UBS Whistleblower Wins $104 Million

Bradley Birkenfeld, a former UBS banker, has been awarded $104 million as a whistleblower award.  Mr. Birkenfeld, through his attorney, provided substantial information to U.S. authorities starting in 2007, detailing how UBS promoted the evasion of taxes with its clients, as well as how he personally performed errands for rich clients.  He described how he and other Swiss bankers would help wealthy clients hide their assets by purchasing jewels, jewelry, and art from money held in Swiss accounts.  He further explained that bankers would use encrypted computers and would later erase all reference to U.S. clients from the records.  The examples went as far as one instance where Mr. Birkenfeld smuggled diamonds into a country in a tube of toothpaste.

Mr. Birkenfeld’s aid was invaluable to U.S. authorities and led to a far reaching crackdown on tax evasion.  UBS was forced in 2009 to turn over more than 4,000 names of U.S. taxpayers who were implicated in tax evasion.  UBS similarly paid $780 million to settle claims against it directly.  Over 33,000 taxpayers in the U.S. have settled claims that they were evading taxes by holding assets overseas and not properly declaring them.  These individuals have paid over $5 billion in taxes and penalties as a result.

Mr. Birkenfeld was convicted of a conspiracy charge as well.  Prosecutors claimed that he withheld information related to a relationship with a UBS customer in California who was very wealthy from real estate development.  He ended up serving roughly 30 months in a Federal Correctional Institute in Pennsylvania.  In August he was permitted to leave and go to a halfway house, where he will remain until the end of November. 

However, this series of events clearly shows how willing U.S. authorities are to pay out whistleblower awards.  This $104 million award is the largest award to date that has gone to a whistleblower in the U.S.  Under the 2006 statute, the Internal Revenue Service is permitted to pay up to 30% of any proceeds which are collected as an award.  Mr. Birkenfeld is receiving 26% of the $400 million which has been paid in taxes by UBS as a result of the settlement from 2009.  While the U.S. has collected revenue exceeding $5 billion as a result of this matter, only the portion from UBS is eligible for whistleblower payments. 

The effects of Mr. Birkenfeld’s actions as a whistleblower, among other investigations, have been far-reaching.  Wegelin AG, which is Switzerland’s oldest bank, is no longer doing business in the United States because the bank and several of its employees were criminally indicted.  Roughly 5,000 high net worth clients of Credit Suisse Group had their homes raided by German authorities on suspicions that they were evading taxes. 

All told, this is very encouraging news for people considering coming forward with similar information about misconduct at their company.  U.S. officials seem perfectly willing to overlook the whistleblower’s individual infractions, so long as they are disclosed.  Awards are being paid relatively quickly, and are reaching higher and higher amounts.  Particularly as the new corporate whistleblower rules passed in 2009-2010 are even broader and more generous for whistleblowers, it is likely that the number of individuals who come forward will continue to increase as well.

 

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