A Whistle Blows the Lid Off a Massive Tax Evasion Case

September 19, 2012  |  Class Actions, Whistleblower/Qui Tam

A Whistle Blows the Lid Off a Massive Tax Evasion CaseLast week, what is thought to be the largest whistleblower settlement in history was granted to a former UBS banker and convicted felon who helped the Internal Revenue Service (IRS) uncover a colossal scheme in which the Switzerland-based bank was helping its American clients avoid paying their taxes.

In 2007, 47 year-old Bradley Birkenfield was still living in Switzerland and working for the banking juggernaut, UBS, when he first approached the U.S Justice Department. Birkenfield had information revealing a massive tax fraud scheme within the bank, but he retreated once the government’s lawyers did not grant him immunity from prosecution. Birkenfield then tried to present his information to several other government agencies, but was eventually arrested when he returned from Switzerland to attend his high school reunion in Massachusetts. The Justice Department claimed that he withheld information pertaining to his role in the tax scheme. He has spent the last 31 months in prison while the trial against USB has proceeded.

But Birkenfield did reveal the information he had on his former employer, resulting in a $780 million settlement with UBS. The bank also confessed to helping U.S clients cheat on their taxes. The bank was forced to disclose the identities of almost 5,000 clients suspected of tax evasion. As a result, the IRS has already collected over $5 billion in unpaid taxes from people who took part in USB’s tax scheme.

In a statement, the IRS claimed that Birkenfield was awarded the $104 million because of his exceptional cooperation and for the value of information he provided. The money awarded also serves as an advertisement for whistleblowers throughout the country.  Whistleblowing settlements such as Birkenfield’s are a way for agencies like the IRS to encourage more people to come forward with knowledge of fraudulent behavior within organizations like UBS.

By law, whistleblowers are awarded certain protections by the government for coming forward with information regarding negligent and/or illegal behavior within an organization. Although it would have been inappropriate not to hold Mr. Birkenfield accountable for his role in UBS’s tax fraud scheme, it is also appropriate to reward him for being responsible for uncovering one of the biggest tax fraud cases in U.S history.

The IRS payout program is similar to the compensation awards given by other agencies such as the U.S Securities and Exchange Commission (SEC). It allows for the whistleblower to collect up to 30 percent of the proceeds in a case where the dispute amount is over $2 million dollars. Although Birkenfield didn’t receive the maximum of what he was eligible for, his attorney said he is happy with the decision and will not appeal.

Regardless of Birkenfield’s role in the scheme, his information was essential in obtaining the whopping $780 million settlement with USB. Awards like the one given to Birkenfield are meant to encourage company insiders to come forward with information about corporate negligence. The IRS adopted the “30 percent” rule in 2006 in an attempt to heighten the government agency’s attack on tax fraud. The rule falls in line with similar whistleblowing laws.

Other agencies, such as the newly created Financial Consumer Protection Agency (FCPA) created under the 2010 Dodd-Frank Act, use similar strategies to create incentives for whistleblowers and to promote a more transparent financial system.

Birkenfield is now serving out the nine-month remainder of his sentence under house arrest at his home in New Hampshire. 

Baron and Budd heralds the decision to award Bradley Birkenfield $104 million as a major step in prompting more individuals to speak up and hold companies like UBS accountable for their actions. Baron and Budd is committed to representing individuals who are brave enough to blow the whistle on corporate malpractice and brave enough to take a stand for what is right. 

If you or someone you know has information about corrupt practices within your organization, contact us here.

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