The Internal Revenue Service (IRS) awarded former banker Bradley Birkenfeld $104 million for his part in providing the federal government information on UBS’ illegal offshore banking schemes. It is the larges reward ever given to an individual whistleblower in the the U.S. Presently, it is estimated that the teax gap–the gap between taxes legally owed and what is actually paid is over 400 billion dollars each year, or $4 trillion a decade. A significant amount of that is sitting on offshore accounts of wealthy individuals engaged in private banking in Switzerland and the Cayman Islands.A neurosurgeon’s son from Brookline, Massachusetts, Birkenfeld, 47, spent 15 year in Swiss banking, including five at Zurich-based UBS, the country’s largest bank. Birkenfeld was one of as many as 60 UBS bankers who crisscrossed the U.S. trolling for rich clients, even though they lacked required SEC licenses, he later told U.S. Senate investigators. They visited art shows, yachting regattas and golf and tennis tournaments, he said.UBS trained bankers to avoid detection by regulators, urging them to carry encrypted laptop computers and falsely state on travel forms that they were entering the country for pleasure, not business, he said. The bank admitted it helped clients circumvent U.S. securities restrictions by referring them to outside advisers who set up sham companies in tax havens such as the British Virgin Islands, Hong Kong and Panama.
He worked at Barclays Plc before joining UBS in 2001. He persuaded his largest client, billionaire real estate developer Igor Olenicoff, to move his assets to UBS from Barclays. Birkenfeld said he sent memos to his superiors about bank compliance flaws before he resigned in October 2005. Five months later, he wrote to Peter Kurer, then UBS’s general counsel, to say top management “actively encouraged” practices “forbidden” by the bank, according to the letter. The bank later reached a severance agreement with Birkenfeld over a disputed bonus, he said.
By 2007, he told his story to U.S. investigators. Prosecutors decided to charge him with a crime because he initially refused to describe his own role in the fraud and didn’t reveal his work with Olenicoff. The billionaire pleaded guilty in December 2007 to filing a false tax return. He got two years of probation and paid $52 million in back taxes and penalties. In early 2008, prosecutors secured an indictment of Birkenfeld from a federal grand jury in Fort Lauderdale, Florida. He was arrested in April 2008 at Boston’s Logan International Airport as he flew from Geneva for a high school reunion and meetings with Senate investigators and the SEC.
He pleaded guilty in June 2008, saying UBS made $200 million a year handling $20 billion in undeclared assets. He said he took customer checks to deposit in European banks and bought diamonds for a client, bringing them to the U.S. in a toothpaste tube. He was sentenced in August 2008. The IRS whistle-blower program — revised by Congress in 2006 to boost tax revenue by giving incentives to tipsters . The program made its first award in 2011, after more than 1,300 tipsters came forward. Just three awards had been paid through June.