Whistle-blower advocates are asking U.S. Attorney General Eric Holder to review the treatment of tipster Bradley C. Birkenfeld, the former UBS banker who was sentenced to 40 months in prison despite his pivotal help in the groundbreaking case against the Swiss banking giant.
Birkenfeld, 44, laid the foundation for the federal government’s most devastating assault ever on Swiss banking secrecy and offshore tax cheats, and his revelations could result in numerous prosecutions of tax cheats. But in August, a federal judge in Fort Lauderdale surprised even prosecutors by imposing the lengthy sentence, followed by three years’ probation.
The ex-banker, who once smuggled diamonds inside a toothpaste tube past U.S. Customs, filed a whistle-blower claim with the Internal Revenue Service in 2007, seeking millions of dollars in reward for his star role in the case, but his criminal conviction casts doubt on whether he will collect.
$780 MILLION FINE
Zurich-based UBS, in a bid to avoid criminal charges, agreed in February 2009 to pay a $780 million fine and to close its cross-border operation, which helped wealthy Americans to hide money from the IRS in secret offshore accounts.
A Nov. 25 letter to Holder, signed by the National Whistleblowers Center and other advocacy groups, said the harsh punishment of the key whistle-blower in the UBS investigation will have a chilling effect on others who may be considering stepping forward to reveal serious wrongdoing.
“Punishing Mr. Birkenfeld with over three years in prison will certainly undermine the long-term interests of law enforcement. Mr. Birkenfeld’s information is only the tip of the iceberg concerning the cancerous nature of international bank secrecy,” said the letter, signed by advocacy groups that include the Project on Government Oversight and Transparency International in the Czech Republic.
“The impact of this case on the thousands of other international bankers, who, like Mr. Birkenfeld, could blow the whistle on the trillions of dollars hidden in secret offshore accounts, will be devastating,” the letter said.
Drawing heavily on details Birkenfeld provided about UBS’ illegal practices in helping U.S. tax cheats, the IRS filed a civil suit against UBS seeking to force it to turn over information on thousands of unidentified UBS account-holders with secret offshore accounts.
Justice Department spokesman Charles Miller said prosecutors had recommended a lighter sentence for Birkenfeld — 30 months. And prosecutors can still ask for a reduction in sentence based on his cooperation.
CASE OF RECUSAL
Miller said Holder has recused himself from all issues related to the UBS case, because he had done work for the bank in the private sector. Miller said Deputy Attorney General David Ogden will respond to the whistle-blower advocates’ letter.
“The real issue is how do you get the next Brad Birkenfeld to step out. If he goes to prison, it’s over,” said Stephen M. Kohn, executive director of the National Whistleblowers Center. “It’ll set back whistle-blowing 25 years.”
Bankers in particular could help reveal crimes in which ill-gotten money winds up in secret offshore accounts — from the misappropriation of development aid in the Third World to the proceeds of illegal drug dealing, said Kohn, but they won’t do so if they fear prosecution.
At Birkenfeld’s sentencing in August, Kevin M. Downing, an attorney in the Justice Department’s tax division, told the judge that the government would have had no case against UBS but for Birkenfeld’s extensive and valuable assistance.
Indeed, Birkenfeld likely would never have been prosecuted, Downing said, except for one big misstep: When he initially blew the whistle in 2007, Birkenfeld failed to disclose his own involvement or to mention his most prominent client, Lighthouse Point billionaire Igor Olenicoff. He had already attracted scrutiny from the IRS independently of Birkenfeld.
Birkenfeld pleaded guilty in June 2008 to conspiring to help Olenicoff to evade $7.2 million in taxes by helping him conceal $200 million and is set to begin serving his sentence Jan. 8.
REAPING OF AWARDS
Although federal law states those convicted of related crimes can’t reap awards for whistle-blowing, Kohn, who represents Birkenfeld in the whistle-blower action, said Birkenfeld is seeking the reward for exposing wide-ranging misdeeds at UBS that he didn’t plan or initiate.
According to court papers filed by his defense attorney before his sentencing, Birkenfeld was already cooperating extensively with U.S. prosecutors and other U.S. authorities when he was arrested upon arriving at Boston Airport from Switzerland in May 2008. He had flown to the United States for scheduled meetings with the Securities and Exchange Commission and the U.S. Senate, with which he was cooperating, his court papers said.