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22 April 2010 By Stephen
Lendman
On May 14, 2008, New York Times
writer Lynnley Browning headlined, "Ex-Banker from UBS
Is Indicted in Tax Case," saying:
"The one-count conspiracy
indictment, unsealed in federal court, accuses the
former banker, Bradley Birkenfeld, of helping (a
wealthy American real estate developer) evade taxes on
$200 million held in bank accounts in Switzerland and
Liechtenstein."
According to the indictment,
"fictitious trusts and bogus corporations (were
created) to conceal the ownership and control of
offshore assets. They also advised clients to destroy
bank records and helped them file false tax
returns...."
National Whistleblowers Center (NWC)
covers his case on whistleblowers.org, saying:
"Bradley Birkenfeld commenced
serving a three-year and four-month sentence in
federal prison on January 8, 2010, a direct result of
blowing the whistle on one of the largest tax fraud
schemes in US history."
On April 15, he filed an appeal
for clemency.
Interviewed by Steve Kroft on
CBS' 60 Minutes in January 2009, Birkenfeld said he's
the first insider ever to explain the secretive world
of Swiss banking. "It never happened before in
history. I'm the first" to do it. Asked what percent
of American accounts tried to evade taxes, he said
among his own clients, "90%."
Senior bank officials went along
for the profits. As for Birkenfeld, "I gave (the IRS)
the biggest tax fraud case in the world. I exposed
19,000 international criminals (with accounts worth
over $19 billion). And I'm going to jail for that?"
One of his clients was Igor
Olenicoff, a billionaire on the Forbes 400 list with
an estimated $1.7 billion net worth. He cooperated,
paid $52 million in back taxes and fines, and got off
with no jail.
On August 22, 2009, Wall Street
Journal writer Brent Kendall headlined, "Ex-UBS
Banker's Jail Time: 40 Months," saying:
"A key government informant in
the US tax investigation of UBS AG was sentenced
today....for helping the Swiss bank's American clients
cheat on their taxes."
On January 8, 2010, Birkenfeld
voluntarily surrendered to begin serving his
sentence.
On August 18, 2009, the Justice
Department said:
"Defendant Birkenfeld('s)....substantial
assistance has been timely, significant, useful,
truthful, complete and reliable. (Without his help,
the UBS) scheme would not have been discovered by the
US government."
Yet they indicted, convicted, and
imprisoned him.
Background
An international banker employed
by Switzerland's UBS bank, he "blew the whistle on
secret offshore accounts (after discovering in 2005
that) bank managers were encouraging breaches of UBS'
own written policies in helping American clients evade
federal taxes."
Initially, he lodged complaints
with UBS's Legal and Compliance departments. When
ignored, he resigned, came to America, and informed
the Justice Department (DOJ), IRS, SEC, and US
Senate.
Because of his disclosures, UBS'
tax fraud scheme was made public, and billions of
dollars recovered. Birkenfeld's reward - 40 months
hard time in federal prison for confronting a powerful
bank, one of the world's leading financial firms and
second largest European bank.
Thus far, he's the only UBS
employee or client to receive a long prison sentence.
He also spent over 19 months under electronically
monitored home confinement, with curfew and travel
restrictions, prior to incarceration.
Others got minor sentences
(maximum three months), including probation, fines,
and community service. Martin Liechti, head of the
entire UBS program, wasn't charged and returned to
Switzerland a free man.
For his part, the Justice
Department (DOJ) accused Birkenfeld of withholding
information about his largest client, a Russian emigre
and California real estate developer, convicted for
avoiding taxes on $200 million.
Birkenfeld, however, provided
full disclosure to other government agencies that
protected him from criminally violating Swiss bank
secrecy laws. Despite repeated requests, DOJ refused,
instead charged him with a single offense to which he
pled guilty.
US Treasury
Cites Deficiencies in Whistleblower Protections
On August 20, 2009, the
Treasury's Inspector General for Tax Administration
issued a report titled, "Deficiencies Exist in the
Control and Timely Resolution of Whistleblower
Claims," after assessing the IRS' progress in
establishing a Whistleblower Program able potentially
to recover "billions of dollars in taxes, penalties,
and interest based on information provided by
informants."
The 2006 Tax Relief and Health
Care Act amended the IRS Code "to provide increased
awards to individuals for information that leads to
the detection and punishment of persons guilty of
violating, or conspiring to violate, internal revenue
laws." Since the law's passage, tens of billions in
unreported income have been disclosed thanks to
whistleblower-provided information.
However, legal deficiencies need
correcting, including whistleblower protection against
employer retaliation. Unmentioned was immunity from US
agency or foreign government prosecutions.
The Treasury only recommended
legislation "to ensure that informants are protected
against retaliation by their employers and to provide
relief to informants who are retaliated against....IRS
management agreed with all of our recommendations."
Key Facts
Whistleblower.org's Bradley
Birkenfeld Fact Sheet covers the following:
(1) Did he serve the public
interest?
After his disclosures, UBS paid
$780 million in fines and penalties, and agreed to an
IRS amnesty program under which 14,700 clients
admitted to illegal, secret accounts. As a result,
billions of dollars were recovered and the entire
program was shut. According to the New York Daily
News, "Bradley Birkenfeld deserves a statue on Wall
Street, not a prison sentence."
(2) What did Birkenfeld do?
From June 2005, he compiled
internal email and correspondence documentation,
discovered fraud, told his superiors in good faith,
followed bank compliance procedures, and reported his
findings up the chain of command. On May 24, 2006, UBS'
general counsel closed the investigation without
action. As a result, Birkenfeld resigned. UBS insisted
he keep his information secret. He retained counsel
and, in 2007, informed the DOJ, IRS, SEC, and Senate.
Prior to its indictment, DOJ stonewalled him.
(3) The Importance of His
Disclosures
Under Section 15 to Exhibit C of
Deferred Prosecution Agreement, bank officials could
have resolved the matter on their own. Failing to do
so shows the importance of his actions. The IRS, SEC
and Senate wrote letters affirming it.
(4) Does His Participation in
Illegal Activity Disqualify Him?
No, as whistleblower protection
laws apply to everyone making disclosures, even those
guilty of wrongdoing. An old Civil War law was based
on the idea that "setting a rogue to catch a rogue is
the safest and most expeditious way I have discovered
of bringing rogues to justice," according to the law's
leading sponsor, Senator Jacob M. Howard.
Since then, thousands of
whistleblowers have come forward, many of whom
participated in fraud. As far as known, none were
prosecuted. DOJ's action is unprecedented. It also
undermines anti-fraud laws and makes it less likely
others will come forward like Birkenfeld. Along with
the National Whistleblowers Center, 20 anti-corruption
groups back a clemency campaign to free him, including
a presidential pardon or commutation for time served.
(5) Was DOJ Truthful in Arguing
for a Prison Term?
When sentenced, DOJ's prosecutor,
Kevin Downing, said if Birkenfeld had turned in his
former client, Igor Olenicoff, he wouldn't have been
criminally indicted. In fact, prior to being indicted,
he made full disclosure to the Senate Subcommittee on
Investigations, the IRS and SEC, including about
Olenicoff.
(6) Why DOJ's Treatment Is
Unjust
UBS officials got off scot-free.
Guilty bank clients got slaps on the wrist. Birkenfeld
is the only one sentenced to hard time in prison, a
shocking and unprecedented act.
Global Tax
Havens
They're either a nation
(generally small), city, state, or zone, officially
called a "jurisdiction," offering low or no taxes,
and, most often, none on foreign earned income. High
net worth individuals use them to offshore their
wealth or create shell companies, subject to
jurisdiction taxes, but none to their home country.
Their main characteristics
include:
-- no or low taxes on income and
capital;
-- bank and commercial secrecy or
confidentiality;
-- absence of exchange controls
for companies treated as non-residents;
-- the reliance on banking,
providing low or no taxes on non-residents;
-- good infrastructure, including
communications and transportation;
-- accessibility to competent
lawyers, accountants and other advisors; and
-- political and economic
stability.
In 2004, some OECD listed ones
include:
-- Albania
-- Andorra (in the Pyrenees
between France and Catalonia (one of 17 Spanish
Autonomous Communities)
-- Anguilla
-- Antigua and Barbuda
-- Aruba
-- Bahamas
-- Bahrain
-- Belize
-- Bermuda
-- Cayman Islands
-- Costa Rica
-- Cyprus
-- Liechtenstein
-- Luxembourg
-- Montserrat
-- Monaco
-- Samoa
-- Seychelles
-- Saint Lucia and
-- Saint Kitts and Nevis; among
others.
In a 1998 report, the OECD said
tax havens were "expanding at an exponential rate."
However, they're not for
everyone. Much depends on residency status (domicile),
individual circumstances, and, of course, personal
wealth. According to some, they hold over $5 trillion
in high net-worth accounts, free from home country
scrutiny and taxes. A US congressional committee
estimated that private banks manage $15.5 trillion in
assets, much of it hidden offshore. For US residents,
foreign accounts are legal, but must be disclosed on
tax returns. Not doing so is a crime.
Nonetheless, secrecy makes hiding
wealth easy, and according to the Federal Reserve,
establishing and managing offshore accounts has become
big business for major global banks and other
financial institutions - better still because the IRS
does little to locate offshore tax cheats even though
they fully understand the problem. Being rich and
having good advisers are essential to take advantage.
Also an inclination to cheat the tax man and get away
with it, hoping no one like Birkenfeld will blow the
whistle.
Stephen Lendman is a Research
Associate of the Centre for Research on Globalization.
He lives in Chicago and can be reached at
lendmanstephen@sbcglobal.net. Also visit his blog site
at sjlendman.blogspot.com and listen to cutting-edge
discussions with distinguished guests on the
Progressive Radio News Hour on the Progressive Radio
Network Thursdays at 10AM US Central time and
Saturdays and Sundays at noon. All programs are
archived for easy listening.
http://www.progressiveradionetwork.com/the-progressive-news-hour/.
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