UBS Whistle-Blower Gets 40 Month Sentenc

Sat, Aug. 22, 2009


In a surprisingly heavy judgment, Bradley Birkenfeld, the former UBS private banker who blew the whistle on a massive scheme in which the Swiss bank helped wealthy Americans dodge income taxes through secret accounts, was sentenced to 40 months in prison Friday.

Birkenfeld, 44, laid the foundation for the federal government’s most devastating assault ever on Swiss banking secrecy and offshore tax cheats, and his revelations could result in numerous prosecutions of tax cheats.

The sentence is 10 months longer than the prosecution asked for. The defense had sought probation, pointing to the major impact of Birkenfeld’s unprecedented cooperation. Birkenfeld is still helping the government and will remain free until Jan. 8, 2010.

At a hearing in Fort Lauderdale federal court, U.S. District Judge William J. Zloch — a former Notre Dame quarterback known as a tough jurist who hews to sentencing guidelines — also ordered Birkenfeld to serve three years of probation after his jail time. He must also pay a $30,000 fine.

Drawing heavily on details Birkenfeld provided about UBS’ illegal practices in helping U.S. tax cheats, the Internal Revenue Service filed a civil suit seeking to force the bank to turn over information on thousands of unidentified UBS account-holders with secret offshore accounts.

As a result, the U.S. and Swiss governments on Wednesday unveiled an agreement under which the IRS will end up getting details on 4,450 secret accounts through diplomatic channels in exchange for abandoning its aggressive court tactics.

Prosecutors recommended that Birkenfeld get 30 months in prison for his conviction on one count of conspiracy to defraud the government — down from the 60-month maximum sentence he was exposed to — because of his extensive cooperation.

“I’d like to express my regret for my actions,” said Birkenfeld, who wore a gray pinstripe suit, blue shirt, red tie and the beginnings of a goatee and spoke in a solemn Boston accent.

At an hour-long hearing, Kevin M. Downing, an attorney in the Justice Department’s tax division, told the judge that the government would have had no case against UBS, Switzerland’s largest bank, but for Birkenfeld’s extensive and valuable assistance.

Indeed, Birkenfeld likely would never have been prosecuted, Downing said, except for one big misstep: When he initially blew the whistle in 2007, Birkenfeld failed to disclose his own involvement or to mention his most prominent client, Lighthouse Point, Fla., billionaire Igor Olenicoff, who had already attracted scrutiny from the IRS independently of Birkenfeld. That mistake not only led to Birkenfeld’s prosecution, which also makes him ineligible to collect a whistle-blower reward from the IRS.

In February, UBS agreed to pay a $780 million penalty, including $400 million to the IRS. Birkenfeld could have been eligible for up to 30 percent of that as an IRS whistle-blower reward, or $120 million, for that case alone.

Roy Black, a prominent Miami defense lawyer not involved in the case, said he was “shocked” by the sentence. “Here, you have a man who brought down UBS, who assisted the government in getting a $780 million fine. No doubt the government is going to get billions of dollars as a result of his cooperation,” Black said. “This guy has done more for the government than anybody I know of.”

Birkenfeld still has a chance of getting a break: Based on his continued cooperation in coming months, the prosecution can petition the court to further reduce his sentence.

Birkenfeld was one of about 50 UBS private bankers catering to U.S. clients. His special services to rich Americans who wanted to hide money in secret offshore accounts once included slipping through U.S. Customs carrying diamonds stuffed inside a toothpaste tube.

Birkenfeld, holder of an MBA degree whose father is a Boston neurosurgeon, joined the bank in October 2001 after working at several other institutions.

Defense attorney David E. Meier of Todd & Weld said Birkenfeld initially kept mum about his own sins because he had no immunity and was worried about violating bank secrecy laws in Switzerland, where he lived and worked for 15 years.

Meier noted that Birkenfeld was already cooperating extensively with U.S. prosecutors and other U.S. authorities when he was arrested upon arriving in Boston from Switzerland in May 2008.

Birkenfeld had flown to the United States for scheduled meetings with the Securities and Exchange Commission and the U.S. Senate, which he was cooperating with, his court papers say.

Olenicoff, a real-estate developer who is No. 522 on Forbes’ list of the world’s billionaires, eventually pleaded guilty and paid a fine of $53 million in taxes and penalties — but received no prison sentence.

Justice Department attorney Downing told the judge Friday that if prosecutors had the benefit of Birkenfeld’s help in going after Olenicoff in 2007, the wealthy developer would have ended up in jail.

In June 2008, Birkenfeld pleaded guilty to conspiring to help Olenicoff evade $7.2 million in taxes by helping him conceal $200 million and continued his cooperation with authorities. He has remained free on bond, with an electronic ankle bracelet and a curfew.

Based in part on damning information Birkenfeld provided to federal prosecutors, UBS wound up paying the $780 million fine to the United States as part of a deferred prosecution agreement in February that allowed the bank to avoid criminal charges. It agreed to shut down its cross-border business of providing secret bank accounts to wealthy Americans.

The bank also provided the IRS with information on about 250 to 300 U.S. customers with Swiss accounts — information that federal prosecutors say has triggered criminal investigations of more than 150 Americans suspected of illegally concealing income.

Three UBS customers have already pleaded guilty to charges of filing false tax returns and a fourth is set to plead guilty to failing to disclose an offshore bank account.

“His assistance has been enormous, monumental, historic,” said Miami tax attorney Alan L. Weisberg, who is representing clients in making voluntary disclosures.