "massive fraud scheme" that probably never would have been discovered otherwise, said Kevin Downing, a senior Justice Department trial lawyer who spoke at his sentencing in Fort Lauderdale on August 21.

Despite that praise, Birkenfeld, who pleaded guilty to a single fraud conspiracy count in June 2008 for helping a billionaire hide assets from the Internal Revenue Service, was sentenced to 40 months in prison and ordered to start serving his time no later than January 8.

Justice Department officials, in a claim disputed by Birkenfeld's supporters, said the punishment was meted out because Birkenfeld had initially sought to conceal his personal involvement in tax fraud.

Lawyers and whistle-blower advocates have expressed outrage over the sentence. They said they had expected Birkenfeld to get off with just a fine and probation, given that his voluntary disclosure of UBS practices led the company to settle criminal charges by paying $780 million and promising to name thousands of suspected American tax cheats and exit the U.S. tax-shelter business.