The key informant in the U.S. tax evasion case against Swiss bank UBS AG faces prison next year, but his harsher-than-expected treatment by the U.S. Justice Department will undermine efforts to expose secretive offshore tax havens, lawyers and whistle-blower advocates say.
Bradley Birkenfeld, a 44-year-old U.S. citizen, has been hailed by his attorneys and prosecutors alike as pivotal to the tax case against UBS
The case centered on UBS's private banking business and on wealthy Americans who used their Swiss accounts to hide money overseas to evade taxes. In August, UBS agreed to turn over 4,450 names of American clients with undisclosed offshore accounts to settle a civil suit by the U.S. government.
By coming forward in the summer of 2007 and volunteering insider information to the Justice Department, Birkenfeld exposed a massive fraud scheme that probably never would have been discovered otherwise, said Kevin Downing, a senior Justice Department trial lawyer who spoke at his sentencing in Fort Lauderdale on August 21.
Despite that praise, Birkenfeld, who pleaded guilty to a single fraud conspiracy count in June 2008 for helping a billionaire hide assets from the Internal Revenue Service, was sentenced to 40 months in prison and ordered to start serving his time no later than January 8.
Justice Department officials, in a claim disputed by Birkenfeld's supporters, said the punishment was meted out because Birkenfeld had initially sought to conceal his personal involvement in tax fraud.
Lawyers and whistle-blower advocates have expressed outrage over the sentence. They said they had expected Birkenfeld to get off with just a fine and probation, given that his voluntary disclosure of UBS practices led the company to settle criminal charges by paying $780 million and promising to name thousands of suspected American tax cheats and exit the U.S. tax-shelter business.
By prosecuting Brad, it is going to greatly harm IRS efforts to encourage future whistle-blowers, said Birkenfeld lawyer Dean Zerbe, former tax counsel for the Senate Finance Committee.
The only people that are benefiting from sending Brad to jail are the Swiss bankers and their clients, he added.
'TERRIBLE MESSAGE' TO WHISTLE-BLOWERS
Zerbe is pressing for Birkenfeld's formal recognition under an IRS whistle-blower program and says his client could still collect millions of dollars for his cooperation from the government.
There is no question that Brad is the most important tax whistle-blower ever, said Zerbe, who helped write a 2006 law that boosted rewards for those giving key information in tax cases involving evasion of $2 million or more.
Birkenfeld's sentencing was originally set for August 15, 2008, but was delayed three times as the Justice Department, citing his cooperation in the UBS investigation, called for more time to advance its ongoing probe.
Zerbe, however, said the Justice Department stopped seeking any information more than a year ago and had left Birkenfeld hanging in legal limbo ever since.
June 10, 2008 is the last time that DOJ asked Birkenfeld any questions regarding UBS, Swiss private banking or his former U.S. clients with UBS, said Zerbe.
The Justice Department has no comment on Birkenfeld or on its dealings with Martin Liechti, a senior UBS executive who was detained in Florida in 2008, spokesman Charles Miller said.
Liechti, who has since left UBS, was identified by Birkenfeld as a mastermind of its offshore banking business in the United States. He was inexplicably set free, despite the crimes he is alleged to have committed on U.S. soil.
Miller would not say whether Liechti or other UBS bankers had been granted immunity.
This sends a terrible message to potential whistle-blowers, said Jesselyn Radack, a former Justice Department lawyer who now works with the Government Accountability Project, a Washington-based whistle-blower advocacy group.
The only person going to jail in this case is the whistle-blower, Radack added, saying the major bad actors in the UBS case had all gone free.
The fact that they would grant someone from Switzerland immunity and not a U.S. citizen who brought them the entire case on a silver platter, tied up with a bow with a cherry on top ... I just don't get it, Radack said.
Highlighting negative fallout from the UBS case, Radack said she knew of at least three potential financial whistle-blowers who had decided against coming forward this month alone, because of what happened to Birkenfeld.
The message being sent to whistle-blowers is stay home and be quiet, she said. If Mr. Birkenfeld had stayed in Switzerland and not given the Department of Justice the keys of the kingdom, he would still be living his life today a free man.
(Editing by Pascal Fletcher and Lisa Von Ahn)