UBS Whistleblower Hits $104 Million Jackpot

The United States tax authorities have awarded $104 million (SFr97.6 million) to a whistleblower in a tax fraud case against Swiss bank UBS that widened a government crackdown on Americans avoiding taxes in Switzerland.

Bradley Birkenfeld, who was released from prison last month, was not present at the news conference in Washington on Tuesday where his lawyers at the National Whistleblowers Center announced what may be the largest payout ever under an Internal Revenue Service (IRS) whistleblower programme recently criticized in the US Congress.

“The IRS today sent 104 million messages to whistleblowers around the world – that there is now a safe and secure way to report tax fraud and that the IRS is now paying awards,” said his attorneys Stephen M. Kohn and Dean A. Zerbe in a statement.

“The IRS also sent 104 million messages to banks around the world – stop enabling tax cheats or you will get caught.”

Birkenfeld had sought a substantial reward for his role in a tax-dodging case that resulted in UBS entering in early 2009 into a deferred prosecution agreement and paying $780 million in fines, penalties, interest and restitution.

Prison sentence

Birkenfeld, who started working for UBS as a privater banker in Geneva in 2001, was jailed later for after the US government said he withheld other information.

In January 2010, Birkenfeld began serving a prison term for admitting to conspiracy in helping a former rich client conceal large sums at UBS in accounts based in Switzerland and Liechtenstein.

He is believed to have handed over details about 19,000 UBS clients and the bank’s alleged encouragement of hidden offshore accounts for US taxpayers.

IRS spokeswoman Michelle Eldridge confirmed the award and said in a statement: “The IRS believes that the whistleblower statute provides a valuable tool to combat tax non-compliance, and this award reflects our commitment to the law.”

In granting the award, the IRS wrote that while it “was aware of tax compliance issues related to secret bank accounts in Switzerland and elsewhere, the information provided by the whistleblower formed the basis for unprecedented actions against UBS.”

After Birkenfeld’s revelations, over 35,000 taxpayers are said to have taken part in “amnesty” programs to voluntarily repatriate their illegal offshore accounts. The process allegedly yielded over $5 billion in back taxes, fines and penalties.

UBS also turned over the names of over 4,900 US taxpayers who held offshore accounts according to the National Whistleblowers Center.

Signal for others?

The IRS whistleblower office gathers information from people who want to alert the tax-collecting agency to tax misconduct.

Over the years, the office has brought in hundreds of millions of dollars in tax revenue for the government that would not have been collected without tipoffs.

But the office collected only $48 million in tax revenues in fiscal 2011, down from $464 million in fiscal 2010, the IRS reported to Congress in June. That was the lowest collection level since at least fiscal 2004. The drop coincided with a decline in new whistleblower cases.

“The potential for this program is tremendous, and it’s up to the IRS to continue paying rewards and demonstrating to whistleblowers that the process will work and that they will be heard and protected,” said Republican Senator Chuck Grassley who helped write the law.

“An award of $104 million is obviously a great deal of money, but billions of dollars in taxes owed will be collected that otherwise would not have been paid, as a result of the whistleblower information.”

The law targets high-income tax dodgers, guaranteeing rewards for qualified whistleblowers if the company in question owes a least $2 million in unpaid taxes, interest and penalties.

Grassley said in June that the IRS had been driving away whistleblowers.

Some lawyers have also complained that the office is slow to process cases and leaves whistleblowers in the dark about the status of their cases after they turn over information.

However, the outcome of the Birkenfeld case could have “enormous implications” for other whistleblowers pursuing awards and who will be watching closely, said Andrew Carr Monday, a lawyer with law firm Bateman Gibson in Tennessee. He is representing another IRS whistleblower in a separate case.