The UBS Whistleblower: An Inside Story

The IRS gave former UBS banker Bradley Birkenfeld $104 million, the largest amount ever awarded under the tax whistle-blower law. Here’s what Birke...
David RosenbaumSeptember 11, 2012

The $104 million the Internal Revenue Service today awarded former UBS banker Bradley Birkenfeld just a little over a month after his release from federal prison, where he served 30 months of a 40-month sentence for conspiracy to assist in tax evasion, is reportedly the largest sum ever awarded an individual whistle-blower.

According to the IRS Summary Report, “Birkenfeld provided information on taxpayer behavior that the IRS had been unable to detect.” That led to UBS turning over identifying information on 4,450 accounts held by U.S. citizens, and the payment of a $780 million fine. Birkenfeld’s reward amounts to roughly 13% of that fine.

What information did Birkenfeld provide the IRS, as well as the Department of Justice and the Senate Permanent Subcommittee on Investigations, which released a report, “Tax Haven Banks and U.S. Tax Compliance,” based, in large part, on Birkenfeld’s testimony? And how did Birkenfeld come to bring this information to the attention of U.S. authorities?

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

After his sentencing in 2009, Birkenfeld and I began collaborating on a book detailing his whistle-blowing activities and his career at UBS, where he worked out of the Geneva office between July 2001 and October 2005 as a director and private banker in the bank’s wealth-management division. (For various reasons, the project did not come to fruition. Birkenfeld, who is currently residing in a halfway house in New Hampshire, did not respond to e-mail.) Between the spring of 2009 and his incarceration in January 2010, Birkenfeld and I spoke many times, for many hours.

According to Birkenfeld, in 2005 he stumbled across an internal UBS document, “Cross-border Business and the United States.” The document essentially stated that a large part of his job — soliciting business and clients in the United States, e-mailing and meeting UBS clients in the United States, marketing UBS products and services to prospective and current UBS clients in the United States — was contrary to bank policy and illegal. Birkenfeld interpreted the document as a fallback position the bank had prepared for itself should he or any other banker in his division be caught doing what the bank had trained and compensated them for doing. In other words, he believed the bank was setting them up to take the fall.

Birkenfeld told me he took the document to the head of the U.S. wealth-management group in Geneva, demanding an explanation. When he got none, he sent the document to the Geneva head of compliance, and the chief legal officer. When he received no response from them, he sent the document, and a request for an explanation, to UBS’s head of compliance, Peter Kurer, who would eventually become the bank’s chief executive officer and would eventually be fired in the scandal.

On advice of counsel, Birkenfeld resigned from UBS in October 2005. In March 2006, he sent a letter to several of the bank’s top executives, including the internal document. In response, Kurer called for an internal investigation, which resulted in a finding that UBS had minor compliance issues. Unsatisfied, and perhaps fearing prosecution after a client, California real estate billionaire Igor Olenicoff’s offices were raided by the IRS in May 2005 and documents were found bearing Birkenfeld’s name, Birkenfeld registered with the IRS whistle-blower program in 2007, and began meeting with agents from the Department of Justice, the IRS, and the Senate subcommittee.

He was arrested at Boston’s Logan Airport in May 2008.

Before that, Birkenfeld had provided the government with documents he brought from UBS detailing the training private bankers received to avoid detection in the United States, including instructions on how to avoid identification as UBS bankers, complete with prefabricated cover stories. He told the Senate about the bank’s push to get U.S. clients to open more bank accounts in Switzerland.

There were targets the UBS bankers had to achieve called “Net New Money” goals. Birkenfeld documented the use of encrypted laptops stuffed with client data that UBS bankers were issued when they traveled to the United States to drum up new or service ongoing business.

He gave the Senate the code names for UBS clients, letters from UBS to U.S. clients assuring them that the secrecy of their accounts and identities would never be breached, the e-mail addresses of UBS Swiss bankers who transacted business with U.S. clients, lists of undeclared accounts, the names of shell companies and fake charitable trusts, and lists of anonymous wire transfers and disguised business trips.

He described how UBS sponsored large, VIP events in the United States — golf tournaments, Art Basel, Miami, Alinghi Yacht Races in Newport, Rhode Island, tennis matches, etc. — and provided its bankers with tickets and funds so they could attend and approach wealthy Americans in order to sell them UBS securities products and handle transactions, both in contravention of U.S. securities law.

As a result of Birkenfeld’s testimony, the Senate subcommittee’s report found that UBS’s use of Swiss bank secrecy law served “as a cloak . . . for misconduct by banks colluding with clients to evade taxes, dodge creditors, and defy court orders.” It estimated the amount held in UBS Swiss accounts by U.S. clients at $18 billion (which is why Birkenfeld viewed the $780 million fine as a slap on the wrist).

If Birkenfeld thought his cooperation with the government, and the rich trove of incriminatory information he provided, would help him avoid prosecution, or at least assist him in getting a lighter sentence, he was wrong. According to Birkenfeld, the Department of Justice refused to view him as a whistle-blower, called him instead a “tipster,” and sought — and got — a harsh sentence from the court on the charge of conspiring to help Olenicoff evade taxes.

To this date, Birkenfeld remains the only figure in the UBS banking scandal to serve jail time.

By granting Birkenfeld his record-setting reward today, the IRS apparently disagrees with the Justice Department’s assessment, and agrees with Jesselyn Radack, the Government Accountability Project’s national security and human rights director (and a former whistle-blower), who wrote in 2009 to Attorney General Eric Holder, “The government would not have had a case against UBS without Brad Birkenfeld.”

Birkenfeld’s $104 million award works out to $115,556 for each day he spent in jail.