*This post was drafted by Meryl Grenadier (NWC fellow)
In the past 24 hours there have been significant developments in the case of UBS whistleblower Bradley Birkenfeld. Three years ago, the former UBS banker provided the U.S. government with detailed information on how to identify the names of 19,000 American citizens who held illegal secret bank accounts at UBS bank in Switzerland (read the letter from Mr. Birkenfeld's attorneys outlining this information here). He reported the largest tax fraud scheme in history, and for the first time there was a crack in the vault of Swiss bank secrecy.
Bradley Birkenfeld also warned that Swiss politicians would do everything in their power to protect Swiss bank secrecy and block the release of UBS client information. This prediction became reality yesterday when the Federal Assembly of the Swiss parliament rejected a part of the deferred prosecution agreement between UBS and the U.S. Department of Justice. This part of the agreement requires UBS to turn over the names of 4,450 American tax criminals by August 20 of this year, a small fraction of the 19,000 clients.
In response to the vote, Senator Charles Grassley sent a letter to the U.S. government, expressing his outrage at the mishandling of information provided by Mr. Birkenfeld and the misguided reliance on the Swiss government for UBS USA information. Senator Grassley wrote (read the full letter here):
I am worried that the Internal Revenue Service ("IRS") is doing next to nothing to identify tax evasion by U.S. taxpayers utilizing these accounts while waiting for ratification of the treaty.
It seems this information [provided by Mr. Birkenfeld] would allow the IRS to trace individuals in the U.S. that had UBS bank accounts… Using this information to identify U.S. clients would appear to be more productive than simply pursuing agreements and treaties with the Swiss, especially since those avenues seem limited to specific individuals.
Today's vote in Switzerland only underscores the need for the IRS to encourage whistleblowers to come forward. Mr. Birkenfeld blew the whistle on just one bank. What is the IRS doing to encourage more whistleblowers to come forward about offshore bank accounts?
As we have written before, the U.S. Justice Department admitted in court proceedings that "but for Mr. Birkenfeld" the illegal $20 billion tax evasion "scheme" by the Swiss banking giant UBS "would not have been discovered by the U.S. government." Despite his historic contribution toward enforcement of tax laws, Mr. Birkenfeld remains the only banker prosecuted and incarcerated by the U.S. government.
The U.S. Senate estimates that $5-7 trillion in tax revenue is lost in undeclared offshore bank accounts. There must be consistent policies regarding the treatment and encouragement of whistleblowers throughout the U.S. government. It is our hope that Senator Grassley’s letter will encourage a full evaluation of how Mr. Birkenfeld’s information was used (or misused), the prosecution of the high-level UBS officials who initiated and planned the $20 billion tax evasion scheme, and justice for all honest American taxpayers.
It remains imperative that those who support whistleblowers, accountability and transparency continue to send letters in support of Mr. Birkenfeld’s clemency campaign. His prison sentence continues to have a chilling effect on all international bankers who posses similar information.
The story focuses on a manual by the Internal Revenue Service (IRS) called the Internal Revenue Manual (IRM). The new IRM recognizes that if a whistleblower provides information leading to a payment to the IRS, the whistleblower would be entitled to a reward of up to 30%. However, the revised IRM adds that if the information reduces a credit or stops a refund, then no reward is made. It also bars rewards arising from criminal penalties. My friend Michael Sullivan of Atlanta told Hilzenrath, "There's apparently an institutional resistance to rewarding whistleblowers that will take some time to dissipate." UBS whistleblower Bradley Birkenfeld (pictured) provided information the led to the bank's $780 million settlement with the IRS. His whistleblower claim with the IRS is pending while he serves a prison sentence for having followed the bank's orders in connection with the tax evasion scheme he revealed. Hilzenrath's story reports that Sen. Charles Grassley has written to the Treasury Department asking that it delay the IRM revision. Sen. Grassley was a proponent of the IRS whistleblower reward program. Hilzenrath quotes a former IRS official saying that the reward program is "unseemly." Perhaps when the IRS whistleblower program starts to bring in as much money as the False Claims Act does, then attitudes will change and the government will see the wisdom in promoting rewards as a way to increase revenue. You can support Birkenfeld's campaign for clemency by following this link.
