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US: Ex-UBS Banker Seeks Billions for Blowing Whistle

by Lynnley BrowningNew York Times
November 26th, 2009

Bradley C. Birkenfeld was sentenced to 40 months in prison for helping rich Americans dodge their taxes. Now he is hoping for a bit more — a few billion dollars more.

Associated Press

Bradley C. Birkenfeld was sentenced to 40 months in prison for helping rich Americans dodge their taxes.

Now, as thousands of wealthy Americans seek amnesty for keeping illicit, offshore bank accounts, Mr. Birkenfeld and his lawyers hope to use a new federal whistle-blower law to claim a multibillion-dollar reward from the American government. If they succeed — and legal experts say the odds are pretty good — it would be the largest reward of its kind.

Mr. Birkenfeld, who is to begin his prison term as soon as January, is being represented by the executive director of the National Whistleblowers Center, Stephen M. Kohn. Mr. Kohn successfully represented Linda Tripp, who helped expose the Monica Lewinsky scandal of the Clinton years.

“We are seeking at least several billion dollars,” Mr. Kohn said.

It might seem outlandish that Mr. Birkenfeld, who pleaded guilty in June 2008 to conspiring to defraud the United States government, would seek any reward at all. But experts in whistle-blower cases — who, admittedly, have an interest in fostering such claims — say he has a persuasive case.

“I do think he has a serious claim,” said Erika A. Kelton, a partner at Phillips & Cohen, a law firm that specializes in large whistle-blower claims. “It was very credible, very useful information from inside UBS that he provided. The law is pretty clean on this.”

Mr. Kohn stands to reap a fortune if Mr. Birkenfeld wins his case.

The United States Treasury loses an estimated $100 billion a year to offshore tax cheats, but finding tax dodgers is difficult. The best information, the authorities acknowledge, often comes from insiders. In recent years, the Internal Revenue Service has quietly embraced whistle-blowers like Mr. Birkenfeld to help root out tax cheats.

Federal whistle-blower laws date back to the Civil War, when the government sought to detect wrongdoing by suppliers to Union soldiers. But under a 2006 whistle-blower law, the I.R.S. has sought to further encourage tax informants to come forward, arguing that sometimes it takes a rogue to catch a rogue. Informants now stand to collect 15 to 30 percent of the taxes, fines, penalties and interest ultimately collected by the I.R.S. — billions of dollars, in the case of UBS.

Informants who are convicted of “planning” and “initiating” the schemes are not entitled to bounties. But Mr. Birkenfeld, a 44-year-old American, is not seeking rewards for money collected from his own clients. Instead, his lawyers are arguing that he is entitled to a reward stemming from the thousands of others who have come forward in recent months about hidden, offshore bank accounts.

Mr. Birkenfeld’s lawyers also assert that UBS executives, not Mr. Birkenfeld, planned the schemes. Mr. Kohn argues that Mr. Birkenfeld is entitled to a portion of the money recovered from 52,000 offshore UBS clients whose existence, but generally not names and account details, he described to the I.R.S. and Justice Department.

The names and account details of about 4,450 UBS clients are being turned over the I.R.S. under a settlement with the bank. These people will pay billions of dollars in back taxes, penalties and interest. Scores more are coming forward independently to disclose their assets. More than 14,700 offshore tax evaders emerged under an I.R.S. amnesty program, and while the I.R.S. does not yet know how many are from UBS, it presumes that the majority are. Douglas Shulman, the I.R.S. commissioner, has said that he expects “billions” of dollars to roll in from the amnesty program.

Mr. Birkenfeld’s disclosures, the Justice Department has acknowledged in court filings, were also the crucial factor leading to the criminal investigation of UBS. In February 2008, the bank admitted that it engaged in criminal wrongdoing and enabled tax evasion by selling its offshore banking services to wealthy Americans; it agreed to pay a $780 million fine. Mr. Kohn argued that Mr. Birkenfeld was also entitled to a portion of that settlement.

The Justice Department acknowledges Mr. Birkenfeld’s role in the case. “Without Mr. Birkenfeld walking into the door of the Department of Justice in summer of 2007, I doubt this massive fraud scheme would have been discovered by the United States government,” Kevin M. Downing, the Justice Department prosecutor who handled the UBS investigation, wrote in court papers filed in Mr. Birkenfeld’s case.

But the agency, which did not grant Mr. Birkenfeld immunity from prosecution when he came forward, considers Mr. Birkenfeld more of a tipster or an informant than a formal whistle-blower, in part because while he described the bank’s dealings, he provided few details on actual clients, according to a senior Justice Department official, who spoke on the condition he not be named, given the sensitivity of the matter.

Mr. Kohn contends that Mr. Birkenfeld is entitled to his rewards. “If it’s serious about stopping offshore tax evasion, it will reward Mr. Birkenfeld,” he said.

The I.R.S. declined to comment on Mr. Birkenfeld’s case.

Even if Mr. Birkenfeld wins his case, it is unlikely he will be able to claim any reward until he is freed in 2013. But he could leave jail a rich man — a prospect that troubles some officials involved in the case.

“It creates a pretty unseemly situation,” the senior Justice Department official said.





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