Man in the News: Bradley Birkenfeld

Published on August 14, 2009

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Man in the News: Bradley Birkenfeld

Two years ago almost to the day, the phone in the FT’s Zurich office rang as I reached the door. “My name is Tarantula,” said the mystery caller. “That is not my real name. But the information I will provide will put my life in danger and be the end of Swiss bank secrecy.”

Loonies on the line are not unfamiliar in journalism. But in the months of contact that followed, it emerged that my informant, though driven, was entirely compos mentis.

“Tarantula” turned out to be Bradley Birkenfeld, the American private banker whose disclosures have played a crucial part in the massive crackdown by US authorities on Switzerland’s hallowed bank secrecy.

This week, the US and UBS, Switzerland’s biggest bank and target of the campaign, reached an out-of-court settlement on efforts by the Internal Revenue Service – the US tax authority – to gain the names of up to 52,000 Americans with secret accounts. Reflecting the importance of the case for one of the Swiss economy’s biggest money-spinners, Bern was party to the deal.

Details should be released next week. Lawyers reckon the settlement will require the disclosure of at least 5,000 names and a possible fine on a bank already reeling from more than $50bn (£30bn, €35bn) in writedowns from the credit crisis. Bank secrecy looks in tatters.

None of this may have come to pass without Mr Birkenfeld and the information he provided on how, over the years, UBS solicited business from rich American clients and helped create structures that enabled them to avoid tax. A tall, well-built man of 43, his manner is anything but cloak-and-dagger. The son of a Boston brain surgeon, he grew up in the city’s privileged southern suburbs. He began his banking career at State Street, the local lender, before moving into international wealth management at Credit Suisse, Barclays and UBS.

Mr Birkenfeld spent much of the past 15 years in Switzerland, where he burnished his upper middle-class US credentials with the charm and savvy of a pukka Swiss private banker. He worked in Geneva as one of about 60 UBS private bankers in three Swiss cities, providing services for clients that ranged from advice on buying jewellery and art to tricks such as squeezing diamonds into toothpaste tubes so as to move them without detection.

The material trappings came in tow. Over the years, Mr Birkenfeld accumulated a flat in Geneva and a dream chalet in Zermatt with an unblocked view of the Matterhorn. So established was he in Switzerland that he gained a coveted “C” residency status – the category allowing permanent residence only available to those who have put down roots and show an unblemished record.

With so much going for him, it seems extraordinary that Mr Birkenfeld blew the whistle. He says he felt obliged as his bosses, driven by demands from above and incentivised by big bonuses, put pressure on client advisers such as himself to break internal guidelines and US laws on what Swiss-based bankers could do in America.

In 2006, Mr Birkenfeld formally pointed out the irregularities, copying in Marcel Rohner, then UBS’s head of private banking and later chief executive, and Peter Kurer, then UBS’s top lawyer and later chairman. An internal investigation prompted some improvements in policies. But the regular trips across the Atlantic with encrypted computers and training in counter-surveillance continued. So did the participation at events such as Art Basel Miami or yacht racing in Newport, Rhode Island, where UBS bankers would meet clients and try to make new contacts.

Others say Mr Birkenfeld’s motives were venal. His whistleblower letter came only at the end of the six-month “gardening leave” taken after quitting UBS in 2005. Revenge may have played a part: Mr Birkenfeld successfully sued the bank over his final bonus. Others still suggest he might have been “turned” by the US authorities, having come to their attention in earlier inquiries.

US law offers registered whistleblowers up to 30 per cent of any unpaid tax their information reveals. The reward has no ceiling, and applies to everyone, including convicted felons. With estimates that UBS’s clients had assets of $20bn, the temptation would have been mesmerising.

That other Swiss bankers have never come forward reflects Mr Birkenfeld’s status as a maverick. Earning handsomely from managing rich people’s money, no sensible banker asks too many questions about clients’ tax compliance. A reputation as a troublemaker would ruin one’s prospects. Client confidentiality in Switzerland is strictly enforced by law.

In spite of his acclimatisation, Mr Birkenfeld was always an outsider. Colleagues recall his “Tequila Tuesdays”, when he cracked open a bottle to enliven quiet afternoons at the sober Geneva office. A big man with bright blue eyes and a barely noticeable goatee beard, he has the look of a former athlete gone slightly to seed. “He’s one of the funniest people you’d want to be around,” says a former colleague.

Ultimately, Mr Birkenfeld may end up punished by all. In Switzerland, his name is anathema. The chalet in Zermatt is history. Among bankers in the now dissolved UBS team, incomprehension is the most charitable reaction. Higher echelons prefer not to comment: while not directly responsible, the fact that Mr Rohner and Mr Kurer were recipients of Mr Birkenfeld’s whistleblower letter almost certainly contributed to their departure from UBS.

Even in the US, things have not gone right. On his return to Boston in May 2008, Mr Birkenfeld was arrested in spite of hopes to secure immunity. He has been charged with conspiracy to defraud the US government by helping tax evasion: sentencing, progressively postponed, is due next week.

Mr Birkenfeld still hopes to benefit from the whistleblower reward scheme. The US authorities have acknowledged his role, if grudgingly. But the fact he has ended up under arrest has fed suspicions among former colleagues that his position may have been compromised from the start. That Mr Birkenfeld has spent the past year with an electronic “bracelet” around his ankle, restricted to his home state and with a 10pm curfew, will count in his favour. Even so, the tarantula that sank its fangs into UBS could well end up in jail.

By Haig Simonian, Financial Times
Published: August 14 2009 18:36 | Last updated: August 14 2009 18:36

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