From James Bond movies to today’s political debates, the “Swiss Bank Account” has always held an extreme veil of mystery. The stereotype is that extraordinarily wealthy individuals—often with money that has not been legally acquired—hide their fortunes in secret and inaccessible Swiss bank accounts. While the truth about these bank accounts is often less dramatic than the stereotype, yesterday’s announcements about what is believed to be the largest payment by the Internal Revenue Service (IRS) to a whistleblower did shed some light on the depth of the fraud involving these accounts that does actually (or allegedly) take place.
UBS, one of the largest banks in Switzerland, was accused of using various schemes to encourage American citizens to evade their taxes by opening and using accounts with UBS. Bradley Birkenfeld, a former banker at UBS, gave the IRS valuable insider information that helped them uncover the Swiss bank’s illegal offshore banking scheme. Birkenfeld was called “an unlikely crusader for tax fairness” by the New York Times. He worked for UBS for five years and managed around $20 billion in assets for his American clients. Once he learned that the bank was giving illegal advice to his clients though, he decided to report them to the government. Although he did provide the IRS with information valuable enough to warrant this large payment, Birkenfeld was accused of fraud for withholding information from federal investigators. In 2008, he pleaded guilty to the accusations and served nearly three years in prison. Birkenfeld was released on August 1 of this year.
As a direct result of the information Birkenfeld provided, UBS paid the US government $780 million in 2009 to avoid criminal prosecution. Additionally, the bank agreed to turn over account information for over 4,500 American clients. Because of the bank’s disclosures, more than 14,000 Americans voluntarily joined a tax amnesty program—resulting in the recovery of over $5 billion in unpaid taxes. More individual accounts are still being investigated by the IRS.
In addition to the significant recoveries the IRS has made and is continuing to make as a result of this investigation, yesterday’s announcement marks a large step forward for the IRS Whistleblower Office. The agency has received harsh criticism for its apparent lack of interest in the whistleblower program. Since being revamped in 2006, there have been few publicized cases where the program paid a whistleblower a reward for insider tax fraud information. Hopefully, this announcement is a sign that the IRS’s whistleblower program is making progress and is vigorously pursuing tips provided by whistleblowers.
For more information about tax fraud and how best to report it to the IRS, contact the experienced attorneys at Tycko & Zavareei LLP for a free consultation.
We suggest reading some of the following articles for more about Mr. Birkenfeld and the IRS investigation of UBS: