Key UBS Infomant, Headed to Jail, Seeks Financial Award

Published on October 05, 2009

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Key UBS Infomant, Headed to Jail, Seeks Financial Award

WASHINGTON (Dow Jones)–The key informant who helped U.S. tax authorities build their ground-breaking case against UBS AG (UBS), headed to prison for helping the Swiss bank’s clients evade taxes, is looking to the Internal Revenue Service for a potential multi-million dollar award when he gets out.

Bradley Birkenfeld, a former UBS private banker who was sentenced in August to more than three years in prison, is seeking payouts on multiple fronts from the IRS, saying the agency had no case against the Swiss banking giant – or against thousands of American tax cheats – without him.

Birkenfeld lawyer Dean Zerbe of Zerbe, Fingeret, Frank & Jadav said his client is entitled to a piece of the U.S. government’s $780 million settlement with UBS, and that he also has a claim to a portion of the money the IRS recovers from wealthy Americans who hid assets in offshore accounts – both at UBS and at other banks.

“The case has obviously affected people beyond just UBS,” said Zerbe, who also serves as a special counsel to the National Whistleblowers Center. “He would have a claim on those people as well.”

UBS agreed in February to pay the $780 million as part of a deal to avoid criminal prosecution for helping wealthy Americans evade taxes. And in August, the bank agreed to reveal the identities of approximately 4,450 of its U.S. clients who are suspected of hiding offshore accounts.

While U.S. tax authorities are in the process of obtaining those names, the IRS has seen more than 7,500 taxpayers take advantage of a special amnesty program offering reduced penalties to those who voluntarily confess their offshore transgressions. That program ends today.

Birkenfeld first filed for an IRS award in 2007, under a new law designed to encourage people to report big-dollar cases of tax evasion. But his lawyers in recent weeks have been working to refine and bolster his claim. This week, they presented the IRS Whistleblower Office with a detailed factual record of how Birkenfeld helped the government and how much lost tax revenue the IRS has been able to recapture thanks to his assistance.

“They didn’t know how to spell UBS until he showed up,” Zerbe said. “He didn’t just give them a piece of the puzzle. He gave them the entire puzzle.”

The government has largely conceded this.

“I will say that without Mr. Birkenfeld walking into the door of the Department of Justice in the summer of 2007, I doubt as of today that this massive fraud scheme would have been discovered by the United States government,” Justice Department attorney Kevin Downing said at Birkenfeld’s sentencing hearing in August.

The tax informant law, passed by Congress in late 2006, provides for an award of between 15% and 30% of the tax proceeds the IRS recovers thanks to the informant’s information. That could mean a payout of millions of dollars for Birkenfeld if the IRS determines that he qualifies.

Birkenfeld’s criminal conviction, however, could complicate matters. The Justice Department said it prosecuted Birkenfeld because he was not forthcoming about his own role in the scheme. It’s unclear how Birkenfeld’s guilty plea will affect his IRS claim.

Birkenfeld’s lawyers said he’s not seeking any reward money related to tax evasion that he assisted, but they said his involvement should not taint his claim for informing the government about the larger UBS scheme.

“A criminal action in one area does not preclude you from seeking a reward in another area,” said Zerbe, who helped write the 2006 tax informant law when he served as tax counsel to the Senate Finance Committee. “The law saw that you would have imperfect people coming forward.”

IRS spokesman Bruce I. Friedland said the agency can’t comment on any claim or confirm that a claim exists.

Birkenfeld’s claim could take years to resolve.

The IRS Whistleblower Office has not yet issued any payouts based on the 2006 law.

Friedland said the IRS makes payments only after a taxpayer has been investigated and exhausted all appeal rights. “Because payments to whistleblowers come directly from revenues collected from identified taxpayers, it can take several years to work through these steps and for awards to be made,” he said.

A recent report by the Treasury Department’s inspector general for tax administration said the IRS needed to develop standards to ensure that claims are processed in a timely manner.

During the 2008 fiscal year, the IRS received 476 claims in cases where the potential tax recovery is $2 million or more. Those claims related to 1,246 U.S. taxpayers.

-By Brent Kendall, Dow Jones Newswires; [ 10-15-09 1501ET ]

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