TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, October 16, 2009

The UBS Informant

Wall Street Journal, UBS Informant Seeks Financial Award:

The key informant who helped U.S. tax authorities build their ground-breaking case against UBS AG, headed to prison for helping the Swiss bank's clients evade taxes, is looking to the IRS for a potential multimillion-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.

A 2006 tax-informant law, designed to encourage people to report big-dollar cases of tax evasion, 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 Mr. Birkenfeld if the IRS determines that he qualifies.

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.

Time, Why Is the UBS Whistle-Blower Headed to Prison?:

No one, including himself, would argue that Bradley Birkenfeld, 44, is a saint. The former UBS private-banking executive hasn't hidden the fact that he once bought diamonds with illicit money in Europe and then spirited them to California stuffed in a toothpaste tube, all part of an effort to conceal $200 million in assets on which his client — the Russia-born, California-based real estate mogul Igor Olenicoff — owed $7.2 million in U.S. taxes. But at the same time, almost no one in the U.S. government would deny that Birkenfeld was absolutely essential to its landmark tax-evasion case against Swiss banking giant UBS. The former UBS employee turned whistle-blower exposed the previously hidden world of offshore tax shelters, which cheats the Treasury out of about $100 billion a year. Thanks to his insider information, UBS was fined $780 million, and it promised to "exit entirely" from the U.S. tax-shelter business and to provide the names of thousands of American tax dodgers, from which hundreds of millions of dollars still might be collected. It also led to new tax treaties with the Swiss that should provide unprecedented tax information in civil cases and better access to such data in criminal cases.

"I have no reason to believe," says Kevin Downing, a senior Justice Department tax trial lawyer, "that we would have had any other means to have disclosed what was going on but for an insider in that scheme providing detailed information, which Mr. Birkenfeld did."

Considering Birkenfeld's help, many observers wonder why the Justice Department decided to arrest and prosecute him.

(Hat Tip: Ann Murphy.)

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