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Informant in UBS Tax Evasion Case Sentenced to 40 Months in Prison
Federal judge does not explain why Bradley Birkenfeld's sentence was tougher than the government's recommendation
Daily Business Review
August 24, 2009
If not for banker Bradley Birkenfeld, "a massive tax fraud scheme" by Switzerland's UBS bank to hide the assets of wealthy Americans from U.S. tax collectors would never have been uncovered, prosecutors told a Fort Lauderdale, Fla., federal judge.
Birkenfeld's attorney said his client is responsible for revamping international banking laws to make it easier to prosecute people who squirrel away money in foreign tax havens.
But it's Birkenfeld who is going to prison.
Not the California real estate mogul who hid $200 million with Birkenfeld's help. And not his boss, who remains a fugitive from U.S. justice in Switzerland.
U.S. District Court Judge William Zloch sentenced the former UBS banker Friday to three years and four months in prison for failing to disclose his UBS client list when he went to the Justice Department in June 2007 with details of widespread tax evasion coordinated by high-level UBS bankers. Prosecutors asked for a 2 1/2-year sentence, and the defense sought probation.
Birkenfeld wouldn't have been prosecuted at all if he had just owned up to his own role in the scheme, prosecutors said.
Zloch also ordered Birkenfeld to pay a $30,000 fine and surrender to start his prison sentence Jan. 8. Zloch did not explain why his sentence was tougher than the government's recommendation.
Birkenfeld provided details on how UBS bankers infiltrated the United States on behalf of Americans looking to hide assets. Switzerland's largest bank used a vast array of foreign foundations, corporations and shell companies in the Caribbean, Latin America and elsewhere to hide the money.
"Without Mr. Birkenfield walking through the door of the U.S. Department of Justice in summer of 2007, I doubt this massive fraud scheme would have been discovered by the United States government," Assistant U.S. Attorney Kevin M. Downing, a tax division prosecutor in Washington, told Zloch.
Downing said Birkenfeld's assistance led to several breakthroughs including a deferred prosecution agreement with UBS that cost the bank a $780 million fine.
But Downing would not excuse Birkenfeld for not owning up to his role in helping UBS clients, particularly one of its largest tax cheats, real estate mogul Olen Olenicoff. Birkenfeld helped Olenicoff hide $200 million and avoid paying $7.2 million in taxes. His 2005 tax return listed a home in Lighthouse Point, Fla. He ended up on probation after paying $53 million to the government.
Downing said the United States can't allow whistleblowers to "put one foot in the door" to protect their own interests. He noted Birkenfeld made it possible for Olenicoff to transfer hidden assets from UBS to a co-defendant, Liechtenstein banker Mario Staggl, who remains a fugitive.
Birkenfeld told Zloch he was willing to tell investigators about UBS' illegal operations but couldn't identify his clients.
"The problem was I was under Swiss law. If I divulged any names, I would go to jail in Switzerland," he said in court.
David Meier, Birkenfeld's Washington attorney, called the case "unusual and extraordinary." He said his client provided the road map for the UBS investigation that is changing the world of international tax law.
"He had the courage to stand up," Meier said.
The tall, balding banker told investigators that UBS took extraordinary measures to avoid a paper trial for its customers, setting up a network of shell companies in banking havens and, in Birkenfeld's case, smuggling diamonds into the United States in a toothpaste tube.
Already an informant, he was arrested last year as he returned to the United States and pleaded guilty to tax conspiracy in June 2008.
Birkenfeld said he was plied with bonuses by UBS but was never told the consequences of his actions. He told Zloch he went to his superiors with concerns about the bank's cross-border practices, but "I realized there was a cover-up by the corporation."
Federal prosecutors have charged a handful of UBS account holders as well as a higher-ranking UBS banker, a former UBS banker and a Swiss attorney.
In a classic carrot-and-stick approach, the IRS is asking U.S. taxpayers with UBS accounts to report their holdings in exchange for limited amnesty while threatening to charge anyone it learns about.
Downing said he anticipates using Birkenfeld as a witness in upcoming UBS-related tax trials and could request a future sentence reduction based on his continued cooperation.
