Bradley Birkenfeld broke the back of Swiss bank secrecy. He was the first Swiss banker to file a case under the IRS whistleblower law. The results were unprecedented. UBS bank (at the time the largest bank in the world) had to pay a fine of $780 million. They also had to close all known U.S. accounts, and for the first time in history, the bank turned over the names of 4450 U.S. taxpayers for prosecution in the United States. Mr. Birkenfeld obtained the largest ever individual qui tam whistleblower award in history, $104 million.
But this was just the beginning. In a major law review article, the Chairman of the IRS Advisory Council explained how Birkenfeld’s whistleblowing ended illegal Swiss banking for most Americans, led to the closure of tens of thousands of offshore accounts, and the collection of tens of billions of dollars from tax law violators. Birkenfeld’s whistleblowing was historic.
A former international banker and wealth manager with UBS, Mr. Birkenfeld witnessed a massive tax evasion scheme that helped U.S. citizens create secret Swiss offshore accounts to avoid U.S taxation.
During his time at UBS, Mr. Birkenfeld was responsible for assisting wealthy Americans in hiding their assets in Swiss bank accounts. These accounts allowed them to avoid paying U.S. taxes and easily conceal their funds due to strict Swiss banking secrecy laws.
Mr. Birkenfeld voluntarily approached U.S. authorities in May 2007, offering details on the illegal tax shelters run by UBS, where he had worked since 2001. His disclosure and cooperation with U.S. authorities provided inside information into the bank’s conduct and began the dismantling of the historical secrecy of Swiss banks. In fact, by blowing the whistle, Mr. Birkenfeld’s disclosure directly led to a groundbreaking legal settlement in which UBS agreed to pay $780 million in fines, and UBS and the Swiss Government agreed to turn over the names of thousands of Americans suspected of tax evasion.
In 2012, he received the largest individual qui tam whistleblower reward ever given to an individual qui tam plaintiff, $104 million. In granting the award, the IRS explained:
“Birkenfeld provided information . . . that the IRS had been unable to detect, provided exceptional cooperation, identified connections between parties and transactions (and the methods used by UBS AG), and the information led to substantial changes in UBS business practices and commitment to future compliance. . . The comprehensive information provided by the whistleblower was exceptional in both its breath and depth. . . The information provided by the whistleblower formed the basis for unprecedented actions against UBS AG, with collateral impact on other enforcement activities . . .”
The reaction of the Swiss banking industry to the news of Mr. Birkenfeld’s $104 million reward from the IRS demonstrates the real impact of his whistleblowing. By coincidence, when Birkenfeld’s $104 million award was publicly announced, leaders in the Swiss banking industry were meeting in Geneva, Switzerland. A reporter from Agence France-Presse attended the meeting and documented comments made by the Swiss banking leaders. She observed that the attendees “seethed” at the whistleblower and attacked his “total lack of morality” for blowing the whistle on them. But after expressing their anger, the banking officials expressed their realization that paying whistleblowers would change their behaviors, at least in regard to U.S. accounts. They admitted that Birkenfeld had “driven the nail into the heart of the once seemingly invincible Swiss bank secrecy” system. A respected banking consultant reportedly declared that their U.S. client offshore banking program was “over:”
“Banking secrecy is no longer there. That’s gone. It is over,” international wealth management consultant Osmond Plummer told a gathering of Swiss bankers in Geneva last week.
“Something has to change in Switzerland,” he told the seminar, focused on wealth management and banking secrecy. Still reeling from the decision by US authorities to hand a $104 million reward to former UBS banker Bradley Birkenfeld for blowing the whistle on the Swiss bank and handing over details on thousands of clients in a 2008 tax evasion case, the bankers and wealth managers gathered at the seminar decried their former colleague’s “total lack of morality.”
Similarly, the day after the Birkenfeld award was announced, the publication SwissInfo, reported on the reaction to the award in the Swiss newspapers, and published the following summaries of multiple Swiss press stories:
The Blick tabloid newspaper said . . . it proves how ruthlessly US officials are pursuing tax evaders and how determined they are to dry up tax havens.
Zurich’s Tages-Anzeiger went further, describing it as a “seductive offer for bankers.” “This enormous reward shows how the US are raising the stakes in their tax fight with Switzerland . . . in promising such high compensation, the IRS are hoping that more incriminating material is handed over.”
The French-speaking daily Le Temps agreed that Birkenfeld’s huge reward could encourage other bank employees to follow his example.
These Swiss banking officials said it best. Birkenfeld is a national hero who ended illegal Swiss banking for American taxpayers.
The opinions of the Swiss bankers were supported by the academic research of the Chairman of the IRS Advisory Council, Professor Dennis Ventry. He carefully analyzed the long-term deterrent effect triggered by the IRS’s payment of a $104 million whistleblower reward to Mr. Birkenfeld. Professor Ventry recognized that it was Birkenfeld who provided the evidence that permitted the U.S. government to successfully prosecute UBS bank for allowing thousands of U.S. citizens to evade taxes and open illegal offshore accounts in Switzerland. As explained by Professor Ventry, as of 2015 the U.S. Internal Revenue Service (“IRS”) was able to leverage the Birkenfeld award to achieve remarkable enforcement successes resulting in billions of dollars recovered and tens of thousands of illegal accounts closed:
The “treasure trove of inside information” that Birkenfeld provided U.S. officials formed “the foundation for the UBS debacle and everything that followed.” Indeed, thanks to one of “the biggest whistleblowers of all time,” the U.S. government (take a deep breath) received: $780 million and the names of 250 high-dollar Americans with secret accounts as part of a deferred prosecution agreement (DPA) with UBS; another 4,450 names and accounts of U.S. citizens provided as part of a joint settlement between the U.S. and Swiss governments; more than 120 criminal indictments of U.S. taxpayers and tax advisors; additional indictments against foreign bankers, advisors, and lawyers; still more foreign nationals pleading guilty to conspiring to assist U.S. taxpayers to file false returns and evade U.S. taxes; the closure of prominent Swiss banks—including the oldest private bank—based on their participation in helping U.S. clients evade tax liability; more than $5.5 billion collected from the IRS Offshore Voluntary Disclosure Program (OVDP), with untold tens of billions of dollars still payable due to only a quarter of the 39,000 OVDP cases being closed; program participants ratting out banks as a requirement of their participation; banks themselves disclosing the names and accounts of clients who refuse to participate in the program to avoid their own monetary penalties and to defer or avoid criminal prosecution; and the IRS aggressively going after taxpayers who tried to “stay under the radar” by failing to participate in the program and then “quietly” filing amended returns on foreign bank accounts for prior years. All because one person blew the tax whistle.
As of 2018, more than 56,000 delinquent taxpayers had come forward, and the IRS had collected $11.1 billion in back taxes, while numerous banks were successfully prosecuted or entered into settlement agreements with the U.S. government. The total amount of revenue generated from the U.S. government’s use of whistleblowers in detecting and prosecuting illegal Swiss banking is estimated at $16.19 billion.
Note: Before hiring Kohn, Kohn and Colapinto, Mr. Birkenfeld used another law firm in providing information to the U.S. government. Those actions had a catastrophic impact on Mr. Birkenfeld, as he provided information about tax frauds to Justice Department prosecutors who did not consider him a “whistleblower.” These prosecutors filed charges against Mr. Birkenfeld, and he was sentenced to jail. After pleading guilty to a tax fraud he participated in as a Swiss banker, Mr. Birkenfeld hired the law firm of Kohn, Kohn and Colapinto. His new lawyers correctly filed his IRS whistleblower claim and his case started to turn around. A significant precedent helpful to all whistleblowers was when the IRS determined that “participants” in tax fraud schemes (which would include every Swiss banker who ever opened even one secret bank account for an American) were eligible for IRS whistleblower rewards.
The legal precedent drew a sharp line between “participants” (i.e., insiders often with the best information about a potential fraud) and those who plan and initiate the frauds (i.e., the true King Pins). The determination that “participants” can qualify for whistleblower rewards has been incorporated into the Dodd-Frank Act’s whistleblower reward program. In high-profile white collar crime cases “participants” are usually the most important sources of information, and without their cooperation it is often impossible to detect such crimes, let alone to successfully prosecute the wrongdoers. Now that the precedent was set, “participants” can qualify as a whistleblowers, use the IRS, SEC, or other reward programs, and qualify for rewards. These “participants” should not face the type of prosecution and backlash Birkenfeld confronted when he pioneered tax fraud whistleblowing.
Bradley Birkenfeld wrote a book detailing his whistleblowing at UBS bank. The website for this book and other information on Mr. Birkenfeld is located at https://lucifersbanker.com.